PHINIA INC. Q3 FY2024 earnings call

• Launched new products, expanded in growing markets, and developed partnerships in the Aftermarket segment.
• Strengthened balance sheet by replacing high-cost debt with $450 million senior unsecured notes due in 2032, extinguished term loans A and B, and amended credit agreement to be less restrictive on dividends and share buybacks.
• Exited all material contract manufacturing agreements with former parent.
• Published first sustainability report.
• Reported adjusted free cash flow of $60 million and strong cash position with $477 million in cash and cash equivalents.

The Aftermarket segment accounts for about 42% of sales and had strong sales, contributing to the results. The Fuel Systems segment was resilient but had lower sales. Net sales in the quarter were $839 million, down 6.4% from the prior year or down 3.7% on an adjusted sales basis. Adjusted EBITDA was $120 million, a 90 basis point year-over-year increase. Aftermarket segment sales were up 6% year-over-year due to higher pricing and volume. Fuel Systems segment sales were down 13.7% or 9.7% excluding contract manufacturing effects.

• Revised adjusted sales range to $3.34 billion to $3.39 billion for 2024.
• Projected adjusted EBITDA to be $470 million to $490 million with EBITDA margin 14.1% to 14.5%.
• Market softness expected to continue into Q4 2024 and be greater than previously anticipated, with expectations of continued softness in CV markets into 2025 before recovery.

Q: Can you provide color on the outlook to markets in the fourth quarter and how to think about sales and earnings by segment?

A: Brady Ericson said things will remain soft, with Q4 seeing softness continuing from Q3, a tale of two halves. Chris Gropp noted it's mainly CV. Brady added CV and light vehicle will be consistent, maybe with a slight uptick next year but relatively flat. Margin expectation is Aftermarket around 15% operating income and Fuel Systems north of 10% while managing on the downside from revenue perspective.

Q: How should we think about the second half of this year being a run rate into 2025?

A: Brady Ericson said Fuel Systems will have soft sales similar to Q3 into Q4. In 2025, CV will remain soft in the first half, with recovery expected in the second half, possibly from pre-buy for North America EPA27 or other applications, and additional launches in the next year.