PHINIA (PHIN) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2024 were $839 million, a decrease of 6.4% year-over-year, or down 3.7% on an adjusted sales basis excluding contract manufacturing agreements [9][26] - Adjusted EBITDA was$ 120 million, reflecting a year-over-year increase of 90 basis points [10][29] - Adjusted free cash flow remained healthy at $60 million, with cash and cash equivalents increasing to$ 477 million from $365 million at year-end 2023 [11][34] Business Line Data and Key Metrics Changes - The Aftermarket segment accounted for approximately 42% of sales, benefiting from higher pricing and volume, resulting in a year-over-year increase of 6% [6][27] - Fuel Systems segment sales decreased by 13.7%, or 9.7% excluding contract manufacturing effects, impacted by lower commercial vehicle sales in Europe and China [27][31] - Adjusted operating margins for the Aftermarket segment expanded by 210 basis points to 15.8%, while Fuel Systems segment margins increased by 110 basis points to 11.4% [30][31] Market Data and Key Metrics Changes - Sales in Europe showed a mild increase, while the Americas experienced a slight revenue uptick during the quarter [27] - The overall market environment remained dynamic, with inflation, geopolitical tensions, and currency volatility affecting performance [8] Company Strategy and Development Direction - The company is focused on executing long-term strategies, including launching new products and expanding in growing markets [5][23] - Capital allocation actions included replacing high-cost debt with$ 450 million in senior unsecured notes and increasing share repurchase authorization [16][19] - The company aims to maintain a disciplined approach to capital deployment, prioritizing investments for long-term growth and returning cash to shareholders [20] Management's Comments on Operating Environment and Future Outlook - Management expects continued softness in the market, particularly in the Fuel Systems segment, with a potential recovery in 2025 [41][44] - The company remains confident in its ability to generate meaningful cash flow and drive sustainable growth through strategic actions [39][40] Other Important Information - The company published its first sustainability report, highlighting its 2023 sustainability performance and initiatives [21][22] - The company has exited all material contract manufacturing agreements with its former parent [9][27] Q&A Session Summary Question: Outlook for markets in Q4 and sales by segment - Management expects continued softness in Q4, with a potential recovery in 2025, particularly in the commercial vehicle segment [41][44] Question: Implications of second half EBITDA guidance - Management indicated that the Fuel Systems segment is primarily affected, while the Aftermarket segment continues to show solid year-over-year growth [43][44]