Hello. My name is Megan, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Second Quarter 2025 Financial Results Conference Call. This call is being recorded, and a replay will be made available later today. [Operator Instructions] I would now like to hand the conference call over to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer.

Thank you, Megan. Good day, and welcome, everyone. Thank you for attending the Garrett Motion Second Quarter 2025 Financial Results Conference Call. Before we begin, I would like to mention that today's presentation and earnings press release are available on the IR section of Garrett Motion's website at investors.garrettmotion.com. There, you will also find links to our SEC filings, along with other important information about the company. We note that this presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. These statements, which can be identified by words such as anticipate, intend, plan, believe, expect, may, should or similar expressions, represent management's current expectations and are subject to various risks and uncertainties that could cause our actual results to differ materially from such expectations. These risks and uncertainties include the factors identified in our annual report on Form 10- K and other filings with the Securities and Exchange Commission and include risks related to the automotive industry, competitive landscape and macroeconomic and geopolitical conditions, among others. Please review the disclaimers on Slide 2 of our presentation as the content of our call will be governed by this language. Today's presentation also includes certain non-GAAP measures, which we use to help describe how we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure in the appendix of our presentation and related press release. Finally, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only. With us today are Olivier Rabiller, Garrett's President and Chief Executive Officer; and Sean Deason, Garrett's Senior Vice President and Chief Financial Officer. I will now hand the call over to Olivier.

Thank you, Cyril, and thank you all for joining today's call. I am pleased to report that Garrett delivered another set of very solid financial results in the second quarter, thanks to strong sales performance in a soft environment. Net sales for the first quarter were $913 million, which is flat at constant currency, representing outperformance over the industry in light vehicle turbo sales for both gasoline and diesel applications. In fact, gasoline turbo sales grew by 4% in the quarter, outperforming the industry. Thanks to the team's effort, we've achieved another quarter of solid operating performance. Adjusted EBIT was $124 million, and our adjusted EBIT margin was 13.6%, including 30 basis points of margin rate dilution from tariffs. We also delivered strong adjusted free cash flow of $121 million for the quarter, placing our first half 2025 conversion at 62% of adjusted EBIT, above our stated target. We are also raising our outlook for 2025 to reflect the euro-dollar exchange rate. We will indeed remain alert and ready to take measures to adapt to slowing demand should it become necessary. In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders. During the second quarter, we repurchased $22 million of common stock and paid a $12 million quarterly dividend. Additionally, our Board of Directors has just declared the third quarter dividend payable on the 16th of September 2025. Finally, Garrett was included in the Russell 2000 in the June index reconstitution, reflecting the positive impact of our capital structure transformation and disciplined approach to capital allocation. Let me now move to Slide 4 to share more about Garrett's continued success across our differentiated technologies. I am very happy to share that we were awarded over $1 billion of light…

Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered solid second quarter financial performance. Our net sales were $913 million, driven by favorable foreign currency impacts, tariff recoveries and new gasoline launches and ramp-ups in Europe and North America, partially offset by continued weakness in diesel and aftermarket. We delivered $124 million of adjusted EBIT in the quarter, which equates to a 13.6% margin, a sequential decline resulting from continued unfavorable sales mix, tariff dilution, which was partially offset by favorable foreign currency impacts. Finally, adjusted free cash flow was $121 million, representing a marked increase over the prior quarter as we converted earnings into cash and released working capital, resulting in a free cash flow conversion of 98% for the quarter and 62% for the first half. Moving now to Slide 6. We show our Q2 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $23 million versus the prior year or 3% on a reported basis and flat on a constant currency basis, reflecting favorable foreign currency impacts. We continue to experience strong gasoline growth, outperformed the industry and is driven by continued share of demand gains and new launches. This is partially offset by diesel softness resulting from lower industry production in Europe as well as lower demand for aftermarket applications, primarily in North America. Additionally, we recovered $14 million of tariffs within the quarter. Turning to Slide 7. We show our Q2 adjusted EBIT bridge as compared with the same period last year. Within the quarter, we delivered $124 million of adjusted EBIT, representing a $1 million increase over the same period last year and a margin rate of 13.6%, a 20 basis point…

Thanks, Sean. Turning now to Slide 12. Our strategic priorities remain clear and consistent. We aim to identify and deliver on customer needs by leveraging our capabilities to develop differentiated high-speed and highly efficient technologies. In doing so, we generate robust returns for our shareholders. Let me wrap this up on our final slide, which is next slide. First, we delivered very solid results with an adjusted EBIT of $124 million and adjusted free cash flow of $121 million, with gasoline sales outperforming the industry due to share of demand gains and new product launches. Second, we continued to return capital to our shareholders. This quarter, we paid our second quarterly dividend and completed $52 million in share repurchases in the first half. Overall, we have reduced our share count by 39% since Q1 2023 through our repurchase programs. This quarter, we also secured significant business wins, including awards for over $1 billion in light vehicle turbo program extensions. These wins reinforce our position and provide strong revenue visibility moving forward. In terms of innovation, we are making steady progress on zero-emission technologies. This includes a new proof-of-concept partnership on an E-Powertrain, strong test results for our oil-free E-Cooling solutions and a significant fuel cell program award. Finally, we increased our 2025 outlook to reflect a stronger euro-dollar exchange rate. I am proud to highlight these achievements and the promising start we've had this year. With the strong first half results, it's positioning us very well for the rest of 2025 and beyond. Thank you for your time. And operator, we are now ready for Q&A.

[Operator Instructions] Our first question comes from Hamed Khorsand with BWS Financial.

So my first question was, could you just talk a little bit about this unfavorable sales mix and how you're adjusting the business for such an environment?

Well, that's a very good question, Hamed. What we call unfavorable sales mix is basically driven by 2 things. On the one hand, there is a very positive thing that's happening to us, which is we are growing very fast on the gasoline side. And we are growing very fast on the gasoline side all over the world, whether it's in Asia, Europe and to a lesser extent in North America. So we are very pleased with that. But as you know, the margin rate on gasoline turbocharger is a bit lower than what we have on the rest of the business. But this unfavorable mix is a good thing to us. Where we are seeing, on the other hand, a little bit of softness that is impacting us, that's the second aspect of that mix is more on aftermarket off-highway, and that's basically more in North America, where we have not seen the traction yet on the aftermarket that would reflect demand recovering because usually, the demand is recovering first on aftermarket before it gets into OE. And I think our customers are probably still suffering from the fact that their sales channels have been having a lot of inventory in -- or have built up a lot of inventory for the past few years. So these are the things adjusting the business for us, do we adjust the business with the same recipe as we usually have. We have a high variable cost structure. And therefore, for us, it's working on the fixed cost like we do every year. But more than that, it's adjusting on the variable cost side, and this is something we know how to do very well in the company.

Okay. And my other question was, you ended the quarter with significantly more cash. Any reason why you didn't buy back more stock?

Hamed, this is Sean. Our buyback is not linear. But as I mentioned in my prepared remarks, we're committed to returning 75% or more of cash over time to shareholders. So we believe the buyback is a very important tool to return value to our shareholder base, and we'll continue to do so. But it's not linear.

Our next question comes from Jake Scholl with BNP.

Congrats on the great quarter. I just wanted to ask if you could help us understand some of the drivers of your stronger operating performance in the second half, especially with the volume assumptions roughly unchanged.

Sure. We will continue to benefit from cost control. And I would say the other point I wanted to make is that right now, we've maintained our view -- our prior view. I think the latest S&P estimate might be showing a bit more favorability. So depending upon how the second half works out, more importantly is that could give us an opportunity to trend toward the upper end of our range if we start to see volumes stabilize. But at the moment, we felt it prudent to be a bit more conservative in our guide from a volume and revenue standpoint as the impact of tariff starts to work its way through the system.

Got it. And then just a smaller one, if you could provide an update on the tariff recovery situation. Do you guys still expect to be able to fully recover your tariff costs this year?

Absolutely. We expect that. Not only do we expect, but this is what we've achieved. And obviously, if the situation is changing, we'll adapt to the changing tariff. We have the tools in place. And since we've been recovering everything since the beginning, there should not be a change moving forward.

Our last question comes from Eric Gregg with Four Tree Island Advisory.

And to the Garrett team, just excellent results. Great to see all this communication on multiple levels. Two questions. In terms of these large turbos for backup data center, AI and whatnot, is that -- can you give us a sense of when you think that business or if you think that business will ever get to as much as 10% of revenues? Or I don't want to limit you there, but how big do you think that business can grow? And how substantial do you think it can be for Garrett?

It's a very substantial business. It's a big business for us because it's coming -- when you get into very large turbo, I'm not talking only about the genset one, but more widely all the applications. There are a lot of gensets and there are some marine. A significant part of the revenue once you've established your position is coming from aftermarket, and we love that. We love aftermarket. We have a very strong brand in aftermarket. We have a very strong network of distributors in aftermarket, and that's an additional activity that we would develop with them. Before we get there, obviously, we need to establish our installed base. I'm not saying that it should reach 10% of the activity just on the genset backup power because today, that would be a big number. We would talk about $400 million a year. And I'm not sure that there is any player out there that's doing $400 million a year on the turbo business. I don't even think that the industry is that big to allow that. But it will be in the hundreds of millions of dollars anyway, and that should come within the next 3 to 5 years.

Great. And then the second question is really digging a little bit further on the linearity comments on stock repurchase. It was -- you probably did almost twice as much free cash flow this quarter. You had some of your sponsors who were more active on the sales front. Your valuation is incredibly low. Just -- and you did almost 30% less stock repurchase this quarter. So can you give us a better kind of just sense of how -- it's nonlinear, but why you didn't dig in further this quarter? And do you think you'll be more aggressive throughout the rest of the year?

Like I said, it's not linear, and we had a very busy quarter. But what I would say is we also recognize that we have some dry powder for block trades as well if they happen to come up. But again, I would just reiterate the company's commitment and the Board's commitment to deliver to our capital allocation framework, which is 75% or more of free cash flow to our shareholder base.

This concludes our question-and-answer session.

And this concludes our call.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.