Garrett Motion, Inc. Stock

Hello, and good day, everyone. My name is Alan, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Third 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&A session. I would now like to hand over the call to Cyril Grandjean of Garrett's Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, Alan, and good day, everyone. We appreciate you joining us to review Garrett Motion's Third 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 measures, which we use to help describe how we manage and operate the 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 Rabiller, our President and Chief Executive Officer; and Sean Deason, our Senior Vice President and Chief Financial Officer. With that, I'll turn the call over to Olivier.

Thank you, Cyril, and thank you all for joining us today. We delivered a strong third quarter with organic sales growth, margin expansion and healthy adjusted free cash flow. Net sales were $930 million, up 3% organically as we outperformed light vehicle industry production and grew commercial vehicle and industrial by 23%.

Adjusted EBIT for the quarter was $152 million, which is a margin of 16.3%, supported by favorable product mix and strong year-over-year operating performance. We also converted this into healthy adjusted free cash flow of $136 million.

In addition, we continue to return value to shareholders, repurchasing $57 million of common stock and paying $15 million in dividends. We also repaid $50 million of term loan debt, bringing year-to-date repayments to $100 million. And today, we are announcing that our Board of Directors authorized a new $250 million share repurchase program for 2027.

Finally, we are reaffirming our midpoint outlook as strong operating performance is expected to offset foreign exchange headwinds, mainly in the fourth quarter.

Let me now turn to Slide 4 and discuss our continued progress across differentiated technologies. We made strong progress within the quarter across our differentiated technologies, both in our turbo and in zero-emission technologies. In turbo, we launched a new high-volume E-Turbo with Mercedes.

In addition, we secured multiple light vehicle wins, including for hybrids and programs for both China and China domestic and export. We also won several commercial vehicle programs across all regions and launched a new off-road turbo application for recreational vehicles with Polaris.

In industrial, growth for existing power generation programs further accelerated and exceeds prior expectations. Based on this momentum, we now expect industrial sales to reach $230 million this year and about $300 million in 2027.

In zero-emission technologies, we completed multiple E-Powertrain light vehicle proof-of-concept tests, validating the value of our high-speed architecture. And on the commercial side, we are progressing with testing and industrialization of our heavy-duty applications supporting launch in 2027 for our commercial vehicle E-Powertrain.

Testing of industrial cooling remains on track with launches in 2027. We experienced a strong momentum with a number of customers and secured an industrial E-Cooling compressor award with a new customer, Multistack.

With that, I will now turn the call over to Sean, who will walk you through our financial results and full year outlook.

Thanks, Olivier, and good morning, everyone. Let me begin on Slide 5. As Olivier noted, we delivered another quarter of strong financial performance. Net sales were $930 million, supported by continued growth in commercial vehicle, industrial and aftermarket. Adjusted EBIT was $152 million, which equates to an adjusted EBIT margin of 16.3%, representing both a year-over-year and sequential improvement, primarily from favorable product mix.

Adjusted free cash flow was $136 million, in line with full year expectations, demonstrating a strong earnings to cash conversion of 89%.

Turning to Slide 6. This bridge highlights our Q3 net sales performance by product category compared to the prior year. In the quarter, net sales increased by $28 million year-over-year or 3% on both a reported basis and constant currency basis. This included an unfavorable 3 points of impact from tariff pass-throughs. Once again, we continue to see growing demand for commercial vehicle and industrial applications, resulting in a strong 23% organic growth year-over-year.

As Olivier shared earlier, we expect industrial sales to reach about $300 million in 2027, representing 30% organic growth, primarily from demand for power generation applications.

Turning now to Slide 7. You see our Q3 adjusted EBIT performance compared with the prior year. Adjusted EBIT was $152 million in the quarter, up $19 million and adjusted EBIT margin was 16.3%, representing an increase of 160 basis points year-over-year, including an unfavorable foreign currency impact of 70 basis points. This performance was primarily driven by favorable product mix and a year-over-year operating performance improvement of $13 million in the quarter.

Now turning to Slide 8. You see our adjusted EBIT to adjusted free cash flow bridge. We generated $136 million of adjusted free cash flow in the quarter, reflecting the strong cash generation of the business. Overall, these results are in line with our expectations with lower cash taxes due to the timing of tax refunds.

Moving now to Slide 9. We ended the quarter with $841 million of total liquidity, including $630 million of available capacity under our revolver and $211 million of unrestricted cash. We also made a voluntary early repayment of $50 million on our term loan in October, bringing year-to-date repayments to $100 million, further strengthening the balance sheet.

Our debt is over 95% fixed and swapped into euro, resulting in an all-in cash interest rate of approximately 5.5%, taking into account proceeds from cross-currency swaps. With no near-term debt maturities and a net leverage ratio of 1.66x, down from the prior quarter, we remain in a strong liquidity position.

Turning to Slide 10. In the third quarter, we paid $15 million in dividends and repurchased $57 million of common stock under our $250 million authorization, bringing year-to-date repurchases to $172 million. We continue to return capital to shareholders in line with our capital allocation framework, returning adjusted free cash flow to shareholders over time through dividends and share repurchases, the amount of which can vary based on market conditions and other factors.

As Olivier noted earlier, the Board also declared a fourth quarter dividend of $0.08 per share payable in December and authorized a new $250 million share repurchase plan for 2027.

Turning now to Slide 11. We are reaffirming our midpoint outlook communicated in our Q2 earnings release for all metrics. Operational execution across the business continues to be strong, supporting higher expectations for adjusted EBIT and adjusted free cash flow. However, these improvements are offset by foreign exchange headwinds, primarily in the fourth quarter.

Please now turn to Slide 12, where we show our updated 2026 outlook ranges. We are narrowing our guidance ranges across all measures, implying the following midpoints: net sales of $3.8 billion or 4% growth at constant currency, adjusted EBIT of $580 million, equating to a 15.3% margin and adjusted free cash flow of $430 million, representing a 74% conversion.

Let me now turn the call back to Olivier for his closing remarks.

Thanks, Sean. Let me turn to Slide 13. As we discussed at our Technology and Investor Day in May, Garrett's long-term strategy remains clear. We are leveraging our differentiated technologies and proven execution model to continue driving shareholder value. Now let me wrap up on our final slide. We delivered a strong third quarter with significant year-over-year adjusted EBIT margin expansion and strong adjusted free cash flow. We continue to win across our core portfolio with multiple turbo wins in light and commercial vehicles across all regions.

On the industrial side, sales of existing power generation applications continue to outperform expectations. In zero-emission technologies, we secured another industrial E-Cooling Compressor award with a new customer Multistack, and we continue to make progress towards our Industrial HVAC and E-Powertrain 2027 launch milestones. Overall, despite foreign exchange headwinds, our year-to-date performance and ability to adapt in a still uncertain industry environment gives us confidence to reaffirm our 2026 outlook. Thank you for your time, and we are now ready to take questions.

[Operator Instructions] Our first question today comes from James Mulholland of Deutsche Bank.

So I just wanted to quickly ask on industrial sales. Genset again was particularly strong. So I think it's probably fair to say it's in the long run going to be higher than that $250 million that you outlined at the Analyst Day. But with $300 million in industrial sales next year, how much of that is going to be Genset versus some of these other verticals?

And then have you reset your expectations as to what that component could actually look like over the longer term? Could you get to $500 million more if you get more supply agreements? Just some thoughts on that, if you wouldn't mind?

I think you're asking a very wise question. Indeed, when you look at the $300 million that we are doing in industrial sales today, this is mostly Genset. So to your question, will it be more than $250 million? It is already more than $250 million by next year. So indeed, we'll have to come back and probably come back to you at some point next year to give you a little bit of an updated perspective on that.

Now when we look at the outlook of industrial sales for next year, we'll be in the beginning, the ramp-up for E-Cooling, which is the next major product that we count as part of industrial. And therefore, the impact on revenue compared to Genset in 2027 will just be relatively smaller. But it's true that we're also seeing a lot of traction. As we said today, we are signing a new customer for the cooling compressor. And as I was mentioning, we are getting fantastic traction with a number of players into that industry.

Great. That's helpful. And then I guess touching on those other sort of other contracts within industrials, you have the fairly significant agreements with Trane and Ingersoll and you've never sized them specifically. But I guess to get to those longer-term 2030 goals, do you -- a few more of a similar size, maybe just some smaller contracts? Or just some extra color on that so we could help to gauge your progress towards that?

So first, we are making very good progress towards that. And we are indeed accelerating our launches versus what we had in mind a few months back, especially when it comes to the new sizes that we want to introduce, the larger sizes. You remember what we presented at the Technology and Investor Day, we are having some prototypes of very large E-Cooling compressors. This is really the piece that we are accelerating right now.

I think it's a little bit too early to give you exactly the size, the size of the contracts and everything because even at our customers, that remains in motion right now. I mean this industry is very dynamic. And therefore, it's difficult to size right away those programs. But we are planning to be and we are having the ambition to be a significant player into that field.

Thank you very much, guys.

Today, the feedback we get, I would just add the feedback we get from customers reinforce that view.

Our next question comes from Nathan Jones of Stifel.

I guess following up a little bit, you're making another announcement of an agreement with Multistack here. Chillers are obviously a product that are in pretty high demand right now. I'm wondering if you can provide any more color on the magnitude of this opportunity, when it goes into production for you guys and how that ramps up over the next few years?

So the deal with Multistack will cover a number of different products, meaning a number of different use cases. It starts with the products that we already announced are ramping up from 2027. So we plan to start delivering them next year. It's indeed a customer that we have been working with in the background for quite some time. And what I would say is that indeed, as we mature our relationship with more customers, indeed, we'll keep all the investors informed about those wins.

I would say it's a little bit premature to give you exactly the size of this one more time for the same reason I might answer before. It's a very fluid marketplace. We are getting into a new technology, that new technology will have an adoption curve. We are very optimistic about it, but we need to have all of that, the start of production, the integration into the system and then the market adoption so that we are more precise on the outlook.

Fair enough. I guess the follow-up question to this for me is on the margin side. Obviously, your bridge has a tailwind for 2026 EBIT from a more positive mix as you're seeing faster growth in these new products. That should be structural over the next few years as they continue to grow faster than maybe you previously had planned. Can you talk about the positive impact that will have not just for growth on the top line, but for margin expansion as well?

Sure. Certainly, you're seeing a favorable margin with our existing products set in the big turbos for industrial. That capacity is in place. And for us, we know how to do it. We've done it for many years. That absolutely is very favorable when it comes to mix impact on margin. That will continue as we have a bigger percentage of our sales coming from industrial.

The same can be said for HVAC, as you all know, margins there are also very good. We have a very differentiated product that produces real total cost of ownership results for our customers and their end customers. And we -- as those sales grow, and I believe I said this at Investor Day, certainly post 2030, when we really see it start to ramp, you should start to see some additional margin expansion. If that comes earlier, you should see that, but we also do have to put all the capacity in place to begin that production.

We're also very cautious as to what we invest in. We're not going to be outside of our financial framework. We will be keeping the critical quality -- quality critical processes in-house. And as we step into it, once we start producing at larger volumes, yes, you would see some margin expansion as it becomes a bigger portion of our sales.

Yes, makes sense. I mean one more time, just to reinforce what Sean said, we are very much aligned with the financial framework that we've presented in May, and we have -- and all that growth was part of the framework we presented i term of margin...

The next question comes from Jake Scholl of BNP.

Congrats on the new HVAC award, but I also wanted to circle back on your program with Trane. So you had units in the field doing testing over the summer. So I was wondering if you could share some of what you've learned about the system, about efficiency. And then also if you have a clear idea of what the revenue trajectory will look like after the testing?

So the first thing I would say is that the tests have really confirmed all the expectations we were having in terms of performance versus performance benefit versus existing solutions. So we are extremely pleased with that. Unfortunately, I will tell you a little bit the same is that we are really circling with our customers now to understand how quick we can introduce those products, which application, which of their customers, which of their programs. We have different size of product as well to launch. So all of that is still a little bit in flux, and we'll keep you updated as we progress. But the tests we are really positive. We are very pleased with that.

And then as we all try to model out the ramp curve from here, at what sales level would you guys expect to start to see some material margin uplift from both industrial as a whole and specifically HVAC?

Well, if we were just producing that product, the more we sell the better. But obviously, you've got light vehicle volumes as well that are off slightly, and you've got all those factors. So you're going to have to also model out that mix. If we think that light vehicle -- total light vehicle volumes are going to increase over time. And as we stated before, turbo will increase and we'll continue to -- as a technology penetrating and we continue to win share of demand. We -- I mean, we love turbo across all verticals, and we'll continue to produce it. But certainly, look, the more we start to see sales that drop through and ramp up our lines, the better it is.

You're seeing that already, so.

[Operator Instructions] Our next question comes from Rajat Gupta of JPMorgan.

Good to see the execution here. It shows like the strength of diversity in your exposure. I wanted to maybe just look into 2027 a bit. I appreciate the color on industrial expansion from $230 million to $300 million. Can you give us any present color on how we should expect the rest of the business to perform? Any preliminary view on puts and takes around just the commercial vehicle opportunity? And just any regional light vehicle production-related trends that you're seeing that might go on the outlook? And I have a quick follow-up.

Yes, that's a good point. I'm not sure having a crystal ball that is more accurate than anyone else to predict what will happen to the automotive industry in 2027. First, at Garrett, we are always planning in a way to position our costs in a conservative way so that we can deliver. That's something to keep in mind, and we have the cost structure to do that. But the point is today, when you look at it, we had a lot of variations this year across the regions. I would not say that the situation is stabilized. So we are adapting. So far this year, we are growing and we are really on the right side, which means that if you're growing on the market, it means that you pick up share of demand, which is what we've explained we would do for quite some time.

We have a number of also launches into next year that should help us keep on that trend. But the underlying industry today remains a bit of a question mark. And I hope we get a little bit more clarity before the end of the year, situations in regions like Europe or Asia Are really fluid.

Understood. I mean you're tracking like mid-single-digit organic growth like year-to-date, assuming like a pretty similar overall backdrop, next year? I mean, do you think you can sustain at least mid-single-digit growth given what you're seeing on industrial and just what we're seeing on just like commercial recovery in North America in particular?

Well, what we see is clearly -- and the part that we understand the best, the part that we control the best is indeed industrial because you're less subject to an overall -- the movement of an overall industry right now. Therefore, it's a lot about the ramp-up of the programs and everything else. So this is probably where we're having most -- the highest level of certainty, and that's the reason why today, we said that next year, we should be around $300 million.

For the automotive industry, I think it's just too early and to see the way all of that will play with the mix. You've seen that the mix of our customers, and I think we are not an exception to that is moving in all kinds of directions in Europe and in Asia. So we are highly careful about all that. We are highly careful about the macros. And at this point in time, the focus of the company is to be positioned from a cost standpoint at the right way so that we keep on delivering into next year.

Understood. Maybe just the last one there. Given like some of the recent news around potential for an export quota for vehicles coming into Europe for China, I would assume that, that would be like a good outcome for Garrett, right, given your legacy European exposure and just like the content mix like in some of your China exposure. Just curious like how we should think about the implications of that if those quota do come into place?

I think anything, any news that can stabilize a little bit the situation that I've said before is very fluid and impacting the mix into our customers is welcome. Now I would say that it's a little bit too early to comment on something where we've not seen the details of either the implementation or the magnitude of that quota. We need to understand the way it's impacting our customers. We need to understand the details.

But I would say we are also working with Chinese carmakers that are exporting. We've made a significant stride over the last 2 years, 2, 3 years on that front. So we are working both ways.

Our final question today comes from Hamed Khorsand of BWS Financial.

The first question I had was talking about the Chinese export market. When do you expect to generate sales from there as now you're gaining traction here with the product wins?

Yes. Well, we're already generating sales. We know that our turbos are going on the engines in Chinese vehicles that are being exported today. And as Olivier mentioned, we continue to make progress with business wins. So the more China exports as we continue to win, the more that will become part of our sales.

But I think it's an interesting question. We've been doing a good job, I think, in working with our Chinese customers to identify exports. It's true that when they export, they want to really rely on suppliers that have the reputation and the breadth to support them outside of China. And I think we are well positioned there.

Now the point is that in China, the situation just among the carmakers varies very, very quick in terms of export versus their domestic market, how much they export versus what they do locally. And the life of programs is, I would say, much more dynamic than what we have in the rest of the world. So it can go quick one direction or another. But we are well-positioned.

And my other question was just, can you give a little bit more insights as to what drove the decline in gasoline this past quarter? And is that going to continue? Or how are you seeing that shape out for Q4 and '27?

When you look at it today, for us, it's much more movements that we've seen in Asia and especially in China. And when you look at the way the domestic market has evolved in China, it has been very much down on the domestic. And that's the part that's driving that, quite frankly.

Okay. Thank you.

I would just add to that, that some of that negative is driven by tariff pass-through as well.

Yes, I'm talking about the number of turbos, then Sean give you the color on the revenue. Indeed, we have a negative pass-through of tariffs that's impacting the revenue.

Thank you for joining Garrett's Q3 earnings call. This concludes today's session. You may now disconnect.

Hello. My name is Bailey, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Second Quarter 2026 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. [Operator Instructions]

I would now like to hand over the call to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, Bailey, and good morning, everyone. We appreciate you joining us to review Garrett Motion's Second 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 measures, which we use to help describe how we manage and operate the 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 Rabiller, our President and Chief Executive Officer; and Sean Deason, our Senior Vice President and Chief Financial Officer. Olivier will begin by sharing highlights from another strong quarter, both in terms of financial performance and strategic wins. Sean will then review our second quarter financial results and updated 2026 outlook.

With that, I'll turn the call over to Oliv.

Thank you, Cyril, and thank you all for joining us today. Indeed, I'm very pleased to report another strong quarter driven by growth, solid operating performance and margin expansion. We delivered growth across all of our verticals. Net sales were $976 million, up 7% on a reported basis and 5% at constant currency.

Against the backdrop of lower light vehicle production in the quarter, Garrett's growth reflects continued share of demand gains in light vehicle, recovery in commercial vehicle and increased demand for industrial. So far this year, we sold over $80 million of turbos for industrial applications, and we expect further growth in the second half with a view that is now about $200 million of sales in industrial for the full year.

In the second quarter, we kept on with our disciplined execution and thorough productivity actions, enabling us to deliver strong operating performance, achieving a record adjusted EBIT of $152 million and an adjusted EBIT margin of 15.6%. Along with this operating performance, we generated a healthy adjusted free cash flow of $122 million. And in line with our capital allocation framework, we repurchased $28 million of common stock and paid $15 million in dividend.

In light of our first half performance, we are now raising our outlook, and Sean will take you through all the details later on.

Let me now turn to Slide 4 to discuss Garrett's continued progress across our differentiated technology. We continue to build momentum across our turbo portfolio and secured multiple gasoline awards this quarter, including a large program in North America. During the quarter, we also secured several power generation awards as well as the first award for the Garrett MEG 200 turbo for data center power generation, one of the largest turbo ever made by Garrett.

Turning to zero emission technologies. We also made further progress during the quarter. We kicked off predevelopment activity for our commercial vehicle electric powertrain solution with a Japanese truck manufacturer. And on the passenger vehicle side, our high-speed E-Powertrain continues to generate positive test results and encouraging feedback from OEMs.

Further to our previously announced E-Cooling partnership, we see growing interest across multiple HVAC OEMs for various target applications, and we are now in active dialogue with all of them to support the growing opportunity. The strong progress we are making both on the turbo and the zero-emission applications emphasize the strategy that was presented to all of you during our Technology and Investor Day in May.

With that, I will now turn the call to Sean, who will walk you through the financial results and outlook.

Thanks, Olivier, and good morning, everyone. Let me begin on Slide 5. As Olivier noted, we then have delivered another strong quarter of financial performance. Net sales were $976 million, supported by sequential growth in commercial vehicle, industrial, diesel and aftermarket.

Adjusted EBIT was $152 million, which equates to an adjusted EBIT margin of 15.6%, representing both a year-over-year and a sequential improvement from strong volume conversion and positive operating performance. Adjusted free cash flow was $122 million, in line with expectations, demonstrating continued strong earnings to cash conversion.

Turning now to Slide 6. This bridge highlights our Q2 net sales performance by product category compared with the prior year. In the quarter, net sales increased by $63 million year-over-year or 7% on a reported basis and 5% on a constant currency basis, with growth across all verticals. We continue to benefit from share demand gains in gasoline, strong demand for our light commercial vehicle diesel applications and recovery of aftermarket.

We also continue to see growth in the commercial vehicle and industrial vertical, up 10% in the quarter. This increase is driven by on-highway demand in China and, as Olivier mentioned earlier, growing demand for our industrial turbo applications, primarily in power generation, a trend that we expect to continue.

Turning now to Slide 7, you see our Q2 adjusted EBIT performance compared with the prior year. Adjusted EBIT was $152 million in the quarter, up $28 million, and adjusted EBIT margin was 15.6%, representing an increase of 200 basis points year-over-year, including an unfavorable foreign currency impact of 80 basis points. These improvements are primarily driven by increased volumes across all verticals and a favorable mix from strong growth in commercial vehicle, industrial, and aftermarket. Additionally, operating performance contributed $14 million in the quarter as our productivity measures continue to ramp up.

Turning now to Slide 8, you see our adjusted EBIT to adjusted free cash flow bridge. We generated adjusted free cash flow of $122 million in the quarter, representing a strong adjusted free cash flow conversion of 80%. All bridging items were in line with our expectations.

Turning to Slide 9. We ended the quarter with $788 million of total liquidity, including $630 million of available capacity under our revolver and $158 million of unrestricted cash. We made a voluntary early repayment of $50 million on our term loan during the quarter, further strengthening the balance sheet. With no near-term debt maturities and net leverage of 1.8x, down from the prior quarter, we remain in a strong liquidity position.

Turning to Slide 10. In the second quarter, we paid $15 million of dividends and repurchased $28 million of common stock under our $250 million authorization, bringing year-to-date repurchases to $115 million. We continue to return capital to shareholders in line with our capital allocation framework, returning approximately 75% of adjusted free cash flow to shareholders over time through dividends and share repurchases, the amount of which can vary based on market conditions and other factors. As Olivier noted earlier, the Board declared a third quarter dividend of $0.08 per share payable in September.

Let's now turn to Slide 11, where I'll discuss our 2026 outlook. We are increasing our 2026 outlook across all measures to reflect strong first half performance and a positive mix trend, which we expect to continue. While we have updated the industry outlook to reflect softer light vehicle demand, we expect to continue to benefit from share demand gains and accelerating demand for our commercial vehicle and industrial applications, contributing positively to net sales performance.

Operating performance will continue to contribute to margin improvement through the balance of the year. Our foreign currency assumptions have also been updated to reflect a stronger U.S. dollar to euro exchange rate. At the midpoint, our updated outlook implies net sales for the year of $3.8 billion or 4% growth at constant currency, adjusted EBIT of $580 million, representing a 15.3% margin and adjusted free cash flow of $430 million.

Now turning to Slide 12. This bridge summarizes a full year increase of $20 million in adjusted EBIT versus our prior midpoint outlook, driven by stronger product mix and operating performance and partially offset by unfavorable foreign currency impacts.

Let me now turn the call back to Olivier for closing remarks.

Thank you, Sean. Let me turn to Slide 13, and this is a reminder of what we've shared with all of you in May during our Technology and Investor Day. Garrett's long-term strategy is clear. We are leveraging our differentiated technologies and proven execution model to continue driving shareholder value.

Now let me wrap up on the final slide. First, I'm very pleased with the performance we delivered for the second quarter with growth across all verticals and year-over-year operating performance. We continue to secure awards for our differentiated turbo technologies, including several wins in commercial vehicle and industrial turbochargers. We made further progress in zero-emission technologies and see growing interest across multiple HVAC OEMs for various target applications. We secured our first production award for our centrifugal air compressor technology.

Finally, based on the strong start of the year, we raised our full year outlook, reflecting the strength of our execution and our confidence in the trajectory of the business.

Thank you for your time. And operator, we are now ready to take questions.

[Operator Instructions] Our first question comes from James Mulholland with Deutsche Bank.

I was hoping we could start out on commercial vehicle. We've seen over the last few weeks, several European CV manufacturers are speaking strength in their order books. Volvo and TRATON both raised their order deliveries. So is there a time line that we can expect these improved order books to flow through European Class 8s?

And conversely, off-highway in North America seems relatively stable, but I was wondering if you could update us in a little bit more detail on what you're seeing there for the rest of the year, and then maybe a glimpse into 2027?

Yes. I would say, James, it's a very good question. Let's open up a little bit beyond Europe and the U.S. As you can see, we've seen growth in commercial vehicle in the first half on on-highway. And then I think we've been clear that we see a significant part of that growth coming also from off-highway industrial, and that's mostly coming from the industrial side. So I would say on on-highway in H1, that was not entirely driven by Europe. We've seen that coming up from China. So if Europe now picks up, balances China, I think all that is a good signal for us, and we'll see the way it develops in the second half. That's only one element of the total picture.

When it comes to the growth we experienced indeed, and that's the reason why we are updating on the number on sales in industrial, the growth we experienced, most of it this first half was coming from industrial, which is the bigger turbos, the genset applications and beyond.

And then on off-highway?

Off-highway, quite frankly, we see the same thing as what you've seen on off-highway and off-highway in this stage, in that respect, I need to be a bit more precise. I need to say constructions and agricultural demand. So it's in line with the comment you made.

Okay. Great. And then I guess on light vehicle, you've downgraded your industry outlook for the year, but raised your overall sales. And a lot of that, it sounds like it's coming from share gains. So I was wondering if you could contextualize what you're seeing there for the rest of the year to drive that raise? And is that sort of share gain something we should expect going forward? I think in the past, you've soft guided to 0.5%, 1% a year, but that feels like it's a little bit stronger. So is that just a function of this period given launches and cadence? Or is that something that could be a little bit more lasting going forward in the short term?

No, I would say this is also the result of what the strong performance we did in H1 as well. If you look at it, we [indiscernible], we had a strong performance in H1. And indeed, we are not expecting that performance to collapse in H2. So if you put everything together, it's one of the driver of the raise. We are still extremely prudent about the underlying -- of the macros. The current geopolitical situation, the current macros are not exactly the [indiscernible] that you would expect when you look further for the end of the year. But we felt that we were significantly confident so that we would translate some of the share gains that we've demonstrated in H1 into the performance of H2.

Our next question comes from Jake Scholl with BNP Paribas.

I just wanted to take a closer look at the genset turbo awards you announced. So first, can you talk a little bit about your relative positioning on diesel generators versus natural gas generators? And is there any way to think about the impact of these new awards on next year's revenue? And then also kind of what -- can you just remind us what size of generator is supported by the -- by this largest MEG that you're shipping -- that you're awarding now?

So Jake, this is a good question, that is an interesting technical question, the balance between natural gas and diesel. I would say that traditionally, the company has been quite strong on diesel side, and we've been gaining shares on the gas side for the last few years. It's not like it's a different technology. It's different areas, and we got to develop that. And now we are, I would say, quite competitive on both sides.

When we win a business on those big engines, clearly, even if the time line is getting shorter and shorter because of the demand growing up, if we get significant revenue in 1 year, that's a little bit of a stretch. Usually, it's taking a little bit longer than that. Remember, the cycle time to develop a car is about 3 years and the cycle time to develop an engine is -- although it could be shorter than 3 years, in a year, that could be very, very quick.

So we'll see -- it's not -- this single award will not be a significant contributor to 2027, but it's part of all the trajectory that we have announced. And what we see today, to put that back in perspective, is that the number of awards that we secured already for the last few years is what is generating our performance on industrial today and enabling us to tell you, if last year we said that industrial we were expecting to be at $100 million plus for the year, this year we are telling you already, we see that we have a trajectory towards $200 million for the year, which I think is a little bit ahead of what we even shared with you 2 months ago.

But that's not -- the trajectory is the result of all the applications that you are accumulating over time. I'm very excited about this 200 MEG, but we should not expect that it represents a high share of our revenue next year. We have many other applications at the same time that we've launched already.

That's very helpful. And then for the E-Compressor, can you talk about just the types of opportunities that you guys are pursuing right now? Obviously, you've already secured a few awards in the HVAC space, but your -- the program Ingersoll Rand shows there are applications beyond just cooling?

Well, first in cooling, there is a full spectrum of application, if you remember what we presented in terms of size of the cooling compressors from, I would say, small industrial sites up to the big E-Cooling compressors, even the biggest one that we did not show in May, for the big cooling needs, which those days are around data centers. Cooling is a very strong underlying macros that goes far beyond data center themselves. So that's why we like that field.

But today, clearly, that field is a lot of various applications with different use case. When we get to air compressor, we are indeed pleased we have an innovation process in the company that helps us screen the match of the technology building blocks that we have versus the needs of the different industries. And that's our job, and we do that very often during the year to rechallenge the taxonomy of the different industries to understand how far we can bring those differentiated elements into new verticals, and the air compressor was one of them.

And believe me, there are some others on the table. But we'd like to talk about it once we've committed to that vertical with a clear offering that we can go public with, in the sense that now we put the resources of the company behind it versus and we pull it off the innovation pipeline process into the production process.

Our next question comes from Arjun Gupta with JPMorgan.

This is Rajat Gupta from JPMorgan. Just wanted to follow up on like the -- with the Trane question previously. Previously you've talked about the HVAC opportunity extending to data centers. I think at the Investor Day, you talked about 2028 start of production. Curious if you can give us an update on that and how that's tracking, the testing, compliance, et cetera? And I have a quick follow-up.

We -- That's a very good question. The Investor Day was -- when was it? 8 weeks ago. So believe me, we have not deviated from what we told you at the Investor Day. We are fully committed to bring those technologies to the marketplace. And in the meantime, we had a number of meetings and points with our customers. And as we've said earlier today, we are working with a full scope of customers that go beyond what we've announced so far for very various applications.

So I'm very pleased with the progress we are making. And indeed, we like speed. So anything we can do to anticipate to all of that, we'll do it. But I think we said during the Investor Day that the first production will be 2027, not 2028.

For the data center as well? I thought like the '27 was like -- with Trane was more industrial and not specific to data centers, if you could clarify that?

I would say it's between the end of 2027 for data centers and beginning of 2028.

Understood.

But the first product we'll ship will be in 2027, that's for sure.

Understood. That's helpful. And then just following up on the commercial vehicle, industrial. You flagged in prior quarters, particularly in China, that some of those products maybe start at lower margins. As you think about the next 2 quarters, how should we weigh those dynamics against each other, the growth and traction you're seeing versus the margin profile? Any way to like parse that out as you get more traction and the products start shipping there?

I'm not sure on the commercial vehicle side. The margin is hugely different from China to the rest of the world, that's for sure on the passenger vehicle side. Therefore, if there is a change of mix and dynamics between one region and the other, that would be a small one.

Yes. Just to add that overall, on a volume perspective, again, light vehicle is down. And if you look at our guide, it would indicate that we're going to have slightly lower volumes on light vehicles in the second half, but still expect to outperform the market. I mean we were above where we grew, the light vehicle market shrunk. And in that regard, we do see -- so this -- a lower volume, but an enhanced margin with a better -- a slightly better mix. But overall, our guide is more towards a full year margin of 15.2% to 15.3%, again, being cautious about the macroeconomic overlay as well.

Yes. But specifically to commercial vehicle. I don't think it's making a huge difference between the 2.

That's correct. No. The CV margins tend to be fairly stable across all regions. What does vary a bit is the mix. We're more heavy on off-highway industrial in North America and more heavy on on-highway in Europe and a nice mix in China.

Our next question comes from Nathan Jones with Stifel.

This is Andres Loret de Mola on for Nathan Jones. Can you discuss some of the customers involved in the genset awards? Are they mainly new customers or more wins with existing customers, just to get a better idea of an update there with the genset turbo wins?

So that specific win that we've announced is coming from a customer that has been a customer for a long time, a great customer for a long time and with which we are developing our portfolio. So we have -- today, we have not announced yet, but we are indeed working with new customers that are focused on that size of engines. But the one we've announced is with a long-lasting and growth customer of Garrett.

Appreciate it. Just as a follow-up, regionally, I know you noted wins are more broad-based regionally. Is there any specific areas of -- regionally that you're seeing the most demand for the genset products, just to get a better idea there?

In all fairness, it's coming from all over the world. We are seeing demand -- the need for energy, I think people are making a very quick shortcut between data center and gensets. The need for more energy to support the grid is going beyond the genset needs. If you think about renewable, and if you think about all the weaknesses that you have on the grid in many regions, and therefore, we see that demand coming from everywhere.

Indeed, the demand that comes to us comes from people that are making engines. And you have basically 3 regions that are making engines for the rest of the world today. It's North America, it's Europe and it's Asia. But even in Asia, we are starting to see big engine players putting factories in some regions where they were not present before. So it really starts to be a global demand, quite frankly.

Our next question comes from Hamed Khorsand with BWS Financial.

Just on the commentary you've made about some of the areas in light vehicle being weak, are you being forced to lower prices at all? Or how are you competing to maintain volume?

There is a good thing in our industry that even if we -- even if we were to make a discount on the turbo, we will not sell more, because if a car is made to have one turbo, I cannot put one at the front on the engine and one at the back in the trunk. So it all depends on the capacity of our customers to sell those cars. And I don't see such practice as reducing the price in exchange of more volume short term. That's not the way -- that's usually not the way it works.

Okay. And just given your outlook that you are seeing as far as the -- what would it take for your margins to improve further? Would it just be a stable production outlook? Or is there anything else that could skew it for you?

You are not happy with the progress already? It's a strong progress we made versus the other quarters versus our guidance versus everything. So indeed, I mean -- no, I'm joking. There is something that we are working on. You start to know us and you've been knowing us for quite some time, and we like the way you've been following us. But this company is all about performance. I think we said that, and we keep on saying that again and again.

So we are really working on everything, working on our internal cost, our fixed cost, our material cost and not only the cost, but all the other things also that you have on the P&L. And that's a relentless focus, and we'll never change that. Indeed, we have a variable cost structure, which means that when volumes are coming up, they come up a little bit stronger than we think, the conversion is quite good. And this is what we are experiencing right now.

In all fairness, if we could have a stable macroeconomic environment with a demand that would be having a shape that everybody knows for the next not only quarters, but next 2, 3 years for the automotive industry, which I realize is a dream because it has never been working that way, we would be able probably to push the bar even higher right away.

Great.

Today, we need to recognize that we are not exactly into that situation. So that's why I'm extremely, extremely happy with the performance of the company with the current situation we are in.

At this time, there are no further questions. The Q&A session has now concluded. Thank you for joining Garrett's Q2 earnings call. This concludes today's session.

Good morning, everyone. Welcome to Garrett's Technology and Investor Day. Thank you for coming over today. It's great to see a full house. I am Cyril Grandjean. I will be your host for today. Before we start, please review carefully the disclaimers, which include -- which will govern the presentation today, we will include forward-looking statements and non-GAAP measures.

That being said, let's look at today's presenters. So with us today, we have Garrett's senior leadership team, Olivier, Sean, Craig, Nils, Mark and Eric will walk you through our strategy and growth path for the coming years.

Let's have a quick look into the agenda. So during the first part, the team will go through our -- we'll explain once again our technology differentiation and we'll touch on our different technologies and product portfolio. During the second part or sorry, before the second part, we'll take a 15-minute coffee break downstairs. When we come back, then you will hear Sean and Olivier wrapping up. We will then move to a Q&A. So there will be just one Q&A at the very end of the session.

So please keep all your questions until then. We will then wrap up at around 11:30, and then we invite you to join us for lunch. But even more importantly, we invite you to visit our booth. The team here really did a great job in putting together an exhibition. And this exhibition has countless Garrett products. You can really see the broad portfolio of products we have on [indiscernible] and on display. We have turbos between 1.4 liter and 150 liter. So really the full range.

We also have numerous zero emission technologies, products. So the latest products we've developed and for which we received awards recently. So you can see our E-Cooling solution compared also with incumbent solutions. You will see our E-Powertrain. And you can see the master piece, at least from a logistics perspective, the Hyundai e-Axle. And believe me, it wasn't easy to fit that part into this building. It's 600-kilogram and almost 2-meter wide. So with that, let me hand over to Olivier to go through the great Garrett story.

Good morning, everyone. That's great to be here this morning. That's great to see a number of faces that have been following the company for a long, long time. And a lot of you may ask, why is it that Garrett is organizing an Investor Day? It what looks like, at least in some regions like the turmoil for the automotive industry. Well, we want to give you the perspective of where Garrett is going.

Since the last Investor Day that we did in October 2023, a lot of things have happened. You know that the forecast that we are having at that time for BEV is down. Plug-in hybrids, range-extended vehicles are up, which means more turbo. There is a higher need for power generation, which means more turbos as well.

At the same time, in 2023, we have shared with you a lot of the new products that we were working on. But at that time, it was a lot of mockups, it was a lot of powertrains -- power point, sorry. A lot of drawings. And maybe some of you at the time, say, "Well, are they really going to do that?" So the second reason why we are meeting today is not only because of the macros that are interesting, and we need to update you on that. But because we have very tangible products, and I really invite you to visit the boost to see that. A lot of them are going into production at the beginning of next year. Next year, at this time, we'll be in production with these products.

The last piece and the last reason why we are together is because we've been doing a lot of announcements for the last 6 months to a year. And we felt it was the right opportunity for us to unpack that for you in a cohesive way so that you understand the way all these announcements are building the future of the company.

So with that, let's remind what is the mission of Garrett. Garrett is a technology disruptor. Our game is to work on differentiated technology. We are not there just to be present in automotive, we are just not there to be present just in industrial. We bring solutions to the marketplace that are different and where only a few people can either do what we do or understand what we do. And that's what Garrett is about.

So with that, because you've been waiting for it, let me give you a little bit of the perspective versus what we said in 2023. The picture of the company, you know it. All of that, most of you know what is on the slide. We are working with pretty much all the carmakers, all the engine makers around the world. And we have a deep reputation of technology disruptor, which means they can rely on us when they plan to expand the portfolio. And when we go to them and we say, we want to expand the portfolio, we have an idea to bring whether it's E-Cooling, E-Powertrain, we are credible.

But this you knew it. Maybe information you did not know because we did not unpack it that way so far is that a lot of people consider that we are a pure passenger vehicle company. Today, already 46% of what we do. in this company is outside of the passenger vehicle industry.

So where does it lead us? 6 points we want you to take away from this presentation today. The first one is that this company is set for growth, and I will come back to that. We are planning for a 5% revenue CAGR over the next 5 and 10 years. We are feeding a differentiated portfolio away from turbo. We have already announced in October 2023 that we would be $1 billion outside of turbo by 2030, we confirm that number and now we are setting the path for $2.5 billion by 2035. We are ramping up in zero-emission mobility. As I've said at the beginning, a number of the technologies we'll be talking about today will be in production by 2027. So it's not a dream, it's not a power point, it's real.

We are expanding into industrial, and this was the point of many announcements we've been doing, including last week when we announced our deal with Ingersoll Rand, something that at the time, in 2023, was not as obvious as today. But we are planning to have a revenue on turbo in 2035 that will be higher than 2025. So for maybe some of you, maybe nobody was thinking that we are a melting ice cube, the ice cube doesn't melt that much.

And last but not least, your accustomed to the fact now this company is delivering. When we say something, we deliver and we are set up to deliver. So let's start first with revenue growth. We wanted to highlight a little bit for you what we see as a trajectory for the company versus what was the trajectory 2.5 years ago.

The CAGR, as I've said before, is 5%, in excess of 5% for 2030, 2035. In light gray on the screen, you have where we were in October 2023. So as you can see now, our forecast is higher than that. And the point to consider on the right-hand side is that if today 46% is outside of passenger vehicle. It will be in excess of 50% in 2030 and even growing from that point in 2035.

So yes, we are on the growth path in our core industry that initially was a little bit struggling, we are having the turbo industry that is quite favorable. And on top of that, our growth initiatives are paying off. But as I've introduced, we are a technology company. We are not going to electric because electric is fun. By the way, most of electric is not differentiated today. The battery is raw material. This is not differentiation. So we go for differentiation, whether it's in electric mobility or whether it in the industrial space, differentiation, disruption.

And we do that in a smart way. And Craig, I'm sure will do a fantastic job explaining to you the way we have been developing and combining building blocks in the company that are differentiated to then do differentiated product and bring that to the marketplace in a very efficient way.

Let me pick up just the example there of electric mobility. We talk about E-Powertrain for passenger vehicle, E-Powertrain meaning the full electric model plus the inverter, plus the gearbox for commercial vehicle, E-Cooling compressors and fuel cell compressors. And you have on the vertical side, the technologies, the building blocks that we've been developing in the company and the way we apply them across the product portfolio.

6 launches and counting from there in 2027, and a big ramp-up that will happen between now and after 2030. And by the way, 60% of the revenue will generate on zero-emission technology, will come from something else than passenger vehicle, whether it's commercial vehicle, on-highway, off-highway and industrial applications.

So let's focus a little bit on the industrial side of the business. We've said a few months back that already in 2025, we were doing in excess of $100 million of revenue on industrial, primarily today on turbo for industrial applications. Genset, whether it's for data center or whether it's for all the kinds of power gen systems that you need to support the grid that is struggling more and more.

But it goes further than that. The E-Cooling compressor will get through the detail of the usage, but a lot of usage across data center, building HVAC and recently announced battery energy storage systems. And the one we've announced last week, which is this time not cooling compressor, but air compressor, providing air to manufacturing plants and working on a very interesting product with Ingersoll Rand.

So in excess of $100 million, 2025, growing at double digit, $500 million -- in excess of $500 million by 2030. And then the trajectory from there, Sean will unpack that, $850 million by 2035.

But as we said, turbo stronger for longer. Mark will get through the mechanics of that. But if you combine a lower battery electric vehicle penetration with higher penetration for plug-in hybrids and range-extended electric vehicle.

With the fact that on those vehicles, the percentage of turbo is higher than on pure ICE, combined to the fact that on top of that, there is more technology needed and then ultimately combined with the recovery of the commercial vehicle industry that has been in a trough for quite some time; we expect that the industry, by 2030, will be 9 million more turbos per year than the forecast we had at the end of 2023. And obviously, we expect to take our fair share of that 9 million units.

You know the company for its financials as well. I think, since 2018, we've been able to prove again and again that the setup of the company with a unique variable cost focus, a low CapEx intensity that is specific to us is positioning us to deliver across the cycle in a very strong way. We are proud we like performance, that motivates us every day.

And at the end of the day, a number to keep in mind. Between now and 2030, meaning the next 5 years, will generate in excess of $2 billion of free cash flow. It gives a lot of optionality for us and for you as we return a significant part of that to our shareholders.

Now the story of Garrett is a story of transformation. And this may have been missed a little bit. But since a lot of you have been loyal to the company, have been following us for quite some time. You may remember when we spun off in 2018, when at that time, diesel turbos was the biggest part of the revenue of the company. And God knows some people may have thought at that point in time, "My God, these guys will collapse. It's moving to gasoline, diesel is moving away. There is no way they will sustain the margin, and there is no way they will sustain the revenue in this company."

We've been transforming the company. We've been doing exactly what we told you in 2018. We've become the leader in gasoline turbo charging. We've been leveraging the advance that we are having on variable geometry technology. And the numbers are showing exactly what we said at that time, 30% variable geometry on gasoline in 2025.

We've done all that preserving the revenue of the company and growing it, which means that if you take away the decrease of the diesel industry, and we'll tell you why with Mark, it doesn't matter for us anymore. The underlying growth that we've generated in this company by pushing to gasoline is huge. And we've done all that by investing into new capabilities for Garrett in electrification, supporting all the growth now that will carry the company moving forward. So Garrett is a transformation story. It has been a transformation story until now. And now it's a transformation story moving forward, and we know how to do that.

Now just to wrap up my first part. This is probably the slide I like the most. Think about where we were at the beginning, the top line. And maybe on the top line, we were mostly on the right-hand side. And think now about the field that we have opened to ourselves, where we want to bring differentiation. Once again, we are not doing that to become an industrial business. We are doing that because we want to become an electric business. It's because we found opportunities to differentiate. And a lot of you have heard me saying on conference calls that I am convinced that the speed at which the transformation of the automotive industry has pressure on the company to develop technology. at scale is an opportunity for some players to disrupt outside of the automotive industry.

So this is exactly what we are doing today. And I'm convinced that over the next few minutes, Craig will tell you everything about the way we are driving that. Thank you.

Okay. Good morning, everybody. I hope you will recognize that's a great testimonial from our customers on how they recognize and they value the power of our technology and our innovation.

I'm Craig Balis. I'm the CTO for Garrett. And I'm pleased to be back up on stage after nearly 3 years because we've got a great story to tell you about technology.

In 2023, we've delivered not only everything that we said from 2023, but we've accelerated the rollout of new disruptive products and technologies. Most of you, I think, will recognize our right to play and our right to win in turbocharging, But you may have questions about our ability to succeed in other areas. You may question if we have the technology if we have the know-how, if we have the differentiation to succeed and win in things like industrial E-Cooling.

You may have questions on how we roll out our portfolio so quickly and so rapidly. And you may have questions about how we do it without doubling our R&D investment. And finally, I know some of you have questions, what is our moat? How do we hold back and stay ahead of competition with all of these two -- new technologies? Over the next few minutes, I'm going to try to explain all of those points to you.

Technology differentiation has always been at the core of Garrett's DNA, going all the way back to the start of our business from aerospace in 1955. You've seen it in our mission statement. We focus on technology differentiation that can solve tough problems for our customers in efficiency and emissions and deliver to them unique value. It's always been the engine behind our turbocharger growth, and it will be the engine behind our great future in turbocharging as well.

But we've grown beyond that. We now have additional technology that we've been investing in and developing for more than 15 years. oil-free foil bearings, high-speed electric motors, high-speed power electronics, advanced control software; this is now our portfolio of technologies that's powering the step-change in our portfolio and accelerating the rollout of our new products. not only for the zero emission vehicles but also for the industrial space.

What you would see from our track record is a great track record of innovation. And what you see in the future is we're accelerating that with a step change of rollout of new products. Our customers recognize that. And that's why they turn to Garrett when they're looking for technology leadership.

Our turbocharger business was born from aerospace. A turbocharger is essentially jet engine technology. That's how we started and how we were spun off from aerospace because of that base in technology.

So what do I mean by that? A turbocharger is a high-speed turbo compressor. So what does that mean? Turbo compressor means you have a turbine wheel, connected by a shaft to a compressor wheel spinning very fast. It's spinning very fast because it's pumping air. It's pumping air at high volume and at high pressure ratio.

In the case of an engine, which is the diagram you see on the page, that means we have hot exhaust coming out of the engine, spinning the turbine wheel, which by the shaft is then spinning the compressor wheel. The compressor wheel is pressurizing the air into the engine by a factor of almost 6x.

You squeeze more air into the engine, you can squeeze more fuel into the engine. You put more fuel and more air in the engine, you get more power. And because it's a smaller engine, it's also more efficient. That's what we mean when we say boosting an engine with our technology.

That technology is extremely difficult to master. That turbocharger is spinning at up to 300,000 RPM, 300,000 revolutions per minute. To put that in perspective, when you're driving down the highway, the wheels on your car are spinning at about 1,000 revolutions per minute. So our turbocharger is spending 300x faster than that.

When that turbocharger's spinning, if you look at the outer edge of the compressor wheel, that outer rim is moving at more than 2x the speed of sound. And because it's moving so fast, we have to balance it very precisely. So spinning at 300,000 RPM, our turbochargers make less vibration than the cellphone in your pocket. So a lot of manufacturing technology and know-how in addition to engineering that goes behind to make that happen.

All of these technologies are what power the differentiation in our turbochargers. But those same technologies translate into our new products that we'll show you a bit later. So when we talk about Garrett being based on the jet engine technology, this is what we mean. These technologies are very difficult to master. We have mastered them, and we've not only mastered the technology, but we master them at high volume, scale and production. Very difficult to do and very difficult for others to duplicate what we can do here.

But behind that technology equally important for us and also a differentiator for us is how we've developed that technology. To push the boundaries of that technology we also push the boundaries of the engineering science and the engineering tools. This gives us the tools where we can advance the state of the art of that technology.

What you see on this page are just a few of the tools that we work on. We have a portfolio of more than 50 proprietary design, simulation and AI tools that we use in our design process. To just give you a few examples, we use AI machine learning to optimize the aerodynamics of our compressor wheels. Many of you know that AI, one of the key success factors of anything in the AI is being able to train it, the massive amounts of data that you need to train AI to make it effective. We have decades of design experience, we have mountains of test data. And we have the technical experts who can tune and guide those models, so we can develop and use those models to not only move faster in our design, but to continue to advance the state-of-the-art performance.

Another example I can give you is multiphysics simulation. So what does that mean, multiphysics simulation? When we take those high-speed motors that I'll talk about in a little bit, you need to balance several different physics to make that motor work. Because it's spinning at high speed, it's -- there's a lot of mechanical stress on the motor. Because it's very compact, you need to manage the heating and the cooling of that motor.

And because you're optimizing the performance as you're trying to optimize that mechanical stress and the heating and cooling of the motor, you also need to optimize its electromagnetic performance, how it actually works in terms of converting electricity into motion.

You need to be able to simulate all of those things together to be able to optimize the high-speed motors that we use in our products. So those are just a few examples of the things that are in our toolkit, and it allow us to continue to advance the state of the art in our technology.

These are not capabilities that you can deliver -- that you can develop overnight. These tools, this library of more than 50 tools that we have are based on decades of designs that we have in our library. They're based on hundreds of design standards, proprietary design standards that we have internally. They're based on terabytes of proprietary data that we have, and they are tuned and guided by the expert know-how that we have in our specialists.

When you put all of that together, it's a differentiator for Garrett and it's something that's very difficult for somebody else to duplicate and catch up.

We are the leader in turbo, but not only in terms of the size of our business, but in the portfolio that we have in terms of our products and our technologies. And that portfolio gives us a unique advantage when we are looking to expand our range of turbochargers and our range of technology.

I talked to you about the technology that's in our turbocharger, the turbo compressor technology that's inside. And I've explained to you some of the design tools that we use to advance the state of the art. We couple those two things together with our unmatched portfolio breadth, and it gives us a multiplier power that allows us to rapidly expand our turbocharger range and the technology in our turbochargers.

So what do I mean by that, When I say that unmatched portfolio and giving us multiplier power? We have, in our library, thousands of designs of compressor wheels and turbine wheels. We have in our library, hundreds of designs of shaft and bearing systems. We have in our library hundreds of materials in our material database. So we can reach into that and use that to expand our portfolio.

If you look at a product like our MEG turbocharger, if you started from zero, if you started from scratch; it would take you 5 years or more to develop that turbocharger and the line of turbos for that. In our case, we were able to start from the day we started to the day we had prototypes on the test stands at customers in 12 months.

And it's not only the cycle time that was fast, the performance we delivered significantly outperformed the incumbent supplier on that engine. So we could move fast and we could bring differentiated technology.

How did we do that? Well, it's in the tools that I was explaining to you in the prior page. So in the case of that MEG turbocharger, I mentioned to you, we have AI machine learning tools for compressor aerodynamic design. We took those tools, we took that database of thousands of our compressor wheels, and we could scale it up because the MEG is a bigger turbo, so we could use those tools to scale up the compressor wheel. And then we could use those tools to tune the compressor wheel to give the right performance for the kind of engines that our MEG turbocharger is used on.

We did the same with the turbine wheel. We did the same with the shaft system and all the rest of the turbochargers. With that, we've been able to move very quickly. You've seen us do it, and you heard Olivier talk about it, our pivot to gasoline, our leadership in gasoline VNT and now with our MEG turbocharger. This is a unique advantage for Garrett that comes from the breadth of our portfolio and the decades of experience that we have.

But our technology goes beyond turbo compressors. Turbo compressor is a foundation for everything we do. But over the last 15 years, we've been investing in 4 other technology pillars that you see on this page. These have all been developed organically at Garrett. They've been developed organically at Garrett because we looked outside when we looked for high-speed motors, when we look for foil bearing, oilless foil bearings; we could not find them.

Nobody had the technology that was at the performance level we needed to scale at the level we needed for our business. So we had to invent them. We've been doing that for 15 years. These technologies have been developed, put into production and industrialized at high-volume scale already by Garrett. Our oil-free foil bearings, we're the first to take that technology and put it in high-volume mobility scale. Oil-free foil bearing is -- means when your shaft is spinning, instead of spinning on a cushion of our film of oil, it's spinning literally flying on a cushion of air. That's the technology existed in aerospace, we took it and we took it, reengineered it and developed it at mobility scale.

High-speed electric motors, you know in automotive companies, are doing motors, but a typical automotive motor is running at less than 20,000 RPM. We are running at 200,000 RPM, 10x faster. To drive such a fast motor, we mean high-speed power electronics. To control such high-speed power electronics, we need advanced control software. None of those things existed, and we had to invent all of those for our technology.

These technologies are -- these technology pillars are the basis of all of our products in our portfolio expansion. They are the key to our differentiation and there are also areas that are very difficult to replicate. You may find some companies that are trying to do some of these things. At Garrett, we do all of these things. We've proven all of these things. We put them on production, we've industrialized all of them at scale and we do all of that together. That's what makes Garrett unique.

We leverage those 5 technology pillars to drive the technology differentiation inside our products. You're going to hear more about that from Nils in his presentation speaking about our new products. Those technologies are allowing us to drive products that have higher power, lighter weight, smaller size and better efficiency.

But those technology pillars also have another benefit for us because we are reusing them across our products, we can leverage them to accelerate the expansion of our portfolio. And I can show you how that looks on this page. You see the technology pillars, you see different products. These products have very different applications. Fuel cell compressor pushing the air into a hydrogen fuel cell, industrial air compressor providing the hot, clean, high-pressure air to a factory, industrial E-Cooling, compressing the refrigerant in an HVAC system.

Very different use cases, very different applications. However, they're all built up of the same technology pillars. That means we've been able to take what we've developed and proven in our fuel cell compressor and use it to rapidly expand our portfolio.

When you saw in the introduction, we talked about our business expanding from motion to power to cooling. I think you see it very well demonstrated on this page how that works and how we're able to do that with our technology.

Some of you have asked me, what is our credibility to move into space like industrial E-Cooling? Do we have the technology? Are we able to differentiate? Well, the answer is in how we built up the technology inside those products. We are using technology building blocks that have been developed and proven in our other products to do that. For example, we have a common software platform that we use across all of our products. It's been developed first in our E-Boosting product line, but we use that same software platform inside our E-Powertrain and we are using that same software platform inside our industrial E-Cooling compressor.

Oilless foil bearings. I spoke about that. We've developed that technology. We put it in production, and we've proven it out in our fuel cell compressors. We produced and put in the field thousands of oilless foil bearings. We have hundreds of trucks running on the road, demonstrating the performance and the durability of our foil bearings. That provides the platform of the oil is technology we need for our E-Cooling compressor. And our E-Powertrain, which is starting production next year, has provided the high-speed motor and the power electronics that power that machine.

Using these building blocks is how we've been able to move with high credibility and with disruptive technology into industrial E-Cooling. It won't surprise you that I'm talking regularly to experts in this new field. It's part of my job, and most of us are mostly doing the same.

What you might -- what might surprise you is some of the things that they've told me. Several people in the industry have said, we know what Garrett can do, we know the technology you have at Garrett. They know our technology pillars. And they said it was only a matter of time before we would enter this space. And now you can see why.

To deliver all of these products and technology, we have successfully transformed our R&D organization. We now have more than 500 engineers working on these electrical products. And as we've built up that organization, we've balanced it very carefully because we want to keep our culture of technology differentiation. So we've complemented external hires with also internal transfers and reskilling of our people.

Now you might expect to develop all of those technologies, we would have to double our R&D. But we've transformed not only the technology that we develop, but we've transformed how we develop that technology. If you take a look at the turbocharger industry over the last years, it's become much more efficient. And it's become more efficient because of the engine consolidation that's happening at our customers.

What do I mean by that? I mean our customers have fewer variants of engines to support the same production value. Years ago, a high-volume program at a customer, maybe 200,000 engines a year of a specific variant. Now it's often more than 1 million. So that means they're putting more volume on fewer variants. Fewer variants of engines means fewer variants of turbos, Our turbocharger R&D scales with the number of turbocharger variants. So we can now support a bigger turbocharger business with fewer variants and therefore, fewer R&D while we still continue to extend our technology and portfolio in turbocharging.

Some of the tools I talked about earlier give us not only -- not only allow us to push the boundaries of technology, but they also give us benefits in cycle time and engineering effort. We can move faster with fewer resources to develop our products. and the reuse of those technology pillars that I talked about also drives efficiency in how we do the engineering development.

So when you put all of those things together, you end up with 3 results. First, we are able to spend less R&D on turbo while continuing to extend our technology leadership in our portfolio in turbo. Secondly, we are able to fully fund all of the new products for 0 emission and industrial applications. And third, we are able to do that by keeping our R&D efficient at less than 5% of revenue. So I've tried to explain to you how we are driving transformation in the technology and how we develop that technology at Garrett.

Next, Nils and Mark will show you how that transformation is driving the growth of our business. I'll hand it over to Nils now.

Well, good morning, everyone. Now that Craig has introduced to you our unique technology pillars. Let's talk about our products and how we leverage these technology pillars into our unique differentiated and, in many ways, disruptive product portfolio. I will start today by introducing you to our differentiated portfolio for the zero-emission vehicle space. Then I'll guide you through in many ways, disruptive product portfolio for the industrial space and then hand it over to Mark, who will talk to you about our turbo business and why we are so confident that turbo is not only there for longer but will also be stronger for Garrett.

With this, let's jump into our 0 emission vehicle portfolio. This comprises our high-speed E-Powertrain, our fuel cell air compressors and our E-Cooling compressors for mobility. If you look at Garrett, we are all about technical differentiation. We strive to solve technology challenges with differentiated solutions that provide unique customer value that customers are willing to pay for. And that's exactly what we are doing with our 0 emission product portfolio.

We have been able, since we have met here last time, which is roughly 3 years ago, not only to bring about the products that we had committed to deliver them in terms of designing them and making them real and you see them downstairs. We've also been relentlessly working to convince global customers. we have convinced multiple customers in the passenger vehicle and commercial vehicle space of the value of our product and succeeded to win multiple production awards for our full zero-emission vehicle portfolio, putting us into production in 2027 with all our products.

What's more and particularly exciting for me to share today, we are accelerating. We are seeing more and more customers that understand the value of our product and designing them into the next generation of their vehicles. So not only do we see us on the path to our ambition for 2030 that Olivier was mentioning, we see further acceleration propelling us to more than $2 billion of sales with these products by 2035. Let's look at them in more depth. And what you'll find is our portfolio covers the full mobility space. We can do passenger vehicles, we can do CV. We focus on the higher power needs, higher-end applications. Now let's start looking at our first product, our high-speed E-Powertrain.

You've heard Craig talking about our technology. We are uniquely able to control very high-speed rotary machines. That's exactly what we are applying in our high-speed E-Powertrain. We are applying an e-motor that's spins twice as fast as the industry average. Now what that does, most importantly, provides much more power and a much smaller E-Powertrain package. What's more? It is a product that needs significantly less material content and existing solutions you need significantly less copper, less aluminum, less magnets and less rare earth materials in our E-Powertrain technology, which, as you can imagine, is a big deal in the current geopolitical environment.

What's more, if you're reducing material content by 30%, you are reducing the cost of your product significantly versus mainstream product. That's exactly the benefits of our product that are making us successful and that are bringing more and more OEMs to us mentioning to us that high-speed E-Powertrains are the superior E-Powertrain technology. Now let's look at commercial vehicles. And that is a general rule that I want to give you today, the higher the power needs of an application, the bigger the benefit of Garrett's high-speed technology.

Now obviously, a Class 8 truck needs a lot of power. So that's where we fit and strive the most. What you'll find is that we have unique ability to improve the energy efficiency while reducing the weight of the e-beam, you see it downstairs, which enables us to improve the total cost of ownership of a vehicle. And that's the big value we bring for the commercial vehicle space. As you know, total cost of ownership is the key buying criteria for operators of commercial vehicles, and we help the OEMs to get there, which explains the excitement that we are seeing from this industry for our commercial vehicle E-Powertrain. We have scored already 2 production awards, both starting next year with many more to come.

Let me quickly talk about our partner Hyundai Axel. Hyundai Axel is part of one of the largest industrial conglomerates in China. This conglomerate owns globally leading commercial vehicle players like Sinotruck, or Shaanxi. And Hyundai Axle already today is by far the largest commercial vehicle axle maker in China, in Asia, and they are quickly expanding well beyond Asia. So we have a very, very strong partner here. We are very proud of this award and that sets us up for very strong growth in the commercial vehicle space with our E-Powertrain product.

Let's move to our next product, the fuel cell air compressor. As you know, this was our first product for the zero-emission vehicle space. We, as Garrett have built the broadest portfolio in the industry. We have shown that we can produce the most efficient and best performing fuel cell compressors. And we are set up with our portfolio to benefit from this industry as it takes off. As you see, there is still interest for fuel cell technology, especially if you look into Asia or into the commercial vehicle space.

But what is more important here for today, it provides us with a fundamental basis, experience and credibility for compression technologies way beyond fuel cell. This is the springboard we are using to venture into mobility cooling compressors and HVAC cooling compressors.

Let's talk about our mobility cooling compressor. If you're looking at our e-mobility cooling compressor, what you'll find is a centrifugal machine, which is entirely oil-free, leveraging our unique foil bearing technology. What that does is it provides twice the cooling power of currently existing scroll technologies that is applied in the automotive industry. And it does this with 10% higher energy efficiency and less noise.

Let's look at a commercial vehicle example to explain why this matters. The commercial vehicle, as you know, has a very large battery, if you want to go electric. The issue with these batteries is they are heating up if you're trying to fast charge them or if you're trying to pull out a lot of energy because you need the power of your Class 8 truck. That's something where you need cooling. You don't want that battery to get too hot.

Think about it. You're the driver of Class 8 truck going up the hill. You don't want to be in a situation where you don't get the power of your battery and your electric motor because your battery is too hot. And similarly, you don't want to be the driver who is pulling in to fast charge your battery and then all of a sudden, you cannot fast charge because the battery is too hot. That's where we come in. Current scroll compressor technology does not provide enough cooling power for these applications. That's where we remember twice the cooling power as Garrett come in, we solve this issue for commercial vehicles with our technology, and we do this even with more energy efficiency, so saving energy costs and improving total cost of ownership for these vehicles. So that's really where the value of our technology comes from and why we are seeing so much interest. And what you'll find here, we are also here with awards. One of them is our partnership with CLING, where we will start in next year, equip the buses of Yutong Bus which is the global industry leader for buses with our cooling compressors.

With this, I hope you share the excitement that we have for these differentiated products that we have for the mobility space with -- and I would close here this section, but come to an equally exciting section talking about our disruptive products for the industrial space.

So talking about the industrial products. And important here to say industrial is not a new business for Garrett. We've been in this business with our industrial tools for a long time. These industrial turbos, as you know, go into industrial engines and gensets but also into maritime applications. We are adding to this now our breakthrough centrifugal cooling compressor that I'll talk about. And as Olivier mentioned, we announced last week the launch of our breakthrough air compressors for industrial use that I'll also cover more.

If you look today at Garrett, we are already selling or sold in 2025 more than $100 million worth of product into the industrial space with our turbos. And we are, as I'll explain to you, very well positioned to benefit from the strong growth that is projected for the foreseeable future in that space. think about all the gensets that will be needed for AI, but also primary power and other applications.

This growth starting next year, will be complemented by the launch of our HVAC compressors and our industrial cooling compressors. That is setting Garrett up for major growth with highly attractive business for the years to come. As Olivier mentioned, we are seeing $500 million plus in revenue in the industrial vertical by 2030 with further growth beyond projecting $850 million worth of revenues by 2035 as more and more customers will start adapting our new technologies.

Let's look into our product portfolio, starting with the industrial turbo. And there, if you think about Garrett, Garrett is the industry leader for turbo. You heard Craig explaining you a lot about the different models, the simulation capabilities and the design capabilities that our company has for turbos. It's that capability that allows us to produce the most -- the best performing and most efficient tools of the industry. And it's the very same capability that we are bringing to the industrial turbo space.

Our turbos allow industrial engine makers to produce better performing, more fuel-efficient engines. And that has allowed us over the years to position with a lot of the key players in the genset industry, you find some of the names here on the slide, there are many more that we are working with. And as you know, there will be strong growth for these gensets. You have the AI emergence with a lot of power needs for primary and backup power, but you also have increasing needs from critical infrastructure or even manufacturing sites that want to have uninterrupted power supply and are installing more and more of these backup power units.

So there is a lot for Garrett to come with this business. But there is more. We are extremely excited about this product. Our industrial HVAC cooling compressor, which is a centrifugal, completely oil-free machine, using our oil-bearing technology.

It's actually an interesting story. We started originally, as you remember, 2.5 years ago, with cooling compressors more geared towards the automotive industry. We had the leaders of the HVAC industry coming quickly after we started with this to Garrett asking us if we could expand our product offering to also cover the HVAC industry. We looked at it and we saw the fit and the value of our technology also in this space.

So today, we have designed this product. We have it in our hands. And we firmly believe that with this technology, we at Garrett have the opportunity to set a new industry standard for HVAC compressors. You have a product which is 10% and more energy efficient compared to existing solutions. Put that in perspective, you're talking when you think about HVAC about a rather mature industry, where it's all about energy efficiency, but they are typically scrambling for 0.5%, 1% energy efficiency. They are moving now to Garrett off the batch. They get 10% energy efficiency lift. That's huge.

What's more? We have the foil bearing technology. So we are inherently oil-free. There is no costly maintenance. There, is no performance degradation over time. There is clearly also a start-up advantage of our technology that I'll talk about. So there is a lot of value in that technology, and we can produce it, as Craig mentioned, with the scale, cost, quality of automotive. And as we've been producing these foil bearings for over a decade now with our fuel cells, we have the credibility with the customers to go there.

Now we originally started with our initial partner Trane Technologies, focusing a bit more on the heat pumps and so-called rooftop units within the HVAC space, thinking also about chillers. Since then, we have spoken and learned much more. We spoke to the key players of the industry, and we are seeing that our technology universally applies across different applications in the HVAC space. We can go to lower cooling powers, as, for example, needed in computer room air conditioning units, so-called CRACs, where we are working actively with customers.

We have announced the other week that we are working on battery energy storage units with our partner, Yutong. So think about battery energy storage as one of these large containers with a lot of batteries to store energy access from renewable production, solar, wind and so on. We are working with Yutong, which is the global leader in that space and will start production next year.

But we've also seen that we can go much further up in terms of the cooling power. You might have seen downstairs our IRC 68 cooling compressor. It's already a big compressor. We can go much bigger than that. And that enables us to enter the space for large chillers as required in hyperscale data center cooling, and we are actively working on that also with multiple customers. There is truly a huge demand and momentum for this technology. We've been asked a lot of questions about, "Okay, Garrett, but how does that really compare to existing technology?" So here a slide where I want to guide you a bit through that. What you find today in the HVAC space is mostly 2 compressor technologies. You find so-called scroll compressors, which are typically used for lower cooling power needs. And then you find for the higher cooling power needs, the so-called MAC bearing-based centrifugal compressors.

Compared to both technologies, we have that energy efficiency advantage, which by itself is a huge advantage. However, there is more. We have that unique foil bearing. We are oil-free. We have no maintenance fees we are much simpler to integrate into an HVAC system, saving the HVAC players money and time on their engineering side. We are less noisy. So there is really a lot of value of that technology when you compare it with existing technologies.

And that's why all the key HVAC players in the industry are coming to Garrett and want to work with us and put that product into their portfolio. So I hope you share the excitement that we have on this product and see why this has the opportunity to set a new industry standard.

Let's come to our latest addition in that space. which is our industrial air compressor. Now this one took a slightly different route. We have a very stringent and clear innovation process in our company. We have an incubation team that looks at the different opportunities we might have with our technology. We go through very clear stage gates in terms of what is the industry size? What's the size of the price? Could we fit with our technology? Can we differentiate enough and bring the value that we want to see? And does the business case for that technology hold?

On this technology, we checked all the boxes. Our team had come to us telling us they believe they can reconfigurate our fuel cell air compressor to a superior solution for industrial air compression, and we went through the processes, we checked the boxes. We gave a small budget to our team and said, "Go ahead, build a prototype." We took that prototype and put it in one of our plants, and we're blown away by the results. Very, very high energy efficiency good durability.

We took that test data and that experience and brought it to the industry leaders, and that brought us to last week's announcement with Ingersoll Rand that wants to apply that technology across their portfolio.

Now let's talk a bit about air compression and what it really means. Air compressors are used across manufacturing and process industries. Think about industries like life sciences, think about pharma, food and beverage, all these industry use the air compression for a multitude of applications. We've brought here one of the many examples that you find, which are so-called air knives. So what you're doing here is you're using compressed air to clean and try products that you are manufacturing or processing in your plant.

Think about pills being processed like this. Think about food being processed like this. Inherently, the advantage of our technology is we are oil free, so we can provide completely oil-free air for such compressors, which is an inherent benefit. If you think about pharma, food and beverage, you want that inherently clean air.

And very important, we do this much more energy efficiently than current technology. It's not so commonly known, but 10% to 30% of the energy bill of an average manufacturing plant are used for air compression. We are saving 20% of that energy bill for the manufacturing setup. That's huge benefit. And that's the value we see in this technology and that our partner, Ingersoll Rand saw in that technology and why they are rolling it out. What's more? We also see this as a testimony for the optionality within our technology portfolio. We believe there is much more we can do with our compression technology and our technology building blocks. And that's where our stringent innovation and incubation process comes in. I can assure you we are working on multiple additional venues, but we will make sure that whatever we focus on are the right topics, which create the highest shareholder value.

And with this, I would close the industrial section. I hope you share the excitement that we have towards this business, which really has the opportunity not only to bring a lot of growth but also transformation for us.

And I would hand it over at this point to Mark, who will talk about our turbo business and why we see much more revenue for longer from that business.

Good morning. It's great to hear the customers talk about how we solve their problems. I'm responsible for the turbo business at Garrett, the backbone of Garrett. Over the next few minutes, I'm going to speak to you not just about the resilience of the turbo industry, but the growth story that we see for turbo.

Turbo covers a broad range of applications. It's used everywhere internal combustions are used, engines are used from small passenger vehicles to large commercial trucks, tractors, to big industrial generators. Turbo brings more power better fuel efficiency and helps lower emissions. Olivier already pointed out to you that for us, we're not just the #1 player. But in 2035, we see the turbo business for Garrett bigger than it was last year. Let me unpack that a little bit for you.

Back in 2023, when we forecasted the turbo business, we still forecasted growth. But if you look in the middle for 2030, we now see a higher growth than we did 3 years ago. A part of that is driven by the macros that Olivier highlighted, where we see more hybrids, battery electric vehicles are not growing as fast as once anticipated. And there are more hybrids and passenger vehicles. on those hybrids are turbocharged.

We also see growth on commercial vehicle. Olivier mentioned to you that when we look at our business today, We are a little more than 50% passenger vehicle, but commercial vehicle, industrial and aftermarket. Those businesses are growing. And by 2030, those businesses will be more than 50% of our revenue, creating the long-term resilience that's going to position us for growth all the way to 2035.

I'll go into those macros just a little more. Olivier mentioned to you, we see 9 million more turbos on the industry by 2030 compared to what we said in 2023. A big portion of that is coming from the reduced outlook on battery electric vehicle growth. We now see that growth replaced by hybrids. Those hybrids are turbocharged, and we see more turbocharge hybrids than we did 3 years ago. And we see higher technology, more VNT technology on those turbocharged hybrid engines.

On the commercial vehicle space, we are at a cyclical low rate now. but the demand for infrastructure and the rising demand for energy, particularly on data centers is driving continued growth on commercial vehicle out to 2030. So we've got very favorable macro conditions for Garrett. When we look at our portfolio, we cover this wide range of applications, but we don't cover them with one technology, we're solving customer problems, and those applications have different needs. Could be power, could be fuel efficiency, could be lower emissions, could be a combination of all of them. and they require different technologies in our portfolio to address them, and we've been investing in just that.

When we look at Garrett, we have the broadest turbo technology portfolio in the industry. We continue to invest in expanding that portfolio. You've seen the MEG downstairs, but we also continue to invest in deepening the technology within that portfolio. In 2022, we launched the E-Turbo. On this application, it was -- E-Turbo is basically a motor on a turbocharger and that motor helps the turbocharger accelerate faster, but it can also recover energy and put it back into the electrical system on a hybrid.

This year, we launched an E-Compressor. It may sound simpler. It's just a motor with a compressor, but it can be used in conjunction with the turbo like the example you see on the right-hand side with Mercedes Benz on S class using an E-Compressor on this engine enables faster throttle response, which improves the drivability and the driver feeling for that vehicle.

When we look at these investments, obviously, strengthening the portfolio is leading to the greater business wins that you see, but it's also leading to something else because the turbo is such an integral part of the engine, because it's such an expensive component on the engine.

Often sourcing awards are made well in advance of the vehicle launch. And this is why we can already forecast out to 2028, that more than 80% of our revenue is contracted, which gives us good long-term visibility.

A part of that is coming from the growing scope we have on CV, where we've expanded the portfolio into MEG. A part of that is coming from the technology investments we've made on passenger vehicle in E-Boosting, but they are some examples you can already see. In the U.S. You have two examples on the screen. The first is Chevy Silverado with 3-liter diesel with a Garrett turbo. This is a benchmark for fuel efficiency on a full-size pickup truck. The second example the Dodge Ram 1500 RHO. They replaced the V8 with a 6-cylinder turbocharged engine that has faster acceleration, better fuel efficiency.

These are real examples today. This is the benefit that Garrett turbo technology is bringing. But hybrids need them, too. We talked about the macro growth on hybrids. We talked about the turbocharge growth on hybrids. There's a real example here that was announced at Beijing Auto Show just a few weeks ago. Volkswagen announced the ID.ERA. This vehicle has 1,000 miles of range, more than 1,600 kilometers. 250 miles of that come from the battery, which means 75% of the range of that vehicle comes from the turbo charge engine with the Electrical Powertrain.

This means that the engine is responsible not just for powering the vehicle when the battery is dead and ensuring it has full capability, but it's also responsible for the range of the vehicle, which means the more efficient that engine is, the more the turbocharger enables the efficiency of that engine, the more range it has.

On this application, it's using a Garrett VNT. It's not the first foray. In 2017, Volkswagen launched the first VNT mass production engine with the Garrett turbo. We've got a long history with them. And it's not ending with just the VNT technology, but we already see customers looking at our E-Boosting technology, to enable the next wave of fuel efficiency. So let me tell you a little bit about that.

China is leading the way. In China, the customers recognized a long time ago that in hybrids, the engine played a key role in extending the range. So they started paying attention to the efficiency of the engine. And it's a bit of a strange phenomenon. But in China, in showrooms, always advertise to brake thermal efficiency of the engine, which many people would wonder why are people paying such attention to engineering definition.

Well, a few years ago, the break thermal efficiency of a gasoline engine was less than 40%. What this means as more than 60% of the energy and the fuel was wasted. The first wave of range-extended electric vehicles, high efficiencies and the low 40s for the 42%. Customers who are paying attention, the OEs made technology investments to get to the next level. We started to see 43%, 44%, enabled in part by VNT technology. But there's a third wave coming where OEs are looking for benchmark fuel efficiency, levels that have never been reached before in mass production, approaching 50%. They require advanced combustion and that advanced combustion is enabled by high technologies on the turbocharger side.

In China, OEs value Garrett because our technology delivers performance for them. It's not just on passenger vehicle, but on commercial vehicle as well. We've got long-standing relationships with those OEs and we continue to work closely with them. Let me tell you a little bit about diesel. Olivier touched on this earlier. Back in 2018, diesel was about [ 40% to 45% ] of our revenue. And it was a risk because in Europe, passenger vehicle diesel was on decline. What we now see is most of that passage vehicle diesel business has gone away and what's remaining is light commercial vehicle.

So light commercial vehicles, these are smaller diesel engines, the battery electric penetration on light commercial vehicle is fairly low, lower than passenger vehicles in general. It's a global business. It's 99% turbocharged, and Garrett is the leader in this industry. When we look at these applications, we already see them extending 5, 10 years into the future.

The decline we saw on small diesel engines is over. The diesel engine business that we now have will remain and will remain resilient for the foreseeable future. which brings me to commercial vehicles. It's a great business. Customers here appreciate the value we bring and total cost of ownership, whether it's delivering more power, tell the end user do more work or more efficiency to reduce their fuel operating costs or lower emissions to help them operate in restricted zones, commercial vehicles value the benefit of turbocharger technologies.

We see in this industry, favorable macros, construction growth driven by infrastructure mining driven by electrification and the demand for higher materials and in power generation, driven by the demand for more and more energy. In all of these commercial vehicle industries, Garrett is either #1 or #2 player. We're well established and have long-term relationships with the industry leaders in those particular verticals we show here.

With this, I hope that you can believe me when I say it to you, that turbo is a resilient industry for us, but it's also a growth opportunity for Garrett. We are well positioned to continue growing and be stronger for longer.

And with that, I'll turn it over to Eric to tell you what that means for the aftermarket.

Good morning. It's great to have the opportunity to tell you more about Garrett aftermarket business this morning. So as Mark just highlighted, the turbo industry is going to get bigger for longer. This, along with the extension of our portfolio that Nils highlighted as well this morning will directly benefit our aftermarket business. And that business, which is already a great business will be even more exciting in the future. And that's what I want to show you here.

So let's start with a few facts about our business. We are the #1 turbo brand in the aftermarket. We have more than 150 million vehicles and engines all around the world on and off-road that are fitted with Garrett turbochargers. And this number is only going to get bigger with the addition of all the vehicles that are manufactured and feeded with Garrett chargers in the different OEM plants.

We have a very strong brand, attracting a lot of customer loyalty, okay? The 2 that you see at the center, that's not mine, okay? That's not mine, that's not my forearm, but that's actually one of our customers. It's true. So this creates a lot of value for us in the way we sell and we go to market there.

The third thing that I'd like to highlight is that this is very much already a commercial vehicle business. More than 65% of our revenue comes from light commercial vehicle, commercial vehicle on- and off-highway and industrials. And this number is only going to get bigger. If we take the example of the industrial turbos, the MEG line that we are launching and ramping up with customers for $1 of revenue generated on the OE side, we're getting $4 of aftermarket. That's the power of these range in terms of the aftermarket revenue.

Now let me tell you what are the ingredients that we use to run this business. The first thing to know is that turbo repair is an infrequent, expensive and critical repair. It's not like changing brake pads or a wiper, okay? It is like heart surgery for the engine. And if you do heart surgery, you don't want to do it too many times, okay?

So that is why there is a lot of value in getting through this process of repair with a turbo that fits the requirements that were designed when the vehicle was launched when the vehicle left the factory where it was built.

So we have developed a range of product offerings that cover the entire life cycle of the vehicles. From the time they leave the factory to 15 to 20 years when we talk about passenger vehicles and even longer 30, 40 years when we talk about commercial vehicles or industrial engines. This range that you see from new remanufactured, what we call [ remand ] Max Life for the older vehicles, share common ingredients, original specifications, original components using the same manufacturing plants as the OE turbos that are manufactured for OEM customers.

So all of this creates the performance, the reliability, the durability and the quality that customers expect from the Garrett brand. So as the turbo aftermarket is a very different business from the traditional wear and tear automotive aftermarket business. The turbo manufacturers have mostly focused because it is a difficult product to develop and launch and it is expensive as well, they mostly focus on their installed base. So we serve mostly our installed base and the other turbo manufacturers mostly serve their own installed base.

Now they have and we have as well developed a network of dedicated distributors that are focused on turbo, and that are playing a big role into this aftermarket by assembling all the content from the different manufacturers and providing the services and the products to the garages and the mechanics that use these turbos for repair. So these is a very unique model that is very turbo specific that allows these distributors to be the extended arms of the turbo manufacturers, and they hold the inventory. They do the sales, they do the product marketing, they do the training, dedication and all the advice that mechanics and garages expect when they do a turbo repair. This is an efficient model that allows us to have great margins and that we want to leverage for the future development of our portfolio.

Now in Garrett aftermarket, we don't just do service replacement. We work on some very exciting initiatives as well. And starting on the left with performance. We have a range of high-performing turbos that we have developed and manufactured to fit the needs of performance enthusiasts and amateur racers. This turbo is delivered from 250 to 4,000 horsepower. If anybody is interested into an engine upgrade I think we have a solution for you, just come at our booth after this presentation, we'll find a way.

This is the most complete performance lineup that exists for these amateur races and performance enthusiasts. But we are also active in motor sports, professional OE motor sport teams come and see us. And this is not a sponsorship initiative. We run this as a business, and we provide the technology and the support in turbo so that this team can win.

We have been the technical partner of Ferrari F1 team since 2013. We have as well supported the -- all the teams that have won the 24 hours of Le Mans for the past 26 years. We expect in the next few days when the 2026 race will take place to add the 27th consecutive win into that. So it's just to show you the support and the technology that we can give to these professional teams, and I invite you, again, to see on our booth, we have some very interesting products to show, namely a Ferrari F1 turbo, not from this season, confidentiality, of course, forbids us to show anything from this season, but from the last one. which is a great piece of technology.

And lastly, we don't just do the aftermarket on motor sports or the performance, but we look after some areas, some customers that do not have all the sophisticated needs in terms of development of a traditional automotive business, OEM, okay?

So we are active in power sports. Power sports mean recreational vehicles, side-by-side, jet skis, snowmobiles, where we are supporting these customers, and this is an area where the turbo intake is growing and represents another one for additional growth.

So. What I would like you to take away is that we have great opportunities for growth in our aftermarket business. Secondly, we have a model that is agile that is efficient that allows us to create great margin. So combination of growth opportunities, great margin will make it an even greater business and that's why we love it.

Thank you for your attention. Now I turn it on to Cyril for further announcements. Thank you.

Thank you, Eric. Thank you. A big thanks to all the team for a very insightful presentations. We now have a 15-minute break downstairs. So please be back at 10:45. Thank you.

[Break]

All right. Hope everyone's caffeinated. We're ready to go. And I hope you're super excited like I am about the growth trajectory this company has. Over the past 5 years, as Craig and Olivier and team were explaining, we've been working relentlessly to drive what now is turning into a growth story. And that is what's so exciting. But more importantly, it's a diversified growth story. It's a shift and it is an acceleration into new industries within our financial framework that will deliver profit and most importantly, nearest and dearest to my heart, cash flow.

And we're going to do that as we drive this diversification forward into all these new industries, and we're going to talk a little bit about that. We saw in the earlier presentations, the addressable market, what it meant, how it is. But with this diversification in sales, we are broadening and addressing new industries, which will, in turn, continue. This is not the end. This is the beginning.

So we think about and put it all together. This slide is my favorite slide. It's my favorite slide, like it was Olivier's, but this one has the addressable industries on it. And this is what's so exciting because this is just where we sit today.

But as several of the presenters alluded to, there is much more opportunity as we move forward. But as we sit today, we see diversified sales growth that will be profitable and cash generative within our financial framework. So let's talk a little bit more of that. You've seen this slide earlier. So a lot of that growth is really exciting coming from the industrial space, which we see to be $0.5 billion by 2030 and growing at a 20% plus CAGR.

But that's not the only thing that's growing. Everything else is growing. Mark talked about turbo. We looked at all the other verticals we operate in. It's extremely exciting, and we are now a growth story, a 5% CAGR over the next decade that, again, we'll be delivering profitability and cash flow within our financial framework.

And we've updated the ASP slide for you because I know it's important for your modeling. But what you're seeing here are a few new products, but most importantly, on the industrial level on the slide, the ranges are really wide. We alluded to some of the cooling and the E-Powertrain solutions that are going for commercial vehicle and larger industrial applications.

When we start to really look at things, the size of the machines we're dealing with at the upper end are massive and thus, driving a massive ASP. And I'm sure we'll have more on that as we proceed in the next 5 years.

In Garrett, I just have to remind everyone, is a high-performance company. It's high performance in its operations, but it's also a highly performing financial company. We deliver our financial results solidly and despite challenges across cycles. And we've proven this time and time again in what has been a somewhat static environment in terms of overall vehicle production since COVID, but we have continued to deliver, and now really start seeing a firm path of growth.

You see our financial framework on the left-hand side of this slide, and we will adhere to that as we move forward, delivering our margins within the framework like we have today, may be better, depending on how things go and we will be cash generative. We will continue to operate in a CapEx-light environment.

So let's talk a little bit about how we do that. Okay. It starts off with what Olivier talked about. We operate in an environment where we are not vertically integrated. So what that does is drive a large supply base that we manage and most of that supply base is in best cost countries.

In turn, we are also assembling and keeping only the quality-critical and trade secret manufacturing processes in-house. That allows us to constantly optimize as we're launching and innovating new products to do things better, more with less resources. So that all translates into a 5% year-over-year productivity that we're seeing from both supply base and operations.

And that also translates into our variable cost structure, greater than 80%. And that allows us to flex our cost structure as we deal with some of the cyclical impacts that we have seen in the past, such as tariffs, such as geopolitical disruptions, such as inflation, such as stagnant volumes. We've consistently delivered and increased margin over the past 3 to 4 years because we're able to flex our cost structure.

And along with that translates into a capital-light model, less than 3% of CapEx, of sales. And that also makes us nimble. And as you will see, when you start to compare, our adjusted EBIT to others, makes us superior and top of the industry.

And it doesn't stop there. As Craig talked about, we also pushed down into RD&E and SG&A. We are constantly looking to do more with less and be as optimized as we possibly can. And Craig gave us some good examples of that on his slide.

So let's talk about how we compare. So as I mentioned, when we look at CV-focused peers of ours, we're at the top, right where we should be. But at the same time, our free cash flow conversion is still much higher.

So there, these are very, very powerful numbers. And this is just where we sit today. If you take all the benefit that we're going to see as we go forward and grow at a 5% CAGR over the coming 10 years, to me, that means there's still a lot of valuation upside, especially as we see this industrial opportunity really taking hold.

Again, $0.5 billion of industrial sales growing at a -- by 2030, growing at a 20% CAGR, all right, and over 50% of our revenue coming from non-passenger vehicle by 2030, which will expand as we move forward into 2035. And for me, what you see here is just the start. And by the way, these are based on today's stock price effectively. So in my mind, we still have plenty of upside.

And what have we been doing up to this point? Well, as you all know, we've been returning value to shareholders. This is a key component of our capital allocation strategy. And up to this point, we've returned that through share buyback and dividends and some occasional small delevering, but we're below 2x net leverage. We're happy there, it's a great place to be.

We bought back 44% of our shares since 2023, 44%. I wish we could have bought back more now that I think about it. But we did what we could, all right? And we've initiated a dividend that was competitive at the time. But still, it's another way to return value to shareholders. And we expect to continue to stay within this framework of returning 75% of our adjusted free cash flow to shareholders through buyback and dividend as we move forward.

So for me, this is an amazing story and it's underpinned by growth and growth amongst a diversified set of new industries that will continue to expand. And this is what makes it so exciting for me.

And I think I'm going to now hand it over to Olivier to wrap it up.

Thank you, Sean. I like the slide with the comparison to the other industry sectors showing the runway. In this company, we are not excited about what we have done so far as busy as we have been for the last 8 years. we're excited about what's coming. This is what motivates us every day. This is why we wake up.

So just to wrap it up, I'm coming back to a few points. It's clear that we are expanding outside of our base. We are learning, we are finding more opportunities, and it's real, as you can see, with a lot of SOPs, a lot of products that will get into the field over the next 2 years, and I will not repeat everything that has been said by both Nils and Craig on this one.

Just to remind you, the 6 points we want you to take away from the presentation today. Growth, differentiated technology portfolio, on track with what we said and accelerating after 2030, ramping up the 0 emission technology for mobility. It's real, you will see the product downstairs. Expanding outside of the automotive industry in very promising industry sectors that, quite frankly, we are not having all in mind a few years back.

The turbo industry that is stronger for longer. The 2035 bigger than 2025 gives you a little bit of the perspective and consistently delivering because this company and the team I have with me is all about performance.

A few more numbers before we close it. To remember for you, for 2030, we understand that modeling is quite important for all of you, $5 billion sales in excess of $500 million sales in industrial, more than 50% of sales outside of the passenger vehicle industry. $2 billion or in excess of $2 billion on turbo PV because it keeps on growing. We are not just moving away from that side. It's just we harvest the growth that is coming in our direction, and we deliver more technologies.

In excess of $2 billion of revenue on light commercial vehicle, commercial vehicle industrial and after market and the $1 billion on the rest. So I hope it was the right rendezvous after 2023, so that we bring it back, show you the reality of the numbers show you a perspective and convince you about the investment and the runway of that investment into Garrett.

With that, I think we'll get to the Q&A session, and Cyril will come and organize the Q&A.

Thank you Olivier. Now while we are moving the seats. I invite the -- all the presenters to come on stage for the Q&A. [Operator Instructions] Okay. So we have the first question.

It's Jake Scholl from BNP. So thank you for walking us through the various business lines. As you shift more into a commercial and industrial focused company, can you talk about how you see your margin profile shifting over the next 5 and 10 years?

Sean, anyone want to start?

Alright. Well, as we mentioned in the deck, there could be a trend of margin expansion, but we're cautious about this. Our margins are already very good today at 14.9% as a midpoint guide for 2026. But for sure, as you start to see that mix shift over time, especially post 2030 as the industrial piece really starts to kick in, we should see some opportunity there.

And then as we look at the industrial revenue targets, the $500 million in 2030 and $850 million in 2035, does that just cover your currently announced partnerships? Or are you assuming additional wins going forward?

That's a very good question. It covers what we have been announcing so far. We may have some other ideas, but I mean we want to just get through those ideas in the robust process that we have for innovation before we get further.

So theoretically, if you came out in 6 months and announced another HVAC partnership that would represent an area of upside...

Let me put it back. This is our view of the opportunity we have on HVAC, today, I mean 2030 is tomorrow, that industry doesn't grow always at the speed of the automotive industry. But what I would say is that we keep on working on some other opportunities to develop our product range. And this is obviously not in our forecast because we did not commit to it yet.

James Mulholland from Deutsche Bank. Again, to follow up on Jake's question there, and I appreciate you giving us that average sales price breakdown. But as we think about margins, both current and future state, should we anticipate that some of these products are going to weigh on it a little bit as production ramps up? Or based on your current cost structure manufacturing footprint? Is it fair to say that they should be accretive relatively out of the gate?

We keep on with the statement we made from the beginning, everything you've seen today is at or accretive to what we have today. And that's the spirit of it. The model that drives that is the same, which is we are not planning to turn with new innovation from low vertical integration, very -- we are leveraging quite a bit the supply base.

We have a supply-base development team that nobody else is having at the same size into -- I would -- it's broader at the turbo industry, by the way. It's going across, that's the feedback of our customers.

So we'll keep on the same model, which is low vertical integration, flexibility, leveraging the suppliers each time they have the scale and the capabilities that are better than we have.

And keeping that flexibility, we are operating in a world -- the automotive world is cyclic. We've set up the company, and it's not 1 year of work. It's tens of years of work in a way to resist through the cycles. It happens that we are a little bit special animal in that respect in the automotive world, but we have the model, we think fits the automotive world.

And when we get into the other areas where we are, we recognize you have some cycles as well. So the model that is successful today, we think is the model that we need to keep on for the future, and we are spending a lot of time today at requestioning our investment, our CapEx, the working capital necessary to go after these opportunities.

As you've seen with Eric, even the cost to serve in the aftermarket, which is very specific to us versus all the automotive aftermarket, all of that is at the forefront of what we study every week. So there is no point about us leaving that model.

Great. And then just as a quick follow-up. With that material free cash flow generation that you outlined, beyond shareholder return of course, you're looking to enter into what I would call a couple of adjacencies. Is there an opportunity there for M&A? Would you look to acquire other technologies, maybe smaller companies that already have an established customer relationship to meet those targets?

Or conversely, if you continue to do it all in-house, should we expect a fairly material increase to R&D over the next year or 2 and then probably it steadies out after that, is that the right way to think about it?

So these are two separated questions in my view. There is the way you develop your organic revenue. And for that, I think Craig has done quite a good job highlighting the way we want to stay agile. We are in a world where now the point is about speed and agility.

And we are learning a lot, as you have you seen, from Asia as an example. And it's very good for us to be recognized as a winner in Asia because I'm convinced that you need to be winning to a certain extent in China to be relevant to the rest of the world and what applies to Garrett applies to all the industry.

So that's one piece, which is the way we win is about using or optimizing our RD&E that we put behind because it's not only money, but it's time, it's cycle time, it's the speed at which we answer the customer.

One of the key reason why we won this big program on commercial vehicle is that we were able to turn around a new idea and a new design in 48 hours, meaning working at the same clock speed as the best in the world.

So time, money, resources, all of that gets together, you need to be an efficient and agile company. That's for our organic growth. And so far, we've not seen a limitation, we've not set ourselves a limitation into the budget. It's just that we want to make sure we get the right returns on what we invest, okay? That will always be our limit. Do we have the right returns on what we invest in RD&E?

Now your question about inorganic, it's true that when you look around, we have more inorganic opportunities. But I would say we've always been, and it's not like we've done nothing. We've not done deals, but we've been very active since day 1 to study screen, analyze opportunities on the M&A side. And I'm sure at some point, some will come. but we are planning the same rigor about the M&A.

Personally, I'm not a bit fan about going out there and just buying a company for technology, especially a small one. I think I've explained that several times, and I think the reality has proven us right. When you buy a small company, and we have stories of a few companies being bought close to us in Switzerland in the middle of the [indiscernible]; you buy a company for technology, a company is doing $50 million revenue. If you're a big company, the first thing you do is destroying that industry or that business because you buy a small entrepreneurial house, you integrate into a big company.

You don't want their business, you want their capabilities. So you don't care about their business. And a small business compared to a big business, usually doesn't resist in the long term. And then the guys that have been creating that wonderful small jewel, at the end of the day, they are leaving because they don't recognize themselves into a big company.

So you've been spending money for capabilities, and then you've been destroying that. So I'm always very, very careful about the point of -- and there are countless examples in the automotive industry about doing that. But it doesn't mean that there should not be company with scale, you say channel access for us when we get to new industries and everything. I mean, the scope is quite wide, but we go at that in a very, very disciplined way.

Good morning, everyone. I'm going to follow up with another question on margins. You guys have over the last few years guided to 25% incremental margins, if I remember correctly, maybe 25% to 30% incremental margins, which would imply maybe 300 to 500 basis points of margin expansion over the next 10 years, call it, 30 to 50 basis points a year.

Looking at the makeup of the growth that you're talking about here, as a more industrial and commercial analyst, I would think that the industrial stuff should be very accretive to margins. You don't have the same price giveback dynamics that you do in autos or anything like that. So -- and the value proposition that you're presenting there should demand a pretty good premium for your customers.

Why wouldn't you be able to continue to generate that 25%, 30% incremental margins on growth over the next 10 years?

I mean that is the model, and we need to see how the industrial opportunity evolves. But where we're looking right now, we don't necessarily see a significant footprint expansion needed. And you're actually expanding the footprint isn't really a big CapEx for us. It's more of the lines. A lot of the lines and the tooling are customer funded. And so that's, again, part of our capital-light model.

But certainly, we would expect incremental sales to come in at margins that are accretive, especially in the industrial space.

It's just at the end of the day, it will all vary depending on the -- I hate to use that term that the finance team loves, which is mix. But at the end of the day, it depends on the mix. And we have a lot of things in the water and not everything will work at the same speed. We need to recognize that. So -- but directionally, yes.

I would think that over the next 10 years, mix should be a plus, not a minus. Maybe just on the 0 emissions stuff. You guys have announced a couple of projects that start production in 2027. Can you talk about the path to $1 billion in 2030 and then to $2 billion in 2035, how we should think, I guess, the first 5 years the cadence of how that progresses, kind of what kind of revenue you're assuming in 2027 from those projects, if you're prepared to disclose that yet? And kind of what the cadence is as we get to $1 billion from that in 2030?

The 2027 is the beginning of production. So given today, if you shift by 1 month or 2 months during the year, it can have a quite of a big impact on the way we plan for it. So I don't think we'll give numbers right away on this one.

One thing I'd like you to keep in mind is that 5 years ago, we gave a target of -- 2 years ago, we gave the target for 2030. Today, we are realizing that, that target sits somewhere on the steep part of the curve. So quite frankly, depending on the way the curve is looking at, there can be a little bit of movement around that. But the slope is steep. That's what you need to keep in mind.

And that's where you see the acceleration in particular post 2030. It's important to also note that all the announcements we're making, we're filling up to that $1 billion target. So when we make an announcement, it's not incremental to the $1 billion target. But when we do get to that point, of course, we would look to communicate it. But at this stage...

But we are into the automotive industry. So at the end of the day, -- it's like for turbos. If I have 1 turbo on a car, I cannot put 1 at the front and 1 in the trunk to increase my revenue, okay? So that's the same. Once you're on Hyundai Axle you're becoming a prisoner of the platform success, the success of your customer and everything. So there are usually variability around that. What we are giving you today is the best estimate we have.

We have one more question from Eric.

Eric Gregg, Four Tree Island Advisory. Great presentation so far today. Thank you, everyone. Just a few questions. One, on equaling compressor addressable market opportunity of potentially $7 billion that was mentioned.

Two things. One is how much has residential HVAC been thought about in terms of that addressable market opportunity? And also, can we be thinking that given the success in turbos at over 50% win rates can we be looking forward to those types of win rates in these addressable market opportunities for the company?

Maybe I answer this one first. I'm super optimistic, considering the traction we are having from all the customers spending a lot of time getting to us and lying up tests and everything for the product moving forward with much more use case than what we had in mind at the beginning. At the beginning, we are not adding -- we are not having in mind to go to CRAC, we are not having in mind to go to the super big chillers with products that are even bigger than what you have on the ground there.

So I'm enthusiastic. It's a little bit too early to commit to win rates because I don't even know -- I mean, even when we say it's a $7 billion addressable opportunity, quite frankly, we are much less mature at sizing of that opportunity versus the turbo industry where we know all the engine programs, all the customers and everything else. So I would take that still with a pinch of salt.

Maybe it's bigger. Let's see where we go. Let's be humble like we've been every time. We'll go at that one by one, win develop relationship with customers prove the case, launch and so on.

Yes. And then coming to the question on residential. Look, I mean, what I mentioned in my presentation is true for us. We like to focus on where we are adding most value with our products.

And especially in the commercial and the industrial HVAC space, that's where people focus a lot on total cost of ownership and energy consumption. Whereas residential are typically smaller machines, there is much more competition from Asia. That's why we are choosing our battles and are starting in the industrial and commercial space.

That does not prevent that in the future, we might look differently at this. But if we look at where we are the best fit and where we see the best returns for what we are doing, that's definitely that industrial and commercial space.

And one follow-up question. In terms of the CAGRs that you put out today, which were great and robust. Given that the commercial seems to be the highest potential CAGR over the next number of years and given that, that's the smallest part of the business right now, should we be expecting your top line growth rates to, in theory, be accelerating over the next number of years? Or are we going to see a big step-up here in the next certain period of time and then some kind of slow down? What do you think the complexion of that CAGR growth is going to look like over the next 5 to 10 years, just high level?

Quite frankly, when we look at the next 10 years, when we did the computation, it was pretty stable in our forecast today, okay, with all the precautions that we are taking around it.

It's true that it's smaller. It's having a higher CAGR. We are starting from a smaller base. We are also seeing growth on the turbo side. So when you combine everything together, today, I would say we are at a point in time where we say it's pretty much more of a straight line if you put all the ins and outs.

Depending on the success we see on some of that, if we are more success than what we anticipate, it can all go already gets steeper because the ASP is higher and the volume is lower. We'll see where we go with that. But at this stage, it's pretty much a continuous line.

Mason Bourne, AWH Capital. Eric, I think you talked about the aftermarket opportunity in MEG. I was wondering if as you shift more into industrial, could you talk about the original product sales versus the aftermarket revenue stream opportunity across the different industrial applications?

Right. That's a very good question, indeed. For MEG, we got a -- well, which is bigger turbos where we understand the technology there quite well. As we said, the -- as I said, the aftermarket opportunity is much bigger than OE revenue that is generated. Basically, you install the base, and then there's a lot of maintenance operations that are coming every year, every 6,000, 10,000 hours of operation and more that create opportunities for servicing these turbos.

And when we service these turbos, there is an element of selling components and service to the users of these industrial engines that will create a lot of revenues there.

When it comes to HVAC systems, industrial HVAC or air compressor, our level of maturity is of understanding the aftermarket of these devices is not at the same level. There will be opportunities for sure. Now we are working with the partners that we've engaged to frame our approach to the aftermarket of these devices, how we'll go to market because an important component of -- for servicing the aftermarket of this device come from the HVAC manufacturers themselves, okay? So the OEs channel is quite significant there. But there will be some aftermarket revenues, and we've planned for that.

So fair to say that cooling would be the largest one, more than like the mobility zero-emission technologies that's...

I would say it's too early to say that. It's too early because let's keep in mind that the point that Eric was making on industrial turbo is something we need to keep in mind. We are today, at the same time, building the installed base, which is only 1 for 4 revenue opportunity in aftermarket. But something we did not say today that was something we reported in our previous earnings, is that as we work on the OE side, put our turbos on new engines.

We are working with Eric's team to identify refit opportunities for the installed base that has been served by some other players so that we start to grow faster that installed base and replace already the competitor product.

So we are trying to jump start that. It's not easy because it requires, on the one hand, you need to have the best performing machine. On the other hand, you need to have a machine that's just matching what's in the field. So we have two different products. But we are doing that at the same time.

We are also developing a network of distributors that are suited for that industrial stuff. And I'm very pleased with the progress we are seeing there and the traction we are getting outside of the OE space.

Quite simply, for cooling, I would say we are learning. It's a different channel access. But we have a lot of the capabilities internally to react to that if needs to be. But today, we are relying on our partners to learn more about that industry.

No question? Well, then this is concluding our Q&A for today. Thank you very much for all your questions. Please give a big round of applause to all our presenters today.

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. As per the company's presentation there will be a Q&A session. I would now like to hand over the call to Cyril Grandjean, Garrett's 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 Rabiller, our President and Chief Executive Officer; and Sean 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 as well as continued strong performance in commercial, off-highway and industrial. Through continued productivity actions and disciplined execution, we have been able 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, the 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 technologies. Indeed, we continue to win across our turbo portfolio with multiple gasoline awards, including VNT turbo for hybrids and range extended 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 start-up production planned again for 2027. We also won a major production award for our industrial cooling compressor with TONFY 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

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. This 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 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 used 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 1.92x.

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 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 the 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.

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 20. 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 secured a 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.

So thank you for your time. And now operator, we are ready to take on questions.

[Operator Instructions] Our first question comes from Nathan Jones of Stifel.

I guess 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 say 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're seeing from other potential customers and how that's progressing?

Yes, indeed. 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 inbounds 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 win we just report, which is in a different system, which is a battery energy storage system. So you have -- you need a lot of cooling to cool these batteries. And these batteries are supplied by the way, this module 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 the 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, the broad industry that's all involved into cooling.

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.

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.

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And then could you say another E-Powertrain win? 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 in '27, but just any color you can give us on the scale and scope of this award?

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 side. 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 HanDe. HanDe is the biggest player of the industry when it comes to transmissions in China and E-Axle. 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 [indiscernible].

Our next question comes from James Mulholland of Deutsche Bank.

So I just want to double-click 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?

Yes. So with industrial, we entered -- 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 we -- and so that's where we would remain, low double digits. That is 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.

And then--

And we are --

Go ahead.

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

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?

Today, I will not relate -- today, commercial vehicle is, as you said, it's a little bit of a mixed bag of several things. So we have off-highway, and you've seen that the off-highway industry is starting to recover. There are some other people publishing results today that our 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 on-highway in China, which is probably more linked to share of demand gains and a significant introduction of new products that we have on that -- in that region.

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

The next question comes from Jake Scholl of BNP.

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?

Yes.

Quite frankly, 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 highlighted in Q1, and on the other hand, we are having a world out there that everybody is looking at and trying to understand where it goes. 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.

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 through 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 HanDe or air cooling like a traditional HVAC?

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 2 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 anywhere else in the world as a consequence of the 2 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 another -- technology adoption pace that is higher than what we see in the rest of the world. But remember, the first award that we 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 we -- the speed in China is just faster.

Our next question comes from Hamed Khorsand of BWS Financial.

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?

For the wins, we usually win businesses that are translating into volume, that's before we start production. So I would say, when you look at the trend we had, 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 math between the business win rate to the share of demand doesn't go exactly 1:1. But we know that when we win constantly at that level, the share of demand of the company is increasing. And this is exactly what's happening. It was a little bit hidden 3, 4 years ago because we were having 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've been doing a massive rebalancing and transformation in this company, moving from revenue at the time of the spin-off that was about 42%, 43% diesel 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. And the trend continues.

And my other question is on 0 emissions. Is it still too early to break 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 much more about it.

Very good.

But we will indeed disclose more information in 3 weeks.

The conference has now concluded. The question-and-answer session has concluded. Thank you for attending today's presentation. You may now disconnect.

Hello. My name is Jamie, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Fourth Quarter and Full Year 2025 Financial Results Conference Call. This call is being recorded, and a replay will be available later today.

After the company's [indiscernible] question-and-answer session.

At this time, I would like to turn the call over to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer.

Thank you, Jamie, and good day, everyone. We appreciate you joining us to review Garrett Motion's Fourth quarter and Full Year 2025 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 Rabiller, President and CEO, and Sean Deason, Senior Vice President and CFO. Olivier will begin with highlights from another year of strong performance and strategic acceleration. Sean will then review our 2025 financial results and '26 outlook.

With that, I'll turn it over to Olivier.

Thank you, Cyril. Good morning, everyone, and welcome. 2025 was another fantastic year for Garrett. We delivered strong operational performance in a complex industry environment, and at the same time, advance our strategy, increasing share of demand, growing our portfolio, expanding margin and securing key awards and partnership across turbo, zero emission technologies and industrial application.

In Q4, net sales were $891 million and adjusted EBIT was $122 million with a 13.7% margin. For the full year, net sales reached $3.58 billion and adjusted EBIT was $510 million with a 14.2% margin. Adjusted free cash flow for the year was $403 million, once again demonstrating our disciplined execution and operational rigor. These trend results allowed us to stay firmly on track with our capital allocation firm work, returning significant capital to shareholders and strengthening our balance sheet.

In 2025, we voluntarily repaid $50 million of our term loan, repurchased $208 million of common stock and paid $52 million in dividends. As you will see later on, we plan for another year of strong execution for 2026, as we anticipate further share of demand gains, margin expansion and strong free cash flow. Sean will obviously provide additional details on our 2026 outlook later in the presentation.

But for now, let me move to Slide 4. In 2025, we continued to strengthen our core business while accelerating our zero remission technologies. We secured a significant number of new light vehicle turbo awards driving our growing share of demand in gasoline VNT applications and increasing our traction in hybrid and range-extended electric vehicle platforms. These wins reinforce how our differentiated technologies remain central to efficiency and emissions reduction for our customers. We also won important awards in diesel applications for light commercial vehicle and trucks, where diesel remains highly valued for its lower emissions, fuel economy and high torque. And I want to pause on this point for a moment.

Back in 2018, light vehicle diesel represented 41% of our revenue and many questioned whether Garrett could sustain its margin through the transition to gasoline. Today, gasoline accounts for over 44% of our sales and diesel remains resilient at more than 23%. And as just mentioned, we delivered a 14.2% adjusted EBIT margin, once again demonstrating the strength of our business model grounded in technology leadership and operational excellence.

Beyond light vehicles, we also secured numerous commercial vehicle awards across on-highway, off-highway and industrial applications. This momentum was further supported by our series production awards for our largest turbo frame size, the MEG as well as the first aftermarket sales for this product line as a retrofit option in the aftermarket space.

Moving now to our Zero Emission and Industrial Technologies. In addition to the wins and progress we have announced in 2025, we made 2 announcements in February that are very significant when it comes to that part of our portfolio. First, we announced a series production award for mobility equaling compressors with a leading Chinese bus and truck HVAC supplier. Second, and even more important, we launched a strategic collaboration with train technologies to integrate Garrett's next-generation oil-free, high-speed centrifugal compressors into trained commercial HVAC applications, from unitary rooftop and modular chillers to large capacity chillers, bringing the maturity, quality and scale of the products we have developed in the automotive industry into the industrial world and extensive testing in trains labs confirmed the clear performance benefit versus incumbent solution.

Initial units from train will be available to select suppliers -- select customers already this year with broader series production across applications beginning in 2027. But let me spend a little bit more time on this cooling opportunity on Slide #5. We have developed an oil-free, high-speed centrifugal refrigerant compressor for HVAC applications by combining core Garrett technology, high efficient turbomachinery, our unique oil-free foil bearings, high-speed electric motors, ultra-high frequency inverters and model-based control software. And importantly, all of this comes straight from our technologies, we have already developed, validated and industrialized at automotive scale and quality.

Our testing has shown that our technology can deliver more than 10% real world energy savings compared to incumbent solution. This allows HVAC operator to materially reduce the total cost of ownership and helps limit energy demand in power-intensive environments such as data centers. These benefits are even greater as customers move to ultralow global warming potential refrigerants.

Our equaling compressor portfolio introduced at the AHR HVAC show in Las Vegas earlier this month has already attracted strong interest from this industry. The product range spans from 700 to 500 tonnes or from 25 to 1,750 kilowatts of cooling capacity, enabling us to serve applications from rooftop and unitary system, battery energy storage cooling, computer in room air conditioners to small and large chillers used in comfort cooling and hyperscale data center.

These offerings leverage several of our key differentiated technology to address the fast-growing needs of a sector that will progressively shift to ultralow global warming potential refrigerants. Industrial cooling represent a significant growth vector for Garrett and is expected to scale quickly to more than 5% of our revenue by the end of the decade as programs launch and ramp up.

Taken together, these developments show how Garrett is executing, diversifying and expanding outside of the automotive industry, a deliberate part of our strategy. Cooling is now a tangible vector of growth on top of high speed powertrain, fuel cell compressors and alongside our core turbo business.

With that, I'll turn over to Sean to discuss our Q4 and full year 2025 financial results in more details.

Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 6, where we talked about our quarterly financial trends. As Olivier highlighted, we delivered another year of strong financial performance in 2025. We finished Q4 with net sales of $891 million, driven by gasoline share demand gains and a slow recovery of commercial vehicle, partially offset by continued weakness in aftermarket.

We delivered $122 million of adjusted EBIT, equating to a 13.7% margin. Adjusted EBIT in Q4 was down sequentially, driven by unfavorable product mix and onetime headwinds, but in line with our 2025 full year outlook midpoint of $510 million. Finally, adjusted free cash flow was a very strong $139 million in the quarter as the business continues to efficiently convert earnings into cash.

Now moving to Slide 7, we show our net sales bridge by vertical as compared with the prior periods. In the fourth quarter, net sales increased by $47 million versus the prior year or 6% on a reported basis and 1% on a constant currency basis, reflecting favorable foreign exchange currency impacts. We experienced growth in commercial vehicle in diesel. Gasoline volumes declined outside of Europe, particularly in Asia. For the full year of 2025, we experienced gasoline growth across most regions through a number of new launches and ramp-ups.

Our commercial vehicle off-highway sales expanded as well across regions. These gains were partially offset by lower diesel, particularly in Europe, where the industry continued to decline. Aftermarket declines were driven by lower demand for off-highway applications, particularly in North America. And finally, during Q4 and the full year, we recovered $10 million and $40 million of tariffs, respectively.

Turning to Slide 8. As mentioned earlier, during the quarter, we generated $122 million of adjusted EBIT and a margin of 13.7%, which was down 100 basis points. Q4 operating performance was in line with expectations, as we absorbed several onetime charges in addition to an unfavorable mix and a 20 basis point margin dilution due to tariffs. The unfavorable mix was driven mostly by growth in small engine light vehicle diesel, partially offset by growth in commercial vehicle applications across regions. For the full year 2025, unfavorable mix was driven by increased light vehicle gasoline and softness in the aftermarket, mostly in North America, partially offset by increased commercial vehicle.

Now turning to Slide 9. I'll walk you through the full year 2025 adjusted EBIT to adjusted free cash flow bridge. We delivered strong adjusted free cash flow of $403 million for the year. We had a slight working capital benefit, which reflects the very strong fourth quarter working capital recovery of $60 million. Capital expenditures came in slightly lower than anticipated due to timing and cash taxes, depreciation and cash interest were all in line with our expectations. Taken all together, these strong results equate to a free cash flow conversion of nearly 80% in 2025.

Now moving to Slide 10. We closed the year with strong liquidity of $807 million and a very healthy balance sheet. In Q4, we repaid $50 million of our term loan bringing our net leverage ratio to approximately 1.9x as of year-end. We continue to have no significant debt maturities until 2032.

Moving to Slide 11. We continue to generate strong cash flow and return capital to shareholders. In the fourth quarter, we repurchased $72 million worth of shares for total repurchases of $208 million in 2025, reducing our share count at year-end to 190 million from 191 million shares outstanding. We also increased and paid a dividend in Q4 of $0.08 per share and authorized a $250 million share repurchase program for 2026. As of February 13, 2026, we had 189.97 million shares outstanding. Additionally, we just declared our Q1 2026 dividend for $0.08 per share. We continue to target distribution of 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 will depend on various factors, including macroeconomic and industry conditions.

I'll now turn to Slide 12 to discuss our 2026 outlook. At the midpoint, industry assumptions for this outlook can play a 2% decline of the global light vehicle industry, an average BEV penetration of 19% and a slight recovery in commercial vehicle, including on and off highway of 1.5%. The financial midpoints implied in this outlook are as follows: net sales of $3.7 billion, net income of $315 million, adjusted EBIT of $545 million, implying a 14.7% margin. Net cash provided by operating activities of $455 million. And finally, adjusted free cash flow of $405 million.

Capital expenditures and RD&E expenses are expected to be 2.5% and 4.2% of sales, respectively, in line with our financial framework. Approximately 50% of our RD&E will be directed towards zero-emission technologies and industrial cooling.

Now turning to Slide 13. I show our 2026 midpoint outlook bridge for adjusted EBIT. For 2026, as discussed on the prior slide, our midpoint outlook is $545 million with a 14.7% implied margin, up 50 basis points compared to 2025. This adjusted EBITDA improvement is expected mostly from increased volumes and our continuous focus on operating performance and productivity, which offsets unfavorable pricing, net inflation and product mix.

I'll now turn the call back to Olivier for closing remarks.

Thanks, Sean. Now let's turn to Slide 14. Our strategic priorities remain clear and consistent. We aim to identify and deliver on our 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, Slide #15 with 3 takeaways. First, we delivered strong full year 2025 results in line with our guidance, including share of demand gains, margin expansion and strong cash flows. Second, our pipeline is expanding in turbo and accelerating in zero-emission technologies and industrial applications. We secured our first production wins for our E-Powertrain and E-Cooling technologies, and we are now generating meaningful traction in power generation and including technologies for industrial applications.

Third, we remain disciplined in our capital allocation, investing in what wins and returning capital to shareholders. We are extremely well positioned to outperform in 2026 and beyond and look forward to welcoming you to our Investor Day plan for May 20 in New York, where we will provide additional updates on our long-term strategy and outlook.

Thank you for your time. And operator, we are now ready for Q&A.

[Operator Instructions] And our first question today comes from James Mulholland from Deutsche Bank.

So just some questions on the train partnership and the use of the high-speed compressor. Could you give us some sense of the economic opportunity here in the shorter term, understanding that it might get to 5% of sales in a few years. But what level of contribution would you expect in '27? And what kind of margins should we expect there? Will it be accretive at start of production? Or will there be a ramp-up? And is part of the CapEx this year going to be in preparation for that?

That's a great question, James. And you're giving me the opportunity to precise a few points there. Yes, it's a very significant opportunity. We are introducing a technology that is unique with the leader of that space and with the broad range of portfolio of applications from small cooling to much bigger cooling needs. This is something -- and quite frankly, the uniqueness is linked to what has already matured into the automotive space. So we are uniquely positioned to provide that to this industrial sector. So that's just something I wanted to remind everyone again.

We see today that we will deliver the first application in 2026 with a number of customers, but the real ramp will come for 2027. Today, we are not giving you numbers on 2027. It will be the start, but the number we are giving you and that you picked up the 5% -- in excess of 5% of revenue by the end of the decade shows the magnitude and the speed of the ramp-up that will happen between now and then.

In terms of CapEx, it's all included in our plan, and that's all taken into account in the 2.5% CapEx guidance that we gave for 2026. We are still applying to this new line of product the same discipline in CapEx spend for the new product lines. And there are a number of elements, as I was mentioning before, that are the same or leveraging the scale that we have on the automotive side. So that limits the CapEx that is just specific for that business pursuit.

Great. Okay. And then quickly on my follow-up -- sorry, go ahead.

There is just 1 point I did not answer your question about margin. Yes, it is accretive. .

And so accretive on start of production essentially.

Yes.

Okay. Great. And then on my follow-up, your largest competitor announced last week that it's going to be diversifying into power generation for data centers. Now I think in the past, you've mentioned you would do about $100 million in sales for '25, and that should grow, I think, double digits this year. Outside of the HVAC opportunity, do you see other areas to increase exposure or use your tech stack to further penetrate that data center up and it's growth outlook? Would you look to do inorganic acquisitions to tap into that further? Just your thoughts on that.

Well, we are very consistent with what we said about our technology for a long time saying that we will favor verticals that are valuing the technology that we put in our products. And obviously, when you get into commercial vehicle, on-highway, off-highway and even more in industrial space, these are the spaces that are valuing where customers are valuing the technology we bring. So it's true. We've developed -- we had already a position on genset. And today, the biggest part of the demand for genset -- big genset is data center-driven. .

And we've developed our range. We've developed a new range of products on top, and you may have seen that we just made a few important announcements showing that in a matter of a very short amount of time, we've been able to secure OE wins with these new products and even get into retrofitting some of the products that we are already into the marketplace. So we'll keep on pushing that range of product. And yes, we are seeing a very significant growth above and beyond the $100 million that we mentioned in Q3 2025. And we expect that growth, obviously, to amplify as we get into 2026.

The cooling side is very interesting. We'll keep on obviously developing our position on the genset side. but the cooling side is very interesting. It's obviously a very dynamic industry, driven by the growth of cooling across many applications, and obviously, the data center piece. And once again, we have the right building blocks into the company that allow us to propose something that is not existing there. And the fact that a lot of equipment is being ordered give us the momentum into the marketplace to adopt our technology. So yes, overall, the only thing I could say is that, yes, it's very significant. It's probably growing a bit faster than what we had anticipated at the beginning, but extremely consistent with everything we've been saying for the last few years that we would reinforce on power generation and including leveraging the building blocks that we have in the company and that are differentiated versus what's existing out there.

Our next question comes from Ryan Brinkman from JPMorgan.

Maybe a similar one. I just wanted to ask, following the announcement of the strategic collaboration with train, how you would compare and contrast the relative opportunity of, on the 1 hand, supply and industrial charges for the stationary power gensets located outside of the data centers to provide energy for their operational cooling bus on the other hand, this new opportunity to participate in cooling itself.

And on the call the other week announcing sale of the portion of the business that includes thermal management for the stationary Gensets that you discuss it while part for data center state power generation start to grow very quickly. The market for me of the not to grow quite a bit faster still. How do you see these 2 markets growing? And how should we think about the relative margin or content opportunity or competitive edge for Garrett in these 2 different, relatively related markets?

You were breaking quite a bit into the -- on the phone line. So I think, if I may, to rephrase your question that you were asking us to give a little bit of a comparison of the growth that we are seeing on the one hand with the Powergen and the big turbo space. And on the other hand, the cooling, both of them being more directly or less directly to the growth that we see into the data space. Is it your question? .

So I would say it's difficult to compare. Both of them are growing fast. And you see that for the players that we are dealing with. On the 1 hand is train, obviously, that we talked about, but not only. And on the other hand, with the biggest customers we are having today and the big engines, and you know all the big names out there, whether they are in the U.S. or in Asia. So it's difficult to compare the 2. They are all driven by this. They are all driven, I would say, on the powergen side by other fundamentals that are not only directly linked to data centers when it comes to increased needs for power generation.

There is a need for energy all around the world, and that is not only -- it's partly driven by data centers, but not only driven by that. And then on the cooling side, I would say not everything is driven by data center reserve. You have a lot of macros that are driving the demand. And also in that space, driving people to refresh the technologies that they are using. Because when we announced that with the equipment that we are putting in the marketplace with train we can save up to 10% energy compared to incumbent application. -- that's very significant when you combine the 2. Need for energy on the 1 hand. This is an underlying macro. And on the other hand, there is a need for cooling that is much more energy efficient, and this is where we play. So I think we are addressing very well on those 2. I will not oppose the 2, I mean, quite frankly, when we say that coding we forecasted to be quickly above 5% of our revenue.

And you know that the industrial world is not ramping up exactly at the speed of the automotive industry. That means a very quick ramp-up by industrial standard anyway. And we are seeing today a very quick ramp up as well on the industrial side for turbos. So we are very pleased with that. We are very pleased with the growth, and we'll keep on funding that with our disciplined approach so that we are successful with it.

Great. And I apologize for the connection. And just lastly from me. to the light equal turbo awards and degrees, including diesel for light commercial vehicles and hybrid gas applications. Is a piece of new wins or ultimate systems or past observation in the recent years, you have been winning on the order of magnitude of roughly 1/2 of industry turbocharger awards? And given that your current revenue share of turbocharges might be closer to 1/3. What does this imply do you think, for your future market in light vehicle turbos?

So Ryan, we are very clear. We've been keeping on winning, and the way we measure that is we measure our business win rate, and we publish that once a year. It has been very consistent above 50% when you look at the last 5, 6 years. When we win at this level, it means that we are increasing our share of demand in the industry, and if you do the math, and I'm sure you're doing that very carefully, you will see that with the guide we have on revenue and the results we have on the revenue for 2025 versus what the industry is doing, we are obviously winning shares. And we'll keep on winning shares with what we have.

The underlying drivers for that what we explained in the past being a technology-driven consolidation. The industry needs a wide portfolio of technologies and advanced technologies, especially as we get to hybrid vehicles, where we need more valuable geometry turbo. There we need more electric boosting solutions, and we are launching a number of those this year. And therefore, not everyone can provide that.

And there is also another consolidation that has happened is that the carmakers and the truck makers want to make sure that they work with players that are relevant today and will be relevant to tomorrow as the industry keep on shifting towards more electrified solution. So I think we are well positioned on those 2, and that drives shares that is growing for the leaders of the industry. And there is absolutely no change. And when you look at our revenue guide, it's a good illustration of that.

Our next question comes from Jake Scholl from BNP.

One more question on the train e-compressor win. Now that you've had a chance to see how the compressor performs as part of a total system, can you talk a little bit about the efficiency gains you're seeing, especially against competing oil-free compressors using magnetic coil technology instead of your -- I'm sorry, magnetic bearing technology instead of your oil bearings.

Well, a few things. I will not get into a lot of technical details today on this call, and I'm sure we can have a very deep detail on the technical discussion when we meet for the Investor Day in May. But what we see is that our solution, first is proven at scale. I mean, the industry has been looking for the most effective and efficient solutions that are oil free. And today, we are having a lot of traction even from people that are using MAC bearing towards our type of bearing.

It's less difficult to control in other way, as it's difficult for me to get in 5 minutes into why it is less difficult to control and the efficiency gain. But clearly, we have efficiency gains we have controllability. We have maintenance. We have all of that plays in favor of our solution, both for where you have bearing that are the big stuff, but also where we are smaller compressors that are scale compressors and that are much less efficient from an energy standpoint.

Got it. And then I just wanted to double click on your SG&A cost savings this year. That's -- it's a pretty impressive number. Can you talk a little bit about where those are coming from? And do you see additional cost savings opportunities going forward?

yes, but, as we've always said, we are always working on the efficiency of the company. We are always leveraging everything we can to make the company faster, more nimble, more agile, more reactive. Today, we have a number of tools at our disposal, whether it's fine-tuning the organization, developing systems. And I would not get on the famous AI stuff that everybody is using, but we are obviously having an agenda to transform the company to make it even more efficient in the future. So we are pleased with the results we are having on SG&A. But in all fairness, because we like performance, we are looking for a step improvement versus that in the coming years. .

Our next question comes from Nathan Jones from Stifel.

I've got one on the train partnership as well. You talked about 5% of sales by 2030. Can you confirm that's all coming from the train partnership? And then, is there any exclusivity in the product with them? Or are you able to market and sell this to other suppliers in other areas? And if so, can you just comment on what the overall addressable market might be for the products?

So first, we are very pleased to work with train, which are the leaders in terms of equipment, but they're also a technology leader in that industry and a company that is setting the trend. So for us, it's very important to work very closely together in the coming years, and we are very pleased with this agreement, obviously, because that's giving us very quickly the scale and the understanding of the marketplace.

Quite frankly, in the long run, we'll keep on leveraging that partnership, and as opportunities are coming with other players and other segments of the cooling industry, we will certainly develop relationship with some other players. We had already a ton of people coming to us, asking for questions at the show. I think I don't want to be too proud of it. But I think we had a turnaround from the rest of the industry that we were not expecting.

So is it fair to say then that kind of by that 2030 target, the product is going to generate more than 5% of revenue. It's 5% of revenue we trained, but there will be other opportunities as well. There will be other opportunities by 2030 that go beyond train, that's for sure. And we are giving that as a view and that purely depends on the speed at which the industry is ramping up, that could be depending on the take of the industry that could go very, very quick and even on potential future. I guess, my follow-up question is going to be on your other 0 emission progress. You've had a number of predevelopment contracts ongoing for the last few years. Can you talk about progress towards getting those to awards and plans for start of production on that? And then, is the $1 billion of revenue from all of these portfolio products still a target for 2030.

So clear, and we are seeing a lot of -- it's not because we talk about train today that we're not seeing traction with the rest. We have an accelerated number of predevelopment programs that we are working on. Today, we are working on many more predevelopment programs than what we are doing a year ago to give you an idea, both passenger vehicle, commercial vehicle and industrial application.

We've talked a lot this year about the award we got for E-powertrain for commercial vehicle, heavy duty. We will be in production already next year at this time. So it's not just a PowerPoint kind of discussion that we are having. We are talking production for heavy-duty electric axle 2027 beginning of 2027. And then from there, obviously, it's bringing interest about programs that we have not communicated about yet that are leveraging what we do on those vehicles to apply that to other vehicles. I'm talking about commercial vehicle space.

On the passenger vehicle side, we are making very good progress now on the testing of our solutions. And we are confirming benefits of our solution versus incumbent solution in the industry, even greater than what we had seen and communicated initially. So now, it depends on the speed at which the decision-making is happening at our customers. But quite frankly, the benefits have been confirmed. And if anything, they are greater than what we are and our customers are expecting both in the passenger vehicle and in the commercial vehicle space.

On the E-Cooling, we just confirmed the first few wings for equaling for mobile application, same again. Obviously, it's not a surprise that we tend to win earlier in China because the industry tends to make decisions and move faster than in the rest of the world, we all know that. But at the same time, it's a very positive for us because it shows that we can win in the most competitive market you have out there. So we take it like we are moving at China speed on a lot of that stuff, and we are delivering the performance at the cost customers are willing to pay in the toughest industry around the world. In all fairness, we have a long answer. Yes, we are doing progress, and we, yes, I'm very pleased with it. More to come.

Our next question comes from Hamed Khorsand from BWS Financial.

First question was, could you just reconcile the 2 comments you made? And Sean, you said that you're expecting EBITDA margin to expand because unit volume would increase, but then you're giving guidance with the expectation that global units will be down this year. So are you -- where -- could you just reconcile that, please? .

And maybe before Sean takes that up, the comment we made on the industry down is for the light vehicle industry. And in the light vehicle industry that is down, we are expecting to be up despite the growth of battery electric. So that means significant share of demand gains for Garrett. Do you want to comment?

No, that was exactly what I was going to say, Olivier. And it's also, obviously, there's growth in commercial vehicle as well. So we're quite pleased with the guide. And that of course, it underlined -- it's underlined by our strong productivity performance that we have demonstrated over the cycles, over various cycles, and we'll continue to do so in 2026 going forward.

Okay. And then, you've reported that the commercial went up this quarter, and it looks like it's going to go up again '26 in your forecast. Is that because of what's happening in Off-Highway? Or is that because of the commercial on-road aspect? .

It's because of off-highway and specifically industrial turbos. So back to the question of 1 of your peer before, Amit, we are seeing the growth on the industrial turbo side driven by Genset.

And our next question comes from Eric Gregg from Four Tree Island Advisory.

First up, congratulations on a really strong Q4 and 2025 to the whole team there at Garrett. The first question, following up on the color to people to go, but one is, is train exclusive? Or is it exclusive for a few years in commercial HVAC and that's exclusively to fall away after that?

And then second of all, is that oil commercial technology, compressor technology? Is that going to be additive in HVAC to your $1 billion 2030 zero-emission sales target? Or is that -- given the zero emission vehicle penetration seems to have slowed a bit, is this just the way to kind of meet that $1 billion target that you laid out a year or 2 ago for 2030 zero emission revenues?

So first of all, just to clarify your point, we are not developing a new line of projects just to patch a weakness that we would have on the other side of the portfolio. We make decisions on the portfolio to go where we have differentiated technology and where we see growth moving forward. So it's not like we have 1 investment that comes at the expense of the or the other way. Yes, it's part of our ambition towards the $1 billion, and that's obviously counted as part of that.

Now, we will update you on that during our next investor meeting, and we'll give you more clarity about the way it goes. But we are very pleased to have not only 1 driver that gets us there, but several drivers and are depending on different industries, which is the best option and the best way that we can strengthen towards our ambition.

Then, your point, it observes that when you work with someone like Trane, you place a lot of eggs in the basket that helps you be successful on the marketplace. So at the beginning, it's true that we'll dedicate a lot of attention with train. But over time, that doesn't prevent us from developing ourselves with other players.

And with that, we'll be concluding today's question-and-answer session as well as today's presentation. We do thank you for joining. You may now disconnect your lines.

Hello. My name is Megan, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Third Quarter 2025 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. [Operator Instructions].

I would now like to hand the 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 Third 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. Thank you all for joining the call today. I am pleased to report that Garrett delivered another set of strong financial results in the third quarter, thanks to increased sales in a more stable production environment and disciplined operational execution.

Net sales for the third quarter were $902 million, up 6% at constant currency. This growth reflects outperformance over the industry in light vehicle turbo sales for both gasoline and diesel applications. In fact, our gasoline sales grew by 10% in the quarter, driven by our share of demand gains.

Thanks to continued productivity and higher volumes, we achieved another quarter of very solid operating performance. Adjusted EBIT was $133 million, and our adjusted EBIT margin was 14.7%, which includes a 20 basis point dilution of the margin rate from tariff recoveries. We also delivered strong adjusted free cash flow of $107 million for the quarter.

These results, combined with an improved forecast for the automotive industry for the second half of the year, has enabled us to raise our 2025 outlook midpoint. In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders.

During the third quarter, we accelerated our share repurchase activity, buying back $84 million of common stock. We also paid a $12 million quarterly dividend. Moreover, our Board of Directors just approved a 33% in our dividend raising it to $0.08 per share for the fourth quarter.

Now let me move to Slide 4 to share more about Garrett's continued success across our differentiated technologies. We continue to see growing interest in developing turbochargers for hybrids and range-extended electric vehicles. This quarter, we secured several additional awards for these technologies. In addition, we obtained several awards for commercial vehicles and industrial turbochargers in various regions including over $40 million for products supporting stationary power generation or gen sets.

Demand for subunits continues to grow, fueled by the global expansion of data centers in which gen sets are installed for backup power generation. Sales of these products are expected to exceed $100 million in 2025 and represent an important growth opportunity for Garrett.

This quarter, we also continued to make progress in developing our differentiated 0 emission products. We secured additional proof of concepts with 2 OEMs in Japan and China for our high-speed 3-in-1 E-Powertrain.

In addition, on the E-Cooling side, we progressed with the development of our oil-free centrifugal high-speed compressor technology for industrial and mobility applications. We see strong momentum with customers for our E-Compressor technology, which is driving significant efficiency gains when tested against current industrial technologies.

All in all, I'm extremely pleased with our ability to deliver strong financial results while continuing to position the company for years of growth. I will now hand it over to Sean, who will provide more details on our financial results and outlook.

Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered strong financial performance in the third quarter. Our net sales were $902 million, driven by new gasoline launches and ramp-ups across key regions, favorable foreign currency impacts and tariff recoveries, partially offset by continued weakness in aftermarket.

We delivered $133 million of adjusted EBIT in the quarter, equating to a 14.7% margin. This represents both a year-over-year and a sequential increase resulting from ongoing operational productivity gains that help to offset an unfavorable product mix. And finally, adjusted free cash flow was $107 million as the business continues to convert earnings into cash.

Now moving to Slide 6. We show our Q3 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $76 million versus the prior year or 9% on a reported basis and 6% on a constant currency basis, reflecting favorable foreign currency impacts. We continue to experience strong gasoline growth, outperforming the industry.

This growth is driven by continued share of demand gains and new launches and ramp-ups across Europe, China, India and Brazil. Within diesel, we experienced strong performance in both Europe and North America. This was partially offset by lower demand for aftermarket applications, primarily in North America. Additionally, we recovered $12 million of tariffs within the quarter.

Turning to Slide 7. During the quarter, we generated $133 million in adjusted EBIT, representing a $16 million increase from the same period last year. This represents a margin rate of 14.7%, which is a 50 basis point improvement year-over-year. The increase in adjusted EBIT was primarily driven by increased volumes and the continued benefits of sustained fixed cost actions and variable cost productivity taken in the current and prior year. These increases were partially offset by an unfavorable mix driven by the strength in light vehicle gasoline applications.

In the quarter, the impact of newly implemented tariffs drove a 20 basis point decline in the margin rate. Additionally, we benefited from a $9 million contribution or 60 basis points from favorable foreign currency impacts year-over-year.

Turning now to Slide 8. I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered a strong adjusted free cash flow of $107 million. This was due primarily to increased volumes and efficient conversion of earnings into cash, which was partially offset by changes in working capital, driven by timing of payables and higher inventory due to increased volumes. Cash taxes, capital expenditures, depreciation and cash interest were all in line with our expectations.

Now moving to Slide 9. We ended the quarter with a liquidity position of $862 million, consisting of $630 million in undrawn capacity from our revolving credit facility and $232 million in unrestricted cash. I am pleased to report that during the quarter, both Fitch and S&P have upgraded Garrett's ratings by 1 notch for their corporate family rating considering not only our reduced net leverage but also acknowledging the substantial reduction in private equity ownership due to recent sell-downs by some of our top equity shareholders. Additionally, as announced today, we made an early voluntary repayment of $50 million on our term loan, reducing gross leverage.

Moving to Slide 10. In the third quarter, our strong cash generation allowed us to repurchase $84 million worth of shares, including 5 million shares directly from Oaktree, our largest shareholder. We continue to target distribution of 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 will depend on various factors, including macroeconomic and industry conditions.

As Olivier mentioned earlier today, given our strong financial position, our Board approved an increase to our quarterly dividend for the fourth quarter rising 33% from $0.06 to $0.08 per share, which will be payable in December of 2025.

I'll now transition to Slide 11 to discuss our 2025 outlook. We are raising our midpoint outlook for 2025 to reflect the improved forecast for the automotive industry in the second half and the impact of tariffs on sales and adjusted EBIT margin net of recovery. This revised outlook now implies the following midpoints. Net sales of $3.55 billion, flat to plus 1% at constant currency, net income of $280 million, adjusted EBIT of $510 million, net cash provided by operating activities of $415 million and adjusted free cash flow of $385 million.

With that, I'll now turn the call back to Olivier for his closing remarks.

Thanks, Sean. Now let's turn 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, Slide 13. First, we delivered strong Q3 results, fueled by share of demand gains in gasoline outperforming the industry, and this coupled with disciplined operational execution. We also generated $107 million of adjusted free cash flow in the quarter and $264 million year-to-date. This strong cash flow generation allowed us to invest in growing our turbo and zero-emission technologies.

To date, we continue to win greater than 50% of our new Turbo business awards as we have done over the last 5 years. Additionally, we see increased interest in stationary power generation, and we are expecting over $100 million of sales this year from these industrial applications. I am also very pleased with the progress we have made this year on our zero-emission technologies with the first series production award for our high-speed E-Powertrain, which demonstrates the substantial potential of this technology.

Momentum and interest continues to build for our high-speed oil-free e-cooling centrifugal compressor with customer testing, demonstrating significant efficiency gains compared to current technologies. This year, we refinanced and repriced our term loan, lowering our interest by 75 basis points and repaid $50 million of this debt this month.

We also initiated a quarterly dividend of $0.06 per share in Q1 and announced an increase to $0.08 per share for Q4. In addition, we repurchased $136 million of our common shares through Q3. These actions demonstrate our continued commitment to return capital to shareholders. I am very proud to highlight these achievements, positioning us extremely well for the remainder 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 Edison Yu with Deutsche Bank.

James Mulholland on for Edison. Congrats on the good quarter. Just looking at the volumes for the quarter, they were good, but they were fully offset by the mix. I was wondering if you could double-click on what you're seeing in there? Is it geographic based? Or is it something you're expecting to continue as diesel penetration falls relative to gas? Is there anything we should be specifically thinking about there?

So let me pick that up. That's a very good question. It's an opportunity for us to clarify. The mix that we see the impact is much more coming by 2 things. First, commercial vehicle versus growth in gasoline and gasoline turbos. And second, some weakness we keep on seeing on the aftermarket. So let me explain that.

We are seeing, as we have said, a huge growth on the gasoline side, 10%. Obviously, we know that those products, especially when they come from China. When they go for China are not exactly at the same margin as the rest of the business. So this is the first mix impact. We are -- we keep on seeing continued weakness on the commercial vehicle side in some regions, although I would say it's stabilizing, we are seeing some green shoots which makes us a bit more confident for the future.

And last but not least, we said that aftermarket was also subject to some weakness. And in aftermarket, the piece that so far has been weak this year is commercial vehicle off-highway aftermarket, where there is some destocking going on at some of our customers. And as the activity stabilize, we expect that this will still go on for some time and then at some point, recover.

So these are the 3 drivers. The first driver at the end of the day is a very good driver for us because it's meaning that we have -- we are quite successful versus the rest of the industry, especially in a region that is extremely demanding in terms of competitiveness. The 2 others, obviously, for us, it's much more cyclical effects that are impacting ourselves. And obviously, like any cycle at some point, they will recover.

Got it. Okay. And then just as a quick second question, and then I'll hop back in the line. On that commercial vehicle green shoots comment, is that going to be geographic based? Is it -- are you seeing some strength in certain areas or on off-highway versus Class 8? Is there any more detail that you can give there? Or is the outlook still pretty soft broad-based? Just some high-level thoughts on that, if you wouldn't mind.

It's pretty sub broad-based. But we have seen some signs of stabilization in China, which is a big region for us. And we should expect some stabilization, although at a low level. And then at some point, I guess it's marking the bottom of the cycle on off-highway and when I say off highway, it's mostly agricultural and construction equipment.

Our next question comes from Nathan Jones with Stifel.

I'd like to talk a bit about the 0 emissions technologies and the progress there. I know you guys have targeted $1 billion of revenue in 2030. Obviously, that number is quite low these days or today as you're in development. Can you maybe talk about the path that you're expecting to take from here to that $1 billion of revenue in 2030? And how we should think about kind of you announcing project wins that actually turn into the platform revenues and just kind of how we view the path of that over the next few years?

So that's a good question and giving me an opportunity to one more time to explain what we do there. First, we have 3 technologies that are counting towards that goal of the zero emission technology revenue. The first one is fuel cell compressors. So although the fuel cell compressor industry is impacted by the slowdown that we've seen on fuel cell compressor in terms of ramp-up, that's already something that we are doing. Quite frankly, it was not the major part of the $1 billion that we had announced and therefore, the slowdown that we have seen so far is just having a marginal impact on that.

Most of the $1 billion is coming from the 2 other technologies, the first one, E-Powertrain. As you have seen, we have announced wins and the biggest one being the -- and I say Hande and not Hande for some people that would make the confusion. Hande is a commercial vehicle player that belongs to the Weichai Galaxy. It's the biggest maker of axles and electric axles, not only for China but also for exports. In China, the industry already exists for electric trucks and is growing. So we are not subject to the slowdown of BEV passenger vehicle that we have seen in North America, and the slowdown of the growth that we have seen in Europe. So we are pleased with that. It keeps on growing.

We have more to come for both passenger vehicle and commercial vehicle, knowing that the first launch, which is associated to the first award will come in 2027, ramp up from there. From the beginning, we've said that on E-Powertrain, we would start into 2027 and ramp up from there. So we are fully aligned at this stage with the trajectory that we had laid out. Obviously, we are monitoring very closely the developments of penetration in countries subject obviously to the end markets in which we are playing.

And then the last one, which is E-Cooling compressors, which we are quite positive about. At the beginning, we are really betting a lot on what we call mobile application, which is equaling compressors for electric vehicles, mostly commercial vehicle for both battery cooling and also vehicle cooling. When you think about buses, we are still seeing a strong traction there.

But what we have seen over the last few months, that's what we wanted to highlight in our earnings today is that we have seen an increasing interest from the industrial world. So think about air conditioning systems that are on rooftop, up to some of the systems that are used in some data centers, where we have demonstrated that the technology we bring is having superior performance to what is existing and is using some innovation that are quite unique for us because we leverage the maturity that we have achieved on fuel cells to address fuel cell compressor to address a new vertical.

So we are coming with the strength of the size of the auto industry and we are coming from the strength of the maturity that you need to achieve in auto industry when you start production. So I'm extremely positive about this one, which is getting us into the industrial world out of the automotive world. And we cannot say much more than that at this stage, but results are extremely promising, and the interest of customer is quite high.

In terms of the predevelopment contracts that you've got going on there, is there any color you can give us on timing of when you expect those to become actual awards and what the timing might be on the start of production on those kinds of things?

Usual timing, when you start on preproduction, yes. It's about I would say it depends on the customer, but it can be a few months to 1.5 years, 2 years before we decide to go into production. You may remember that we've announced already some preproduction award already some time ago.

So obviously, there are some of them that are getting now much more mature. Although we are not ready to announce any yet. And obviously, for the rest, it will come later on. What's important is that when customers get into these programs with you, they are already committing energy, resources and money to help you assess and develop the technology. So that's already first, a very good sign.

And then maybe just one more on that. The margin profile for these products as they ramp up, do they start off maybe below corporate average and as volume improves, you get them to a higher level? Or will they be immediately accretive to the company? Just any color you can give us on the margin profile of the 0 emission products.

So the way we measure that is what we call material margin. So the margin we make between the material cost of the products and the price. And what we have always said and we'll keep on repeating that because we have more and more proof points around it, that on average, it's about the same or accretive to what we have on the turbo side.

Our next question comes from Hamed Khorsand with BWS Financial.

Could you just elaborate on the recovery you saw in diesel, please?

So yes, that was a year-over-year recovery, mainly in Europe and North America. But again, diesel overall is trending down slowly over time, but not nearly to the magnitude we saw back a few years ago. So diesel still is a very strong business for us. And again, we will be last man standing on the turbos for diesel. It's a vertical that has basically 100% penetration on turbo. And it's a business we like very much.

But let me add to what Sean is saying. The big decrease we've seen on diesel was basically linked to the shift on passenger vehicles from diesel to other technologies like gasoline and hybrid. We are more and more as we have been reducing that share of the business. We have been more and more coming to the end of it and with volumes of diesel remaining much more focused on what I would call light commercial vehicle application.

So think about delivery vans, pickup trucks, especially in Asia, all these vehicles are diesel, even in China. And today, the trend is that most of it will stay in diesel for the long run due to the specifics of diesel, which are associated with range gas consumption as well as I would say the truck that you need to move diesel.

Okay. And then, Olivier, if I heard you right, you said there's about $100 million this year from industrial use. Is that going into data center? If not, when does that get implemented and helping your sales?

So that's a good one because we introduced that information for this quarter. So let me explain what we mean by that. Even before we launched the main line of turbochargers, the big line that we launched about 1 year, 1.5 year ago, we were already doing a lot of very big turbochargers according to our range that we are fitted on gen set.

And what we've isolated this quarter is this number to give people a little bit of a view that already today, even at the start of the GEM ramp, the mag ramp-up. We are already doing $100 million in that field, supplying those turbos that are ingested that most of them are going already today to the backup power for data centers.

So we are not just venturing into something from scratch. We are extending our range with bigger turbos, but we are already doing a significant business in that field to our customers, whether in China, Europe or the U.S. by way.

[Operator Instructions]

Our next question comes from Jake Scholl with BNP Paribas..

Congrats on a great quarter. I appreciate you guys providing the color on your stationary power revenue. So as that business continues to ramp for you guys and especially as we see more demand in things like data centers and you roll out the potential industrial applications of E-Cooling compressor, what could that business look like if we out to 2030 or even 2035?

That's a very good question. I may not give you right away and I'll start with the number on this one. But let's keep in mind that first, it's growing and it's growing fast, obviously, from a smaller base. We've mentioned the $100 million for stationary power application. It's already a significant increase. It's already a double-digit increase versus last year and more to come. And including that's also a little bit premature to tell you exactly the numbers as we are really working on that with our customers.

But if we were consuming, we expect it to be significant. I don't think it will represent 50% of the sales of the company by any means, but that will be significant in the bond scheme up since.

Yes. Got it. And you guys delivered some very impressive capital returns this quarter, between dividends and buybacks totaling nearly $100 million. Is that what we should expect to see going forward, obviously, with some quarter-to-quarter variability?

Yes. Again, as I highlighted in my prepared remarks, we remain committed to 75% or more over time. But again, that will vary, as you noted, especially on share buybacks quarter-to-quarter depending upon macroeconomic and industry conditions. But that's -- we continue to focus in on returning the cash that we're generating to shareholders. That's a core part of our financial framework.

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

Tremendous quarter, everyone. Two questions. One is on the E-Cooling technologies for data center and industrial. What are the performance or form factor potential pricing attributes that you think will make this technology potentially very appealing to potential customers?

And the second question is forgive this, but a little bit more on capital allocation. I echo the points made by the prior caller about how strong a quarter it was. But this year, you're down a little bit year-to-date on stock and purchase versus last year and you have a lot more liquidity than you did last year. So should we be looking forward to potentially another very strong quarter in stock repurchase specifically or more weighted towards debt payback even with the $50 million debt pay down?

Yes. So Eric, I'll answer your first question, and I'm sure Sean will answer your second one. So back to E-Cooling question, what makes our product differentiated versus what already exists.

A few things. First, we are using high-speed electric models. We are compressing at a high speed. With high speed in compression comps efficiency. We have an expertise into high speed and our concept shows extremely low level of noise. So at the end of the day, weight, efficiency, noise, and we are leveraging a technology.

Now I'm getting a little bit technical where the system rotates on the cushion of air that we call air foil bearing that we have developed for the automotive industry. We have developed that for fuel cell compressors and we are uniquely positioned in the industry because we have the scale of the automotive industry. We have the maturity from a manufacturing standpoint.

It's a very complex, high-volume manufacturing to achieve that. So from a design, from a manufacturing standpoint, we have an edge with the system. So if you think about the capabilities of the company, high speed, high-speed electric motors, and then everything that revolves around rotating technology, in this case, this famous air cushion bearing are key points for our product that has to provide the benefit to our customers at the end and back to what I've said, it's weight. Sometimes these systems are on the roof of building. So weight is important.

More importantly, efficiency. Any kind of percentage you can save on electric consumption, especially nowadays with the pressure that everybody has to reduce their energy consumption is a bit and the maturity of our product versus some others, putting all that in the context of the world that is evolving when it comes to low global warming refrigerant that needs to be used moving forward. So we are coming at the right point in time where the industry is looking for improvements in the face of a change that is driven by this low global warming refrigerant and it shares the benefits that we bring to mobile applications are obviously extremely applicable to the buildings and the industrial applications as well. Now on the question about capital allocation.

Okay, Eric. So look, as everyone knows, there are some -- it's a volatile industry that we're in right now with new news every day, both from governments and the supply chain. But we are committed to returning capital to shareholders. But we're not going to commit to any specific number. But again, we've just raised our dividend, we had a very strong quarter of share buyback, and we repaid a little bit of debt. So those are the -- those are our 3 levers, and we expect to continue to use them going forward over time.

And to get to our goal on average to return 75%.

Correct.

Thank you for joining Garrett's Q3 earnings call. This concludes today's session.