PHINIA (PHIN) - 2025 Q2 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements The company presents its unaudited condensed consolidated financial statements and accompanying notes for the periods ended June 30, 2025 and 2024 Condensed Consolidated Balance Sheets (Unaudited) Total assets grew to $3,894 million, driven by increases in receivables, inventories, and goodwill Balance Sheet Summary | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Total assets | $3,894 | $3,768 | +$126 | +3.3% | | Total liabilities | $2,267 | $2,194 | +$73 | +3.3% | | Total equity | $1,627 | $1,574 | +$53 | +3.4% | | Cash and cash equivalents | $347 | $484 | -$137 | -28.3% | | Receivables, net | $905 | $817 | +$88 | +10.8% | | Inventories | $501 | $444 | +$57 | +12.8% | | Goodwill | $505 | $471 | +$34 | +7.2% | | Retained earnings | $95 | $44 | +$51 | +115.9% | | Accumulated other comprehensive loss | $(76) | $(217) | +$141 | -64.9% | | Treasury stock | $(367) | $(230) | -$137 | +59.6% | Condensed Consolidated Statements of Operations (Unaudited) Quarterly net earnings surged to $46 million on higher sales, while six-month earnings grew despite a slight sales decline Three-Month Operational Performance | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | :--------- | | Net sales ($ in millions) | $890 | $868 | +$22 | +2.5% | | Gross profit ($ in millions) | $197 | $188 | +$9 | +4.8% | | Operating income ($ in millions) | $89 | $71 | +$18 | +25.4% | | Earnings before income taxes ($ in millions) | $75 | $37 | +$38 | +102.7% | | Net earnings ($ in millions) | $46 | $14 | +$32 | +228.6% | | Basic EPS ($) | $1.16 | $0.31 | +$0.85 | +274.2% | | Diluted EPS ($) | $1.14 | $0.31 | +$0.83 | +267.7% | Six-Month Operational Performance | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Net sales ($ in millions) | $1,686 | $1,731 | -$45 | -2.6% | | Gross profit ($ in millions) | $369 | $380 | -$11 | -2.9% | | Operating income ($ in millions) | $151 | $142 | +$9 | +6.3% | | Earnings before income taxes ($ in millions) | $125 | $93 | +$32 | +34.4% | | Net earnings ($ in millions) | $72 | $43 | +$29 | +67.4% | | Basic EPS ($) | $1.80 | $0.95 | +$0.85 | +89.5% | | Diluted EPS ($) | $1.76 | $0.93 | +$0.83 | +89.2% | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Comprehensive income significantly improved to $136 million for the quarter, driven by positive foreign currency adjustments Comprehensive Income (Loss) Summary | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net earnings | $46 | $14 | $72 | $43 | | Foreign currency translation adjustments | $91 | $(18) | $143 | $(39) | | Defined benefit pension plans | $(2) | $(1) | $(3) | $(2) | | Hedge instruments | $1 | $0 | $1 | $0 | | Total other comprehensive income (loss) | $90 | $(19) | $141 | $(41) | | Comprehensive income (loss) | $136 | $(5) | $213 | $2 | Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow decreased to $97 million due to working capital needs, while financing and investing cash usage increased Six-Month Cash Flow Summary | Activity | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------- | :--------- | | Net cash provided by operating activities | $97 | $140 | -$43 | -30.7% | | Net cash used in investing activities | $(68) | $(59) | -$9 | +15.3% | | Net cash used in financing activities | $(169) | $(126) | -$43 | +34.1% | | Net decrease in cash and cash equivalents | $(137) | $(26) | -$111 | +426.9% | | Cash and cash equivalents at end of period | $347 | $339 | +$8 | +2.4% | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail accounting policies and provide breakdowns for key financial statement line items for the reported periods Introduction - PHINIA is a global leader in developing, designing, and manufacturing integrated components and systems for combustion and hybrid propulsion systems across commercial, industrial, light commercial, and light passenger vehicles, also providing OES solutions and remanufactured products for the independent aftermarket[20] - PHINIA became an independent publicly-traded company on July 3, 2023, following a spin-off from BorgWarner Inc[21] NOTE 1 BASIS OF PRESENTATION - The Company adopted ASU 2023-07, "Segment Reporting," effective for interim periods beginning after December 15, 2024, to improve reportable segment disclosures[24][25] - The Company will adopt ASU 2023-09, "Income Taxes," effective for annual periods beginning after December 15, 2024, requiring disaggregated information on effective tax rate reconciliation and income taxes paid[26] - The Company will adopt ASUs 2024-03 and 2025-01, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures," effective for annual periods beginning after December 15, 2026, which will result in additional disclosures but no material impact on financial statements[27] NOTE 2 REVENUE FROM CONTRACTS WITH CUSTOMERS Contract Liabilities | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :----------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Total contract liabilities | $14 | $7 | +$7 | +100.0% | | Current portion | $5 | $3 | +$2 | +66.7% | | Non-current portion | $9 | $4 | +$5 | +125.0% | Net Sales by Segment and Region (Three Months Ended June 30) | Region | Fuel Systems (2025) ($ in millions) | Aftermarket (2025) ($ in millions) | Total (2025) ($ in millions) | Fuel Systems (2024) ($ in millions) | Aftermarket (2024) ($ in millions) | Total (2024) ($ in millions) | | :------- | :---------------------------------- | :--------------------------------- | :--------------------------- | :---------------------------------- | :--------------------------------- | :--------------------------- | | Americas | $184 | $185 | $369 | $177 | $192 | $369 | | Europe | $218 | $149 | $367 | $227 | $137 | $364 | | Asia | $135 | $19 | $154 | $114 | $21 | $135 | | Total | $537 | $353 | $890 | $518 | $350 | $868 | Net Sales by Segment and Region (Six Months Ended June 30) | Region | Fuel Systems (2025) ($ in millions) | Aftermarket (2025) ($ in millions) | Total (2025) ($ in millions) | Fuel Systems (2024) ($ in millions) | Aftermarket (2024) ($ in millions) | Total (2024) ($ in millions) | | :------- | :---------------------------------- | :--------------------------------- | :--------------------------- | :---------------------------------- | :--------------------------------- | :--------------------------- | | Americas | $361 | $364 | $725 | $364 | $384 | $748 | | Europe | $408 | $276 | $684 | $454 | $262 | $716 | | Asia | $241 | $36 | $277 | $227 | $40 | $267 | | Total | $1,010 | $676 | $1,686 | $1,045 | $686 | $1,731 | NOTE 3 RESEARCH AND DEVELOPMENT COSTS R&D Costs Summary | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Gross R&D costs | $46 | $52 | $92 | $104 | | Customer reimbursements | $(16) | $(22) | $(34) | $(47) | | Net R&D costs | $30 | $30 | $58 | $57 | | Net R&D as % of net sales | 3.4% | 3.5% | 3.4% | 3.3% | NOTE 4 OTHER OPERATING (INCOME) EXPENSE, NET Other Operating (Income) Expense Breakdown | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Restructuring | $2 | $3 | $7 | $5 | | Transaction-related (benefits) costs | $(4) | $3 | $(5) | $20 | | Other operating income, net | $(2) | $(1) | $(3) | $(3) | | Total | $(4) | $5 | $(1) | $22 | - Transaction-related benefits for Q2 2025 included an $11 million benefit from Tax Matters Agreement indemnities, offset by $5 million in Spin-Off costs and $2 million for strategic acquisition initiatives[36] - The Company announced the acquisition of Swedish Electromagnet Invest AB (SEM) for approximately $47 million, expected to close in Q3 2025[37] NOTE 5 INCOME TAXES Effective Tax Rate | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three Months Ended June 30 | 39% | 62% | | Six Months Ended June 30 | 42% | 54% | - The decrease in effective tax rate was primarily due to a change in the jurisdictional mix of pre-tax earnings, partially offset by an increase in uncertain tax position reserves related to pre-Spin-Off periods[40][41] - The Company provisionally calculated additional top-up tax under the Pillar 2 Framework in certain jurisdictions, which is not significant to the total 2025 income tax provision[43] - The Company is currently assessing the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements[44] NOTE 6 RECEIVABLES, NET Receivables Breakdown | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Customers | $666 | $574 | +$92 | +16.0% | | Indirect taxes | $110 | $119 | -$9 | -7.6% | | Due from Former Parent | $85 | $80 | +$5 | +6.3% | | Other | $52 | $53 | -$1 | -1.9% | | Gross receivables | $913 | $826 | +$87 | +10.5% | | Allowance for credit losses | $(8) | $(9) | +$1 | -11.1% | | Total receivables, net | $905 | $817 | +$88 | +10.8% | NOTE 7 INVENTORIES Inventory Breakdown | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Raw material and supplies | $250 | $234 | +$16 | +6.8% | | Work-in-progress | $50 | $40 | +$10 | +25.0% | | Finished goods | $201 | $170 | +$31 | +18.2% | | Total Inventories | $501 | $444 | +$57 | +12.8% | NOTE 8 OTHER CURRENT AND NON-CURRENT ASSETS Prepayments and Other Current Assets | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Prepaid taxes | $37 | $32 | +$5 | +15.6% | | Prepaid customer tooling | $24 | $14 | +$10 | +71.4% | | Derivative instruments | $5 | $0 | +$5 | N/A | | Total prepayments and other current assets | $119 | $96 | +$23 | +24.0% | Investments and Long-Term Receivables | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Long-term receivables | $59 | $52 | +$7 | +13.5% | | Investment in equity affiliates | $59 | $51 | +$8 | +15.7% | | Total investments and long-term receivables | $126 | $111 | +$15 | +13.5% | NOTE 9 GOODWILL AND OTHER INTANGIBLES Goodwill by Segment | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Net goodwill balance | $505 | $471 | +$34 | +7.2% | | Fuel Systems goodwill | $68 | $60 | +$8 | +13.3% | | Aftermarket goodwill | $437 | $411 | +$26 | +6.3% | | Translation adjustment | $34 | N/A | +$34 | N/A | Other Intangible Assets | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Total amortized intangible assets, net | $236 | $234 | +$2 | +0.9% | | Unamortized trade names, net | $151 | $140 | +$11 | +7.9% | | Total other intangible assets, net | $387 | $374 | +$13 | +3.5% | NOTE 10 PRODUCT WARRANTY Product Warranty Liability Roll-Forward | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Beginning balance, January 1 | $61 | $56 | | Provisions for current period sales | $24 | $18 | | Payments | $(22) | $(20) | | Other, primarily translation adjustment | $3 | $(1) | | Ending balance, June 30 | $66 | $53 | Product Warranty Liability Breakdown | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :-------------------------- | :---------------------------- | :-------------------------------- | | Other current liabilities | $34 | $36 | | Other non-current liabilities | $32 | $25 | | Total product warranty liability | $66 | $61 | NOTE 11 NOTES PAYABLE AND DEBT Long-Term Debt | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | | :-------------------------------- | :---------------------------- | :-------------------------------- | | 5.000% Senior Notes due 10/01/25 | $24 | $24 | | 6.750% Senior Notes due 04/15/29 | $519 | $518 | | 6.625% Senior Notes due 10/15/32 | $444 | $444 | | Finance leases | $3 | $2 | | Total long-term debt | $990 | $988 | - The Company had $499 million available under its $500 million revolving credit facility as of June 30, 2025, and was in compliance with all debt covenants[56] NOTE 12 OTHER CURRENT AND NON-CURRENT LIABILITIES Other Current Liabilities | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Payroll and employee related | $86 | $106 | -$20 | -18.9% | | Customer related | $85 | $98 | -$13 | -13.3% | | Uncertain tax positions | $16 | $7 | +$9 | +128.6% | | Total other current liabilities | $409 | $422 | -$13 | -3.1% | Other Non-Current Liabilities | Metric | June 30, 2025 ($ in millions) | December 31, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------- | :---------------------------- | :-------------------------------- | :--------------------- | :--------- | | Product warranties | $32 | $25 | +$7 | +28.0% | | Uncertain tax positions | $22 | $8 | +$14 | +175.0% | | Total other non-current liabilities | $173 | $150 | +$23 | +15.3% | NOTE 13 FINANCIAL INSTRUMENTS - Outstanding currency derivative instruments for foreign currency cash flow hedging had a USD equivalent notional value of $97 million at June 30, 2025, primarily Euro-denominated forward contracts[60] - Derivative instruments designated as foreign currency cash flow hedges recognized a $1 million gain in Accumulated other comprehensive loss (AOCI) for both the three and six months ended June 30, 2025[61] - A $100 million notional value Chinese Yuan (CNY), United States Dollar (USD) fixed rate cross currency swap, not designated as a hedging instrument, resulted in a gain of $2 million for the three months and $1 million for the six months ended June 30, 2025[64] NOTE 14 RETIREMENT BENEFIT PLANS Net Periodic Benefit Cost | Metric | Three Months Ended June 30, 2025 ($ in millions) | Three Months Ended June 30, 2024 ($ in millions) | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Service cost | $1 | $1 | $2 | $2 | | Interest cost | $12 | $12 | $23 | $23 | | Expected return on plan assets | $(11) | $(11) | $(21) | $(21) | | Amortization of unrecognized loss | $0 | $0 | $0 | $(1) | | Net periodic benefit cost | $2 | $2 | $4 | $3 | - Estimated contributions to defined benefit pension plans for 2025 are between $5 million and $9 million, with $2 million contributed in the first six months[65] NOTE 15 STOCKHOLDERS' EQUITY Stockholders' Equity Roll-Forward | Metric | Amount ($ in millions) | | :-------------------------------- | :--------------------- | | Balance, December 31, 2024 | $1,574 | | Dividends declared | $(21) | | Stock-based compensation expense | $8 | | Purchase of treasury stock | $(140) | | Excise tax on purchase of treasury stock | $(1) | | Net issuance of executive stock plan | $(6) | | Net earnings | $72 | | Other comprehensive income | $141 | | Balance, June 30, 2025 | $1,627 | NOTE 16 ACCUMULATED OTHER COMPREHENSIVE LOSS AOCI Roll-Forward | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Beginning Balance, December 31 | $(217) | $(131) | | Comprehensive income (loss) before reclassifications | $141 | $(42) | | Income taxes associated with comprehensive income | $(1) | $0 | | Reclassification from accumulated other comprehensive loss | $1 | $1 | | Ending Balance, June 30 | $(76) | $(172) | NOTE 17 CONTINGENCIES - The Company is involved in a legal dispute with BorgWarner Inc. (Former Parent) concerning the obligation to remit tax refunds related to indirect tax payments made prior to the Spin-Off[76] - The Delaware Superior Court denied the Former Parent's motion to dismiss the Company's counterclaims on April 10, 2025[76] - While the Company believes its arguments are meritorious, the ultimate outcome is uncertain, and a material adverse effect on financial position, results of operations, and/or cash flows is reasonably possible, though not probable[76] NOTE 18 EARNINGS PER SHARE Earnings Per Share (EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS ($) | $1.16 | $0.31 | $1.80 | $0.95 | | Diluted EPS ($) | $1.14 | $0.31 | $1.76 | $0.93 | | Weighted average shares outstanding (Basic, in millions) | 39.5 | 44.8 | 40.1 | 45.5 | | Weighted average shares outstanding (Diluted, in millions) | 40.2 | 45.7 | 40.8 | 46.1 | Adjusted Earnings Per Share (Non-GAAP) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted net earnings per diluted share ($) | $1.27 | $0.88 | $2.21 | $1.98 | NOTE 19 REPORTABLE SEGMENTS AND RELATED INFORMATION - PHINIA's two reportable segments are Fuel Systems and Aftermarket, with Segment Adjusted Operating Income (AOI) used as the primary measure of segment performance[80][81][82] - Corporate expenses not allocated to Segment AOI increased to $25 million (Q2 2025) from $21 million (Q2 2024) and to $49 million (H1 2025) from $39 million (H1 2024), primarily due to foreign exchange losses and additional performance stock units[124][144] Segment Performance (Three Months Ended June 30) | Segment | Net Sales (2025) ($ in millions) | Segment AOI (2025) ($ in millions) | % Margin (2025) | Net Sales (2024) ($ in millions) | Segment AOI (2024) ($ in millions) | % Margin (2024) | | :---------- | :------------------------------- | :--------------------------------- | :-------------- | :------------------------------- | :--------------------------------- | :-------------- | | Fuel Systems | $537 | $62 | 11.5% | $518 | $52 | 10.0% | | Aftermarket | $353 | $57 | 16.1% | $350 | $53 | 15.1% | | Totals | $890 | $119 | | $868 | $105 | | Segment Performance (Six Months Ended June 30) | Segment | Net Sales (2025) ($ in millions) | Segment AOI (2025) ($ in millions) | % Margin (2025) | Net Sales (2024) ($ in millions) | Segment AOI (2024) ($ in millions) | % Margin (2024) | | :---------- | :------------------------------- | :--------------------------------- | :-------------- | :------------------------------- | :--------------------------------- | :-------------- | | Fuel Systems | $1,010 | $107 | 10.6% | $1,045 | $107 | 10.2% | | Aftermarket | $676 | $109 | 16.1% | $686 | $113 | 16.5% | | Totals | $1,686 | $216 | | $1,731 | $220 | | NOTE 20 OPERATING CASH FLOW AND OTHER SUPPLEMENTAL FINANCIAL INFORMATION Operating Cash Flow | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------- | :--------- | | Net cash provided by operating activities | $97 | $140 | -$43 | -30.7% | Supplemental Cash Flow Information | Metric | Six Months Ended June 30, 2025 ($ in millions) | Six Months Ended June 30, 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------- | :--------- | | Cash paid for Interest, net | $29 | $17 | +$12 | +70.6% | | Cash paid for Income taxes, net of refunds | $40 | $27 | +$13 | +48.1% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, liquidity, and market outlook for the periods ended June 30, 2025 Introduction - PHINIA is a global leader in components and systems for combustion and hybrid propulsion, serving OEMs and the aftermarket[97] - The company became an independent publicly-traded entity on July 3, 2023, following a spin-off from BorgWarner Inc[98] - PHINIA announced the acquisition of Swedish Electromagnet Invest AB (SEM) for approximately $47 million, expected to close in Q3 2025, which is projected to generate $50 million in annual revenue and $10 million in annual adjusted EBITDA[99] Key Trends and Economic Factors - Commodity prices remain volatile, with base metal prices stabilizing in 2025 compared to 2024[100] - New trade restrictions, export controls, and increased tariffs could materially impact business by increasing input costs and decreasing demand in CV and LV markets, particularly in Mexico and China[100][102] Outlook - Earnings and cash generation in 2025 are expected to be challenged by softening original equipment markets[101] - Light Vehicle (LV) volumes in key markets are expected to decline by mid-single digit percentages in 2025[101] - Commercial Vehicle (CV) volumes in key markets are expected to decline by low-single digit percentages in 2025[101] - Long-term growth drivers include market share expansion in CV, growth in vehicle parc supporting aftermarket demand, increased consumer interest in hybrid/plug-in vehicles, and adoption of zero/lower-carbon fuel solutions[103] Use of Non-GAAP Financial Measures - Non-GAAP financial measures are used to provide additional insights into the Company's business and operating performance, and for operational planning and decision-making[104][105] - Non-GAAP measures are reconciled to their most directly comparable GAAP financial measures and should not be considered a substitute for GAAP[104][106] Results of Operations (Three Months Ended June 30, 2025 vs. 2024) Net sales increased by 2.5% to $890 million, while net earnings surged by 228.6% to $46 million, benefiting from lower interest expense and transaction-related benefits Q2 Operational Performance Summary | Metric | 2025 ($ in millions) | 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Net sales | $890 | $868 | +$22 | +2.5% | | Cost of sales | $693 | $680 | +$13 | +1.9% | | Gross profit | $197 | $188 | +$9 | +4.8% | | Operating income | $89 | $71 | +$18 | +25.4% | | Net earnings | $46 | $14 | +$32 | +228.6% | - Net sales increase was primarily driven by positive foreign currency impacts and supplier savings, partially offset by the end of contract manufacturing agreements and unfavorable tariff impacts[109] - Interest expense decreased significantly from $39 million to $21 million, primarily due to the loss on extinguishment from debt restructuring in the prior period[117] - Other operating (income) expense, net, shifted from a $5 million expense to a $4 million income, mainly due to a decrease in transaction-related costs, particularly adjustments under the Tax Matters Agreement[113][114] Results of Operations (Six Months Ended June 30, 2025 vs. 2024) Net sales decreased by 2.6% to $1,686 million, but net earnings rose by 67.4% to $72 million, driven by reduced interest and other operating expenses H1 Operational Performance Summary | Metric | 2025 ($ in millions) | 2024 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Net sales | $1,686 | $1,731 | -$45 | -2.6% | | Cost of sales | $1,317 | $1,351 | -$34 | -2.5% | | Gross profit | $369 | $380 | -$11 | -2.9% | | Operating income | $151 | $142 | +$9 | +6.3% | | Net earnings | $72 | $43 | +$29 | +67.4% | - Net sales decrease was primarily due to unfavorable volume and mix from lower OEM sales across all regions and the end of contract manufacturing agreements[129] - Other operating (income) expense, net, shifted from a $22 million expense to a $1 million income, mainly due to a decrease in transaction-related costs, particularly adjustments under the Tax Matters Agreement[133][134] - Interest expense decreased from $61 million to $40 million, primarily due to the loss on extinguishment from debt restructuring in the prior period[137] Liquidity and Capital Resources The company maintained strong liquidity at $846 million, though operating cash flow decreased due to higher working capital demands and financing cash use increased from stock repurchases Liquidity Position | Metric | June 30, 2025 ($ in millions) | | :-------------------------------- | :---------------------------- | | Cash and cash equivalents | $347 | | Availability on Revolving Facility | $499 | | Total Liquidity | $846 | - Net cash provided by operating activities decreased to $97 million for the six months ended June 30, 2025, from $140 million in the prior year, primarily due to increased working capital demands[152] - Net cash used in investing activities increased to $68 million (vs $59 million), primarily for capital expenditures, which were 4.1% of sales (vs 3.5%)[153] - Net cash used in financing activities increased to $169 million (vs $126 million), primarily due to stock repurchases[154] Critical Accounting Policies and Estimates No material changes were made to the company's critical accounting policies and estimates during the quarter ended June 30, 2025 - No material changes to critical accounting policies and estimates occurred during the quarter ended June 30, 2025[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company details its exposure to market risks, primarily currency exchange rate fluctuations, and its mitigation strategies Currency Exchange Rate Risk - The Company is exposed to currency exchange rate risk from global operations and transactions in multiple non-functional currencies (e.g., USD, Euro, CNY, GBP, MXN)[157] - Risk mitigation strategies include establishing local production facilities and using derivative financial instruments[157][158] - A pre-tax loss of $8 million was deferred for a designated net investment hedge within the cumulative translation account in AOCI at June 30, 2025[159] Currency Sensitivity Analysis | Currency | % Change in USD | Approximate Impact ($ in millions) | | :--------------- | :-------------- | :--------------------------------- | | Euro | 14% | $84 | | Brazilian Real | 14% | $19 | | British Pound | 10% | $26 | | Chinese Renminbi | 2% | $9 | Item 4. Controls and Procedures Disclosure controls and procedures were deemed effective as of June 30, 2025, with no material changes in internal controls - Disclosure controls and procedures were evaluated as effective as of June 30, 2025[162] - No material changes in internal control over financial reporting occurred during the period[163] PART II. Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings, with environmental matter disclosures required above a $1 million threshold - The Company is involved in various commercial and legal claims in the ordinary course of business[165] - Disclosure of environmental matters is required if potential monetary sanctions exceed $1 million[166] Item 1A. Risk Factors No material changes to the company's previously disclosed risk factors occurred during the three months ended June 30, 2025 - No material changes to previously disclosed risk factors occurred during the three months ended June 30, 2025[167] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities The share repurchase program was increased to $600 million, with significant repurchases made during the second quarter of 2025 - The share repurchase program capacity was increased to $600 million[168] - As of June 30, 2025, the Company had repurchased $376 million of common stock under its repurchase program[168] Share Repurchase Activity | Period | Total shares purchased | Average price per share ($) | Remaining value ($ in millions) | | :------------------------ | :--------------------- | :-------------------------- | :------------------------------ | | May 1, 2025 - May 31, 2025 | 445,611 | $43.50 | $245 | | June 1, 2025 - June 30, 2025 | 480,139 | $42.94 | $224 | Item 5. Other Information The Board approved amended by-laws, and no directors or officers entered new Rule 10b5-1 trading arrangements during the period - The Board approved the Second Amended and Restated By-Laws on July 21, 2025, including revisions for DGCL conformity, clarified shareholder nomination/proposal procedures, and administrative changes[171][173] - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the six months ended June 30, 2025[172] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including by-laws, certifications, and XBRL documents - Key exhibits include the Second Amended and Restated By-Laws, Amended and Restated PHINIA Inc. Transition Income Plan, CEO and CFO certifications, and Inline XBRL documents[176] SIGNATURES The report is duly signed by the Vice President and Controller of PHINIA Inc. on July 24, 2025 - The report was signed by Samantha M. Pombier, Vice President and Controller, on July 24, 2025[179]