Garrett Motion Inc. (GTX)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Interim Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the audited annual Consolidated Financial Statements for the year ended December 31, 2025, included in our 2025 Form 10-K. Some of the information contained in this MD&A or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve various risks and uncertainties. Please refer to the "Special Note Regarding Forward-Looking Statements" below.

The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the three and six months ended June 30, 2026.

Executive Summary

During the second quarter of 2026, we outperformed the light vehicle industry and saw growth across all verticals. This was primarily driven by increased gasoline volumes from new program launches, strong demand in light commercial vehicle as well as continued industrial growth. Aftermarket growth further contributed to a favorable product mix. We delivered strong operating performance year-over-year, resulting in Net income for the quarter of $101 million and Adjusted EBIT(1) of $152 million. As the broader macroeconomic and geopolitical conditions evolve, we continue to actively monitor developments and their potential impacts on the industry and our operations.

We continue to have success across our differentiated technologies by winning business in both turbo and zero emission offerings. We secured light vehicle turbo, commercial vehicle and industrial awards across multiple regions, including turbo technology for data centers. We have also received favorable feedback from mobility and industrial customers related to expected efficiency gains from our E-Cooling oil-free compressor over existing recognized technologies. We also kicked off pre-development of a commercial vehicle E-powertrain with a Japanese truck maker.

For the three months ended June 30, 2026, we repurchased $28 million of Common Stock under our share repurchase program. As of June 30, 2026, we had $135 million of the authorized amount remaining under our share repurchase program. The repurchased shares are held as treasury stock.

On April 30, 2026, the Board of Directors declared a cash dividend of $0.08 per share of Common Stock, payable on June 15, 2026, to shareholders of record as of June 1, 2026. The total amount of dividends paid on June 15, 2026 amounted to $15 million. On July 29, 2026, the Board of Directors declared a cash dividend of $0.08 per share of Common Stock, payable on September 15, 2026, to shareholders of record as of September 1, 2026.

(1) Adjusted EBIT is a non-GAAP measure. Refer to "Non-GAAP Measures" below for a definition of Adjusted EBIT and a reconciliation of Adjusted EBIT to net income, the most directly comparable GAAP financial measure.

Disaggregated Revenue

The following tables show our revenues by geographic region and product line for the three and six months ended June 30, 2026 and 2025, respectively.

By Region

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By Product Line

Results of Operations for the Three and Six Months Ended June 30, 2026

Net Sales

Net Sales for the Three Months Ended June 30, 2026

For the three months ended June 30, 2026, net sales compared to the prior period increased by $63 million or 7% (including a favorable impact of $15 million or 2% due to foreign currency fluctuation). The increase was primarily related to higher demand across all verticals, favorable price net of inflation pass-through, and foreign currency impacts, partially offset by lower customer recoveries on import tariffs.

Gasoline product sales increased by $18 million or 5% (including a favorable impact of $7 million or 2% due to foreign currency translation), primarily driven by new application launches and program ramp-ups in Europe, India, and South America.

Diesel product sales increased by $18 million or 8% (including a favorable impact of $6 million or 2% due to foreign currency translation), primarily driven by strong demand for light commercial vehicles and pickup trucks in Europe, Asia, and South America, and program ramp-ups in India.

Commercial vehicle and Industrial sales increased by $18 million or 10% (with no impact from foreign currency translation), primarily driven by volume recovery in China and continued industrial growth in China and North America stationary power generation ("Gensets") for data centers.

Aftermarket sales increased by $8 million or 8% (including a favorable impact of $2 million or 1% due to foreign currency translation), primarily due to stronger demand for replacement parts in Europe, China, and Australia, partially offset by softer demand for off-highway replacement parts in North America.

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Net Sales for the Six Months Ended June 30, 2026

For the six months ended June 30, 2026, net sales compared to the prior period increased by $170 million or 9% (including a favorable impact of $73 million or 4% due to foreign currency translation). The increase was primarily related to higher demand across all verticals, and favorable foreign currency impacts, partially offset by unfavorable price net of inflation pass-through and lower customer recoveries on import tariffs.

Gasoline product sales increased by $58 million or 7% (including a favorable impact of $34 million or 4% due to foreign currency translation), primarily driven by new application launches and program ramp-ups in Europe, India, and South America.

Diesel product sales increased by $42 million or 10% (including a favorable impact of $24 million or 6% due to foreign currency translation), primarily driven by strong demand for light commercial vehicles and pickup trucks in Europe, Asia, and South America and program ramp-ups in India.

Commercial vehicle and Industrial sales increased by $44 million or 14% (including a favorable impact of $6 million or 2% due to foreign currency translation), primarily driven by volume recovery in China and continued industrial growth in China and North America Gensets for data centers.

Aftermarket sales increased by $24 million or 11% (including a favorable impact of $8 million or 3% due to foreign currency translation), primarily due to stronger demand for replacement parts in Europe, India, China, and Australia, while North America remains stable compared with the prior period.

Cost of Goods Sold and Gross Profit

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Cost of Goods Sold and Gross Profit for the Three Months Ended June 30, 2026

For the three months ended June 30, 2026, cost of goods sold increased by $32 million, primarily driven by $35 million from higher sales volumes, $18 million of unfavorable mix, $15 million from foreign currency impacts, and $8 million of commodity, transportation, and energy inflation. These increases were partially offset by $24 million productivity net of labor inflation and repositioning costs, $16 million of lower import tariffs, and $4 million of lower RD&E costs.

For the three months ended June 30, 2026, gross profit increased by $31 million, primarily driven by $16 million from higher sales volumes, $8 million productivity net of labor inflation and repositioning costs, $8 million of price net of inflation pass-through, $4 million of lower RD&E costs, and $3 million of favorable product mix. These increases were partially offset by $8 million of commodity, transportation, and energy inflation. There was no impact from import tariffs for the three months ended June 30, 2026.

Cost of Goods Sold and Gross Profit for the Six Months Ended June 30, 2026

For the six months ended June 30, 2026, cost of goods sold increased by $122 million, primarily driven by $77 million from higher sales volumes, $55 million of foreign currency impacts, $22 million of favorable mix, and $6 million of commodity, transportation, and energy inflation. These increases were partially offset by $17 million productivity net of labor inflation and repositioning costs, $11 million of lower RD&E costs, and $10 milli

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Financial Statements and related notes thereto and other financial information appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the "Risk Factors" section of this Annual Report, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.

Executive Summary

Garrett is a cutting-edge technology leader delivering differentiated solutions for emission reduction and energy efficiency. We design, manufacture, and sell highly engineered turbocharging, air and fluid compression, and high-speed electric motor technologies for OEMs and independent aftermarket distributors in the mobility and industrial fields.

We have significant expertise in delivering highly engineered products at scale for internal combustion engines using gasoline, diesel, natural gas and hydrogen, as well as for zero-emission vehicles. Our products are key enablers for fuel economy, energy efficiency, thermal management, and compliance with greenhouse gas and other emission reduction targets.

In 2025, turbocharger production increased globally from approximately 49 million units in 2024 to nearly 50 million units in 2025, and is expected to decrease from 2026 onward based on current expectations of electric vehicle penetration. We effectively navigated through macroeconomic and geopolitical challenges, including a very dynamic trade environment as a result of tariff actions, by implementing strategic permanent and variable cost measures, as well as leveraging commodity deflation pass-through. Our effective management allowed us to achieve Net income of $310 million and Adjusted EBIT of $510 million for the year.

We continue to achieve success in our turbocharging, hybrid, and zero-emission technology applications. This year, we secured additional pre-production contracts for both light vehicle (including hybrid and range extended electric vehicle technologies), and commercial vehicle applications. Additionally, we were awarded our first E-Powertrain application in early 2025 and have made significant progress in our air and cooling compression technologies, as evidenced with various partnerships and pre-development contracts throughout 2025 and into early 2026.

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During 2025, we repaid $50 million on our 2025 Dollar Term Facility and paid cash dividends of $52 million. We also repurchased $208 million of Common Stock under our share repurchase program. These repurchases include a total of 7.5 million shares of Common Stock for $103 million from funds affiliated with Oaktree Capital Management, L.P., a related party. The repurchased shares are held as treasury stock.

Trends, Uncertainties and Opportunities

Current global economic conditions due to geopolitical conflicts, high inflation in Europe, and China's slow pace of recovery, all have adversely affected and may continue to adversely affect many industries, including the automotive industry. We believe a global increase in BEV production will persist into 2026. We anticipate that demand for turbochargers will remain steady in the short to medium term, driven by the growing penetration of hybridized powertrains in response to strict fuel efficiency and emissions standards. While we foresee continued growth in BEV adoption, we believe it will be somewhat constrained in the short term due to the price disparity compared to ICE vehicles, geopolitical risks, and the slower-than-expected development of charging infrastructure.

Disaggregated Revenue

The following tables show our revenues by geographic region and product line for the years ended December 31, 2025 and 2024.

By Region

By Product Line

Results of Operations

Year Ended December 31, 2025 Compared with Year Ended December 31, 2024

Net Sales

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The change in net sales compared to the prior year is attributable to the following:

For the year ended December 31, 2025, net sales increased compared to prior year by $109 million or 3%, including a favorable impact of $62 million or 2% due to foreign currency translation primarily driven by fluctuations in global exchange rates. This increase was primarily related to favorable foreign currency impacts, and higher demand in gasoline and commercial vehicles, partially offset by weaker demand for replacement parts on aftermarket sales. Net sales also includes $40 million of recoveries on import tariffs, partially offset by unfavorable product mix.

Gasoline product sales increased by $87 million or 6% (including a favorable impact of $24 million or 2% due to foreign currency translation), primarily driven by new application launches and program ramp-ups in Europe, North America, South America and India.

Diesel product sales increased by $10 million or 1% (including a favorable impact of $24 million or 3% due to foreign currency translation), primarily driven by passenger vehicles in Europe pursuing transition to gasoline hybrids, partially offset by demand for pickup trucks in North America, South America and Southeast Asia.

Commercial vehicle sales increased by $25 million or 4% (including a favorable impact of $6 million or 1% due to foreign currency translation), primarily driven by growth in off-highway programs across regions.

Aftermarket sales decreased by $21 million or 5% (including a favorable impact of $7 million or 1% due to foreign currency translation), primarily driven by softer demand for off-highway replacement parts in North America, partially offset by stronger demand in Europe and China.

Cost of Goods Sold and Gross Profit

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For the year ended December 31, 2025, cost of goods sold increased by $83 million, primarily driven by higher sales volumes which contributed to an increase of $65 million. Cost of goods sold further increased from $41 million of import tariffs, $33 million of foreign currency impacts from transactional, translational, and hedging effects and $12 million of unfavorable product mix. These increases were partially offset by $24 million of commodity, transportation and energy deflation, $24 million of productivity, net of labor inflation and repositioning costs, and $20 million of lower RD&E costs, net of customer reimbursements.

Gross profit increased by $26 million, mainly driven by higher sales volumes which contributed an increase of $29 million. Gross profit further increased from $30 million of foreign currency impacts from transactional, translational, and hedging effects, $24 million of commodity, transportation and energy deflation, $24 million of productivity, net of labor inflation and repositioning costs, and $20 million of lower RD&E costs, net of customer reimbursements. These increases were partially offset by $70 million of unfavorable impact from product mix, $30 million of price, net of inflation pass-through and $1 million of import tariffs.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses remained at the same level compared with the prior year. A $7 million reduction in personnel costs related to cost measures implemented in current and prior years and $5 million of lower outsourced activities were offset by $7 million of unfavorable foreign currency impacts and $6 million in professional fees related to merger and acquisition activity.

Other Expense, Net

For the year ended December 31, 2025, other expense, net amounted to $10 million compared to $6 million in the prior year. This increase was primarily due to professional fees incurred related to the Restatement Agreement (as defined herein).

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Interest expense

Interest expense decreased by $48 million in 2025 compared to prior year. This reduction was primarily due to a $30 million reduction in debt issuance cost amortization, driven by accelerated amortization in the prior year, and $25 million of lower interest expense resulting from the amendment and restatement and repricing of our Credit Agreement. In addition, we recorded net gains of $7 million on our designated and undesignated interest derivatives in the current year, in comparison to net gains of $14 million in the prior year.

Non-operating income, net

For the year ended December 31, 2025, non-operating income, net amounted to $19 million compared to $13 million in the prior year. The increase was primarily driven by $5 million in higher foreign exchange transactional gains, a $2 million increase in the non-service cost components of net periodic pension benefits and a $1 million increase in interest income, partially

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