Garrett Motion Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Garrett designs and sells turbocharging, air and fluid compression, and electric-motor technologies for mobility and industrial customers.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $3.886 billion | $3.603 billion |
| Gross profit / margin | $756 million / 19.5% | $683 million / 19.0% |
| Net income | $261 million | $390 million |
| Adjusted EBITDA (non-GAAP) | $635 million | $570 million |
| Operating cash flow | $465 million | $375 million |
| Capital expenditures | $83 million | $91 million |
| Interest expense | $159 million | $8 million |
- Sales increased 7.9%, principally on higher volumes, product launches and ramp-ups, and inflation recoveries. Gasoline sales rose 16%; diesel rose 5%; commercial vehicle sales fell 3%; aftermarket sales rose 3%.
- Net income declined $129 million despite higher gross profit. The main reported pressures were higher interest expense, SG&A, and lower non-operating income. Adjusted EBITDA increased $65 million, supported by volume, productivity and pricing recoveries.
- Cash and cash equivalents were $259 million at year-end. Principal debt outstanding was $1.696 billion, versus $1.186 billion a year earlier. The company had no revolving-facility borrowings and $570 million of available capacity; it reported compliance with financing covenants.
- Balance-sheet liabilities exceeded assets: total liabilities were $3.262 billion and reported equity was a $735 million deficit.
- FY2023 diluted and basic loss per share were both $0.31, versus earnings per share of $0.75 in 2022. The 2023 common-share result included $80 million of preferred dividends and $232 million of deemed preferred dividends following the capital-structure transaction.
- Fourth-quarter 2023 sales were $945 million, gross profit $189 million, and net income $52 million. Fourth-quarter 2022 figures were $898 million, $161 million, and $112 million, respectively.
Material changes and notable items
- Garrett repurchased 69.7 million Series A preferred shares and converted the remaining 175.3 million into common shares, eliminating the Series A preferred stock. The transaction involved $605 million of cash payments and issuance of common shares for accrued preference dividends.
- The transaction was primarily financed with a new $700 million term loan. Garrett repaid $200 million of that facility during 2023 and repurchased $213 million of common stock. A new $350 million share-repurchase authorization was approved in February 2024.
- Interest expense rose sharply, reflecting higher borrowing costs and derivative mark-to-market effects. Adjusted EBITDA is a non-GAAP measure; the company changed its definition in 2023 to exclude capital-structure-transformation expenses.
- Revenue remained concentrated in OEM sales (about 86% of FY2023 revenue). The ten largest customers represented about 61% of sales; the largest accounted for 12%.
Outlook, risks and contingencies
- Management expects 2024 capital spending to increase slightly from 2023, with greater investment in zero-emission technologies and lower investment in turbo technologies. It expects to repay $7 million on the 2021 term facility, make about $36 million in purchase-obligation payments, and contribute about $7 million to non-U.S. pension plans.
- Management stated that expected operating cash flows, term-loan borrowings and committed revolving facilities should provide adequate liquidity. The filing gives no clear quantified 2024 revenue, earnings or cash-flow guidance.
- Strategic focus includes defending turbocharger leadership, growing aftermarket sales, and developing fuel-cell compressors, E-Powertrain and E-Cooling products. Garrett reported nine pre-development contracts for E-Powertrain/E-Cooling and six production awards for fuel-cell compressors in 2023; these newer opportunities carry commercialization and adoption risk.
- Key risks include vehicle-production cyclicality, faster-than-expected adoption of battery-electric vehicles, OEM pricing pressure and cancellable or non-minimum-volume purchase arrangements; customer and supplier concentration; China exposure and geopolitical, trade, foreign-exchange and supply-chain disruption; commodity and interest-rate volatility; and substantial debt.
- Environmental remediation reserves were $18 million. A Brazilian tax assessment was estimated at $39 million including penalties and interest; management said liability was not probable and recorded no accrual. A securities class action was dismissed with prejudice in 2023, but plaintiffs appealed; no oral-argument date had been set in the filing.
- The auditor issued unqualified opinions on the financial statements and internal controls. Management reported effective disclosure controls and internal control over financial reporting as of year-end. No cybersecurity incident materially affected the company in 2023.
Important facts for investors to verify
- Whether operating cash generation can sustain debt service, planned investment and share repurchases, and how variable-rate debt and hedges affect future interest expense.
- Progress on customer launches and revenue conversion for electrification and fuel-cell awards, including the timing and economics of production programs.
- Volume, margin and pricing trends across gasoline, diesel, commercial vehicle and aftermarket products, alongside OEM and customer concentration.
- Current status and potential financial exposure of the Brazilian tax matter, securities-litigation appeal, environmental remediation and other contingencies.
- Execution and funding of the new $350 million repurchase authorization, considering the company’s deficit equity position and capital requirements.