PHINIA (PHIN) 2025 Conference Transcript

Summary of Conference Call Company Overview - Company: Finia, a spinoff from BorgWarner, specializes in light vehicle fuel injection systems and has a strong presence in commercial and aftermarket businesses. [1][2] Key Industry Insights - Market Growth: The fuel injection market is experiencing content growth due to higher adoption of direct injection technologies. The company anticipates mid to high single-digit growth through the decade, particularly in natural gas and alternative fuels for commercial vehicles. [4][5] Financial Performance - Cash Flow: Finia targets over 90% free cash flow conversion, highlighting its strong cash flow generation capabilities. [2] M&A Strategy - Acquisition Focus: The company recently made a small acquisition aimed at enhancing its commercial vehicle and aftermarket exposure. The acquisition is expected to complement its existing product lines and leverage its engineering capabilities. [3][4][6] - Valuation Metrics: The acquisition was made at a multiple of 4.7, compared to Finia's own trading multiple of 5 to 5.5. [5] - Future M&A Plans: Finia is open to further acquisitions, particularly those that align with its existing portfolio and provide shareholder value. The company is cautious about pursuing aftermarket assets that do not have manufacturing capabilities. [7][10] Market Position - Competitive Landscape: Finia sees itself as one of the two major players in the light vehicle fuel injection market, alongside Bosch. Smaller competitors are exiting the market, which may provide opportunities for Finia to gain market share. [13][19][21] - Revenue Goals: The company aims to maintain its light passenger vehicle revenue between $900 million and $1 billion, while growing its aftermarket and commercial vehicle segments. [16] Sales and Revenue Guidance - Q1 Performance: The company reported Q1 revenue in line with expectations, despite a typical seasonal softness. The impact of foreign exchange (FX) was noted, with an estimated $80 million effect on revenue. [24][27] - Commercial Vehicle Outlook: The commercial vehicle segment is expected to remain flat to slightly up, with year-over-year declines anticipated in Europe and the Americas. [31][32] Tariff Exposure - Impact of Tariffs: Finia has experienced a $4 million impact from tariffs in Q1, with plans to pass through costs to customers. Approximately 60% of its revenue from Mexico is USMCA compliant, mitigating some tariff impacts. [36][39] Aftermarket Strategy - Aftermarket Growth: The company aims to increase its aftermarket revenue, currently at 34%, to over 40%. It has a billion-dollar aftermarket distribution network that supports this growth. [9][11] Technological Developments - Powertrain ECU Development: Finia is developing its own powertrain ECUs to provide a complete system offering to customers, with a focus on nonrecurring engineering support. [75][76] - Aerospace and Defense Opportunities: The company is entering the aerospace sector, supplying fuel injection components, with aspirations to grow this segment significantly by 2030. [78][79] Market Trends - GDI Penetration: Gasoline Direct Injection (GDI) penetration is currently around 65-70%, with expectations for continued growth in various global markets, including South America and India. [56][57] - Battery Electric Vehicles (BEVs): The company anticipates that BEV penetration will plateau at around 25-35%, indicating a sustained demand for combustion engines. [60][64] Conclusion - Long-term Vision: Finia is focused on maintaining a balanced portfolio with a strong emphasis on aftermarket and commercial vehicle segments, while strategically navigating market challenges and opportunities for growth. [70][73]