PHINIA INC. Q1 FY2025 earnings call

Overall First Quarter Comments: The first quarter developed largely as expected with strong business retention, new conquest wins, capital return strategy delivery, and a healthy balance sheet. The macroeconomic environment and automotive industry showed signs of slowing. Net sales were $796 million, down 7.8% year over year. ### New Business Wins: Sustained momentum in new customer growth and new product development. Highlights include a 350 bar gasoline direct injection system for Brazil, high-volume fuel delivery module wins in the Americas, conquest selected catalyst reduction pump win in China, aftermarket business wins in Scandinavia and Canada, business expansion with a major US distributor, and increased share of wallet with a major US distributor. ### Capital Allocation: Balance sheet remains strong with cash and cash equivalents of $373 million and total liquidity of approximately $900 million. Net leverage ratio was 1.4 times. Returned $111 million to shareholders via share buybacks and dividends during the first quarter.

In the first quarter, net sales were $796 million, down 7.8% from the same period of the prior year. Excluding the FX impact and CMA agreements in place last year, revenue decreased 4.1%. Aftermarket segment sales decreased 3.9% year over year primarily due to lower OEM sales. Fuel system segment sales were down 10.2% including prior year contract manufacturing sales, or 7.3% excluding the effect of contract manufacturing. Adjusted EBITDA was $103 million with a margin of 12.9%, a 260 basis point year-over-year decline. Total segment adjusted operating margins were 12.2%, a 140 basis point decrease compared with the first quarter of 2024. Adjusted earnings per diluted share excluding non-operating items was $0.94.

Reaffirming 2025 guidance. Anticipate reduced headwinds related to exchange rates. Expect any new tariffs incurred to fully pass through to customers. Macroeconomic factors like US tariff structure changes and emissions regulations uncertainty point to continued softness in commercial vehicle market. Expect industry trends in 2025 similar to 2024 with same level of sales in first half as last half of 2024. Full year effective tax rate expected to be between 38% and 42%.

Macroscopic economic environment and automotive industry slowing, tariffs impact, exchange rate fluctuations, uncertainty in emissions regulations both in US and abroad, continuation of elevated interest rates which point to continued softness in commercial vehicle market.

Q: Jake Scholl asked about tariff exposure on USMCA compliant and non-USMCA compliant basis.

A: Brady Ericson said bulk of North American business is USMCA compliant, over half, and more than half of revenues stay within country, ongoing discussions with customers are good.

Q: Joseph Spak asked about FX impact on softer end markets and margin trends.

A: Brady Ericson said FX headwind reduced, tariff pass-through and volume factors are key, Q1 is weakest quarter for aftermarket and fuel system.

Q: Bobby Brooks asked about timeline of 350 bar GDI deal in Brazil and wallet size expansion with US distributor.

A: Brady Ericson said Brazil program has been in development, details on wallet size expansion not specific but key win for growth.

Q: David Silver asked about product development commercialization rates and aerospace business update.

A: Chris Gropp said expect couple thousand plus SKUs added annually, aerospace business making progress with ongoing certifications.

Q: Federico Miranda asked about commercial vehicle environment, potential heavy-duty truck tariffs, and share buybacks.

A: Brady Ericson said CV volumes in North America not having pre-buy effect, share buybacks assessed each quarter with tax manager agreement limiting repurchasing near 20% limit by July third