Summary of PHINIA FY Conference Call - September 11, 2025 Company Overview - **Company**: PHINIA (NYSE:PHIN) - **Industry**: Automotive and Aerospace Components Key Points and Arguments Market Position and Revenue Diversification - PHINIA's revenue from the automotive sector is currently 27% and is expected to decline over time, with a strong performance in the aftermarket segment [5][6] - The company emphasizes its diversified business model, which includes regional and customer diversity, mitigating risks from specific market downturns [6][7] - Aftermarket business constitutes 34% of total revenues, providing stable cash flow during downturns in original equipment manufacturing (OEM) [22] New Market Opportunities - PHINIA is entering new markets such as aerospace and off-highway applications, leveraging existing manufacturing capabilities without significant new capital expenditures [9][10] - The total addressable market for aerospace and off-highway applications is estimated to be as large as the commercial vehicle business globally, indicating substantial growth potential [14][15] - The company anticipates that new markets will contribute mid to high single digits to total revenue by the end of the decade [14] Capital Allocation Strategy - PHINIA has been actively buying back shares, having repurchased close to 20% of its shares since spinning off, as it believes its stock is undervalued [19][20] - The company plans to maintain a conservative capital allocation strategy, focusing on organic growth while remaining open to acquisitions if they align with valuation metrics [20][37] - Free cash flow generation is expected to improve in the second half of the year, with a target of $160 million [37] Industry Trends and Challenges - The commercial vehicle market is currently facing challenges, with low build rates and freight demand impacting growth [33][34] - The company does not foresee a significant pre-buy before the 2027 emissions regulations, indicating a cautious outlook for the near term [35] - PHINIA's engineering spend is primarily focused on application engineering, allowing for flexibility in adapting existing technologies to new markets [17] Technological Advancements - PHINIA is focusing on multi-fuel technology for fuel injectors, adapting to various fuel types as the market evolves [59][62] - The company is investing in AI and automation to enhance production efficiencies and reduce costs, with a focus on targeted projects that deliver value [43][44] Future Outlook - The transition to hydrogen and other alternative fuels is expected to take decades, with meaningful revenue contributions anticipated in the 2030s [80] - PHINIA is optimistic about the long-term viability of combustion engines, projecting their continued relevance in transportation for the foreseeable future [62] Competitive Landscape - The company identifies peers such as Allison Transmission, Timken, and Donaldson Company as relevant comparables in the industrial and aftermarket space [97][102] Additional Important Insights - PHINIA's aftermarket segment is seen as a stabilizing force during market volatility, with a strong brand reputation aiding growth [22][23] - The company is strategically positioned to adapt to changing market demands, including shifts towards cleaner fuels and technologies [86][88] - PHINIA's entry into aerospace is driven by both market demand and its existing technological capabilities, indicating a proactive approach to growth [93][94]