Q3 2024 PHINIA Inc Earnings Call
Speaker Change: i
Audra: Good morning, my name is Audra and I will be your conference operator today. At this time I would like to welcome everyone to this any third quarter, 2024 earnings call.
Audra: Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.
Audra: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time simply press the star key, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again.
Speaker Change: At this time, we'll like to know the conference so far to Kellen Ferris, Vice President of Investor Relations. Please.
Kellen Ferris: Thank you. Good morning everyone. We appreciate you joining us. Our conference commentary is where you shoot this morning and are available on Pheneas Investor Relations website. Including a slide neck that will be referencing in our remarks. We are also broadcasting this B-A-Libcast. Joining us today, pretty early in C-E-O, and Chris Gropp, CFO.
Kellen Ferris: During this call, we will make four look and statements which are based on management, current expectations and are subject to risk sin uncertainties.
Kellen Ferris: Actual results may differ materialies when he statements due to a variety of factors, including those described in our SEC violence.
Speaker Change: and with that, my pleasure to turn the call over to Brady.
Brady: Thank you, Kellen. Thank you everyone for joining us this morning. I'll start with some overall comments on some key accomplishments in the quarter and provide a brief discussion of record, quarter financial reform. And, Chris, we'll provide additional detail and our financial review. Before we'll open up to call for questions.
Brady: Our performance during the most recent quarter reflex, the ongoing successful execution of our long-term strategy, the resilience of our business and challenging environments and the strong operational performance of our team.
Brady: This includes launching exciting new products, expanding our business and growing markets and developing partnerships in our aftermarket segment.
Brady: With respect to our keynote, please share another corner of consistent results driven by the strength of our aftermarket segment, which accounts for about 42% of our sales and the resiliency of our field system segment.
Brady: This led to another strong quarter of adjusted pre-cashmob.
Brady: Finally, we strengthened our balance sheet by replacing high cost debt with new, unscreated, long-term notes. We have exit of all material contract manufacturing agreements, or see a made with our former parent. Now, published a first to stay in the middle of the report.
Brady: Now moving on to the third quarter results.
Brady: Turning on sliding forward.
Brady: Before again, one out of a note, this is the first time we are comparing standalone, quarterly financials on a like for like basis code spin.
Brady: During the third quarter, the macro environment remained dynamic as inflation, geopolitical tensions, and currency volatility persisted.
Brady: Despite these range of factors, or third quarter financial results were in line with their expectations, and reflect resilience, its strong execution within our business segments.
Brady: Lower fuel system sales, reportedly offset by strong aftermarket segment sales.
Brady: In turn, Net cells in the quarter were 839 million, down on 6.4% from the same period of the prior year, or down 3.7% on an adjusted cell in basis, which includes the CMA cells.
Brady: As mentioned, we've now acted all material CMAs with their permanent parents.
Brady: We reported that just to be with $220 million in 90 basis point year-of-year increase. This reached like, grow and positive profit conversions in our aftermarket segment, and solid performance in the fuel system segment.
Brady: Combined with cost controls and both segments led to a larger extension.
Brady: The Sprite to Reduction in Sales and Deal Systems, there was no degradation and segment operating income. We also continued to build the right capabilities and strengthen our internal systems and processes.
Brady: Our adjusted free cash lower mean healthy is $60 million. Our balance sheet remained strong with cash and cash equivalents for 477 million. Up from $365 million at year end, 2023.
Brady: and our total liquidity is approximately $1 billion. We've been taking to our account our under-oxy model.
Brady: This performance enabled us to return 85 million to shareholders via share and buybacks and dividends.
Brady: Now let's put this life back.
Brady: We'd love our proprietary research and engineering expertise to ensure we support what our customers' value.
Brady: This is once again clearly shown by a recent wind across product lines and geographies.
Brady: Let me call out a few.
Brady: The second product line went in the off-highway diesel market with an electronic, the control, low pressure, common rail and geeks and system for compact diesel engines for use in next collators, worklists and generators.
Speaker Change: I'm Quest Win and Andy is growing the Buster Market with the European Automakers for a light vehicle UDI pump.
Speaker Change: A conquest, UDI system win with the U.S. automaker for use in a high-volume application for like duty trucks and luxury SUVs.
Speaker Change: and moving on the flight six, our aftermarket segment renewed our agreement with one of our largest global independent aftermarket customer groups.
Speaker Change: Sign the first time agreement with the major customer group in Europe. And sign a new agreement with the North America customer to extend cooperation into their business in Mexico.
Speaker Change: Our customer trust us to give them innovative, quality products.
Speaker Change: and Tera performing deeper relationships with new and existing customers.
Speaker Change: The success we are having when in Congress business in exchanging or aftermarket segment offerings is further evidence of relief technology and trust in brands.
Speaker Change: Now let's move to slide seven for discussion over capital allocation actions.
Speaker Change: We took steps in the court for the bolster Aurey Strong Balance sheet by replacing high cost debt with the issuance of 450 million senior unssecured notes to in 2013 too.
Speaker Change: We have now extinguished both our term loan pay and term loan be loans.
Speaker Change: We've also amended our credit agreement, which among other items, but now let's restrict it with respect to dividend payments and share mybacks.
Speaker Change: and shown on slide 7, given the lower rates, will come from low and targeting a net leverage of approximately 1.5 times.
Speaker Change: Additionally, during the corner we often statistically repurchased 75 million of our outstanding shares. After the boring increased our shared repurchase authorization by 250 million.
Speaker Change: As of the end of the corner, 180 million remains open on the tour of 400 million share repurchase program.
Speaker Change: In total, we spent 212 million to repurchase approximately 5.3 million shares.
Speaker Change: 11.2% of our original outstanding shares since our spin in July of 2023.
Speaker Change: We also paid a quarterly dividend of 25 cents per share.
Speaker Change: These actions are indicative of the company's commitment to returning value to shareholders and our confidence in our long-term growth potential.
Speaker Change: Our strong cash position, highlights the efficiency and strength of our strategies and execution of our team.
Speaker Change: You will continue to be disciplined and balanced with our employment of capital as we prioritize investing in the business to drive long-term growth, or organically in the potential M&A transactions.
Speaker Change: as well as returning cash shareholders via optimistic share my backs and paying competitive limits.
Speaker Change: The last time I could watch out today is the assumed.
Speaker Change: As always, our goal is to grow and operate to the even more efficient, sustainable and impactful manner.
Speaker Change: During the quarter we published our first stand-in bill the report, which highlights our 2023 Sustainability Performance, Strategies, and Initiatives.
Speaker Change: We encourage all of you to read the report which can be found on our website.
Speaker Change: As of the mission driven business, we will continue to focus on profitable growth, creating long-term value for our stakeholders, by living our values and continuing to embed corporate responsibility throughout our business.
Speaker Change: In summary, we are encouraged by the results of the business given the ongoing macro-headlands.
Speaker Change: Furthermore, we are pleased with the progress we made in strengthening our balance sheet, as well as being fully independent company.
Speaker Change: We are well positioned to capitalize on the growth opportunities that are still ahead. As such, we will continue to invest in these long-term strategies, limiting our strong balance sheet, and healthy free cash flow, while maintaining discipline and expense management.
Speaker Change: This will allow us to continue to deliver value for our customers, invest in our employees, support our communities, and create attractive returns for our shareholders.
Speaker Change: That, like the annual release, we'll lock us three or two to results and discuss our outlook for the year.
Speaker Change: Thanks for reading and thank you all for joining us this morning.
Speaker Change: As a reminder, reconciliations of all non-gap financial measures that I will discuss can be found in today's press release and in the presentation, both of which are on our website.
Speaker Change: Leaving to page 9 in the deck, revenue in the quarter reflects similar market trends as the prior to borders as we generated 839 million in sales.
Speaker Change: Down 6.4% versus a year ago.
Speaker Change: Excluding the effect of contracting manufacturing, the reduction in sales is 3.7% versus a year ago.
Speaker Change: As Brady noted, we have effectively completed all material contracting that should be agreements with our former parent as of the end of this quarter.
Speaker Change: Our Act for Market segments benefited from higher pricing and volume for a year-old year increase of 6%.
Speaker Change: Sales continued to benefit from higher volumes of Europe with a mild increase in revenue in the Americas during the work.
Speaker Change: The appeals system segment sales by contrast, we're down 13.7% are 9.7% excluding the effects of contract manufacturing.
Speaker Change: Our fuel system's grip was impacted by lower commercial vehicles, sales or CD revenue, and Europe's and China.
Speaker Change: Offset by English Crising as we continue to work with customers.
Speaker Change: to correct some lagging commodity and non-comodity pricing issues within Europe and the Americas.
Speaker Change: Our adjusted to the latest Ericsson for share with $1.17
Speaker Change: We are in 87 million and 10.4% in adjusted operating income and margin, which represents a year-over-year increase of 5 million and 100 basis points.
Speaker Change: I just did even doff was 120 million in a margin of 14.3% representing a year-over-year increase of 3 million in 90 basis points.
Speaker Change: Margin has been admitted from positive pricing for most of the field systems and aftermarket segments, and positive suppliers savings and recoveries that offset all inflation and employee cost increases.
Speaker Change: Year over year, from Ericsson Respected, as expected, by stand-alone corporate cost of $5 million.
Speaker Change: For my core business performance standpoint, our segments reported strong overall margins.
Speaker Change: Q3 segment adjusted operating margins were healthy at 13.2%.
Speaker Change: Up to 160 basis points year over year, with our aftermarket segment margin expanding by two literate and 10 basis points, and ending the quarter at 15.8 percent on the back of inflationary price passed through and positive product sales mix.
Speaker Change: He's refills system segment margins were strong at 11.4% up 110 basis points due to pricing, supplier cost reduction, and cost controls.
Speaker Change: Our self performance in the quarter was affected by softness and volume, which was ahead when a 51 million due to lower CV sales in Europe and China, partially offset by ongoing strengths and aftermarket sales in Europe.
Speaker Change: It was also affected by the wind down of contract manufacturing cells with our form of parent. Excluding contract manufacturing are cells were down to 32 million with 3.7%.
Speaker Change: Similar to the trends we saw in Q2, on a year-to-date basis, our adjusted sales are down over year of less than 2%. With the decrease in fuel systems of 5.6% largely offset by increase as an aftermarket sales of 4.4%.
Speaker Change: Let me now bridge our digestive revenue and adjusted EBITDA, which you can find on pages 10 and 11 in the presentation. For adjusted EBITDA, the quarter-song negative volume and maximum sales of 8 million, or a 16% contribution margin.
Speaker Change: pricing was positive 18 million in the quarter while continuing strong supplier savings and recoveries of 11 million offset increases in employee and other manufacturing costs of 10 million.
Speaker Change: Groper cost increased by 5 million as expected, along with increased R&D and other spending of 3 million.
Speaker Change: Now for a quick recap of a balance sheet and cash flow.
Speaker Change: We have substantial current liquidity with cash and cash equivalent and available capacity under our credit facilities of approximately 1 billion.
Speaker Change: As Brady mentioned in the third quarter, we replaced the floating rate secured debt with the issuance of fixed rate on secure notes due in 2032.
Speaker Change: This was the second race in Anzing. We completed this year and is the result of a portion of our debt maturity profile as been extended by four and a half years and with more favorable interest rates.
Speaker Change: The net cash from operations in 23 was 95 million. During the quarter-regenerated adjusted free cash flow of 60 million, and when you continue to be disciplined in management of our work in capital and drive optimization of resources and processes on a daily basis.
Speaker Change: Capital spend of 25 million was less than 3% of sales in the quarter.
Speaker Change: and was 3.3% year the day.
Speaker Change: We're projecting spend to come in just to allow our 4% target for the year.
Speaker Change: Now we're leaving the slide 12.
Speaker Change: with respect to 2020 for guidance.
Speaker Change: We expect the market softness seen in our third quarter of the salt to continue into the fourth quarter, and to be greater than previously anticipated.
Speaker Change: We are therefore revising her guide. The adjusted sales range is now expected to be between 3.34 billion and 3.39 billion.
Speaker Change: While ingested EBITDA is projected to be 470 million to 490 million, and EBITDA margins of 14.1% to 14.5%.
Speaker Change: The rest of our guidance remains the same as we share in the prior quarter, with the adjusted free cash flow and adjusted tax rate coming in at the high end of the range.
Speaker Change: Overall, we've fixed solid earnings in cash generation in 2024, as we continue to drive operational efficiencies in search for new areas of growth in this segment.
Speaker Change: In closing, our teams are unrelenting sockets and ability to flex operations that overheads to meet changing market needs as an able to report a solid result.
Speaker Change: Our strong balance sheet provides us with financial flexibility to support our current and future birth initiatives.
Speaker Change: I am confident in our ability to continue to generate meaningful cash flow as this strategic actions we have undertaken are expected to drive sustainable growth. And as Brady mentioned, we are very focused on creating value for our shareholders, customers, communities and employees.
Speaker Change: With that, we'll now move to the Q&A portion of our column.
Speaker Change: Thank you. We will now begin the question and insert session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press star 1 again.
Speaker Change: We'll take a first question from Jake Shull at BMP Parabas.
Jake Shull: Hey guys, congrats on all the strong quarter.
Jake Shull: So my first question is, can you just provide a little bit of color on how you're thinking about the outlooks markets, a pre-unmarket in the fourth quarter, and how we should really think about sales and earnings by segment.
Speaker Change: Yeah, I think first on the outlook, our expectation is that things are going to continue to remain soft, I think in Q4 we saw subsoft this in Q3 I think it's kind of a tale of two halves. The first half was still relatively strong. Second half is being a little bit weak, I think that will continue a little bit into 25 before recovery.
Speaker Change: and the name like CB. CB, light vehicle and it is going to be consistent and we have a little bit of an outtick kind of next year but again I still think it's going to be relatively flat.
Speaker Change: From a margin expectation standpoint, we've said we continue to expect our aftermarket teams to have a good performance around 15% operating up income and one of our field systems group north of north of 10%.
Speaker Change: and Managing that on the downside from a revenue perspective. I think if you take a look at the numbers, I think it's a little bit softer and Q4 versus what we saw at Q3 from a revenue perspective and just trying to hold their margins.
Speaker Change: Thank you, and then, so, as you said, there was kind of a market step down from the first half of the second half, just at the mid-point.
Speaker Change: and you're going to be a second half. So how should we think about this second half of this year's run rate into 2025?
Speaker Change: You know, it's nice to play off in the music, keep in mind. Thank you.
Speaker Change: Yeah, I think as I mentioned anything, our fuel systems is the one that's primarily affected or aftermarket continues to see, you know, solid year of your growth.
Speaker Change: I think the fuel system segment will continue to have
Speaker Change: Soft Sales, similar to Q3, in the Q4. And then in Q2, and in 2025, what we're expecting is that CV will remain soft in the first half. And whether it's Q2 or Q3, we're starting to hear indications that the...
Speaker Change: Recovery will then start on the CV side, whether that's pre-bi for the North America.
Speaker Change: EPA-27 or other applications and we also have some additional launches coming in in next year's well. So I think it's going to probably be similar to the two halves. This year, first half was stronger, softer in the second and then next year it will be softer in the first half and stronger in the second.
Speaker Change: Good, thank you.
Speaker Change: And as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We'll pause just a moment.
Speaker Change: The End
Speaker Change: And at this time we have no further questions I would like to turn the conference back over to Brady Ericson for closing remarks.
Speaker Change: [inaudible]
Brady Ericson: Thanks everybody for joining. I know there's a lot of earnings coming out today, so I know we have a lot of follow-up already kind of lined up with a lot of folks, but do appreciate you all joining.
Brady Ericson: Looking forward to continue our journey of delivering consistent results in continuing to be financially disciplined and how we allocate our capital. Hopefully everybody has a happy Halloween. So stay safe. Thank you.
Speaker Change: In this concludes today's conference called, thank you for your participation, you may now disconnect.