Garrett Motion Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual report, not a standalone fourth-quarter filing; selected Q4 results are included below. Garrett designs and sells turbochargers, electric-boosting technologies and automotive software. It operates as one reportable segment.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $3.603 billion | $3.633 billion |
| Gross profit / margin | $683 million / 19.0% | $707 million / 19.5% |
| Net income | $390 million | $495 million |
| Adjusted EBITDA (non-GAAP) | $570 million | $607 million |
| Operating cash flow | $375 million | ($310 million) |
| Capital expenditures | $91 million | $72 million |
Sales declined 0.8%, including a $304 million adverse foreign-exchange translation impact. Improved mix and inflation recoveries partly offset currency effects, lower volumes and supply disruption. Adjusted EBITDA margin declined 90 basis points to approximately 15.8%, principally due to foreign exchange and inflation pass-through/pricing effects. Net income also reflected the absence of FY2021’s $125 million net reorganization gain and higher tax expense; FY2022 included $121 million of non-operating income, including interest income and pension-related items.
Fourth quarter: Net sales were $898 million, gross profit $161 million, net income $112 million and diluted EPS $0.23, compared with FY2021 Q4 sales of $862 million, gross profit of $155 million and net income of $128 million.
Liquidity and debt: Year-end cash and cash equivalents were $246 million, down from $423 million; restricted cash was an additional $2 million. Current assets were $1.431 billion and current liabilities $1.375 billion. Principal debt outstanding was $1.186 billion, with no revolving-facility borrowings and $475 million available. The company repaid the remaining Series B Preferred Stock in 2022. Series A Preferred Stock dividends accumulate at 11% annually; $83 million of cash dividends were declared in 2022, and $171 million of cumulative dividends were unpaid at year-end. Shareholders’ equity was a deficit of $116 million.
Changes, outlook and key risks
- Revenue was broadly flat year over year, while gross profit and Adjusted EBITDA declined. Operating cash flow improved substantially, partly because FY2021 included a $375 million payment to Honeywell under the reorganization plan.
- 2022 demand and production were affected by semiconductor shortages, China’s COVID-related restrictions, supply-chain disruption, geopolitical tensions and inflation. The company reported productivity savings and customer cost-recovery agreements, but higher commodity, transport, energy and premium-freight costs remained pressures.
- Management expects 2023 capital spending to be similar to 2022, with greater investment in electrification offset by investment in core technologies. It expects $7 million of Dollar Term Facility repayments and approximately $7 million of non-U.S. pension contributions. Management stated that expected cash flows and committed facilities should provide adequate liquidity; this is subject to business and market risks.
- Management’s industry outlook anticipates turbocharger volumes rising from about 46 million units in 2022 to 48 million by 2024, then declining toward 41 million by 2028. These are third-party industry estimates, not company revenue guidance. Garrett is increasing electrification and fuel-cell investment; more than 50% of 2022 R&D spending focused on electrification.
- Material risks include faster-than-expected transition to battery electric vehicles, customer concentration and OEM pricing pressure, supplier and component disruption, commodity and foreign-exchange volatility, floating-rate debt, and execution of new product launches. The ten largest customers represented about 59% of sales; the largest was 12%.
- Contingencies include a Brazilian tax dispute estimated at $33 million, which the company says is not probable and has not accrued, and a securities class action with dismissal proceedings ongoing. Environmental remediation reserves were $17 million. Management did not expect the disclosed legal matters, individually or collectively, to materially affect financial position, results or cash flows. No material cybersecurity event was reported for 2022.
Important facts for investors to verify
- Reconcile the decline in Adjusted EBITDA and margins against foreign exchange, inflation, pricing recoveries, product mix and productivity; confirm non-GAAP calculations and adjustments.
- Assess whether operating cash flow is sustainable, given working-capital movements and the unusual prior-year Honeywell payment; monitor capital spending and cash balances.
- Review debt service costs, variable-rate exposure, covenant headroom and the cumulative 11% Series A dividend obligation, including potential dilution upon conversion.
- Track customer and regional concentration, supply-chain exposure, OEM pricing terms and the pace of electrification relative to Garrett’s product and R&D plans.
- Follow the Brazilian tax matter, securities litigation and environmental remediation estimates for changes in probability, accruals or potential cash impact.
Audit: Deloitte issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2022.