PHINIA Reports Strong First Quarter 2024 Results and Reaffirms 2024 Outlook

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PHINIA Inc. (NYSE: PHIN) reported strong first-quarter results for 2024, with U.S. GAAP net sales of $863 million, a 3.4% increase from Q1 2023. Operating income was $71 million, adjusted operating income was $97 million, and adjusted EBITDA was $131 million. The company reaffirmed its 2024 outlook with expectations of net sales between $3.42 billion to $3.58 billion, adjusted EBITDA of $470 million to $510 million, and adjusted free cash flow of $160 million to $200 million.

Positive

• Strong first-quarter results for PHINIA Inc. with U.S. GAAP net sales of $863 million, up 3.4% from Q1 2023.
• Operating income of $71 million and adjusted operating income of $97 million were reported.
• Adjusted EBITDA stood at $131 million, representing a 160 bps year-over-year increase.
• PHINIA reaffirmed its 2024 outlook with net sales expected to range between $3.42 billion to $3.58 billion.
• Adjusted EBITDA guidance for 2024 is between $470 million to $510 million.
• The company expects adjusted free cash flow of $160 million to $200 million for the year.

Negative

• None.

Financial Analyst

PHINIA Inc.'s reported increase in net sales by 3.4%, reaching $863 million, indicates a solid start to the year, outpacing the slightly negative growth trend in European commercial vehicle sales. This top-line growth, however, must be dissected to understand the underlying drivers. The reported figures include a supplier settlement and inflationary pass-through, which suggests that some of the growth might be non-recurring or dependent on external factors rather than indicative of core business performance.

Furthermore, the distinction between reported operating income ($71 million) and adjusted operating income ($97 million) is critical. The adjustments imply that some earnings may be influenced by non-operational factors, which could affect the sustainability of margins. An improved operating margin of 8.2% and an adjusted operating margin of 11.5% could signal efficiency improvements, but investors should be cautious about one-time benefits inflating these numbers.

From a cash flow perspective, the net cash generated from operating activities ($31 million) and adjusted free cash flow ($13 million) are relatively modest. These figures are essential for the company's ability to invest in growth without resorting to additional debt or equity financing. Speaking of which, the issuance of $525 million in senior secured notes is a notable move to reduce borrowing costs and improve financial flexibility. However, this also increases PHINIA's debt load, a factor that must be balanced against free cash flows and potential impacts on future net earnings.

Market Research Analyst

The new business wins highlighted by PHINIA, including contracts with leading global OEMs, are indicative of the company's competitive position in the fuel system industry. Notably, securing a mix of contract extensions and conquest business wins shows the company's ability to retain existing customers and attract new ones from competitors, possibly hinting at market share growth. However, the actual impact on the company's bottom line from these wins will depend on the terms of the contracts and the profitability of these new deals.

It's also worth paying attention to the company's strategic positioning in various geographies. For instance, the reference to localization in South America could be tapping into regional growth opportunities and cost efficiencies. Similarly, securing business for light vehicle platforms in North America suggests a potential increase in demand within this segment that PHINIA is well-poised to capture.

For retail investors, the reaffirmed guidance for FY 2024 suggests stability and confidence in the company's future performance from the management's perspective. Particularly, the projection of $160 million to $200 million in adjusted free cash flow could provide further assurance about the company's liquidity and its ability to maintain shareholder returns through dividends and share repurchases.

Equity Research Analyst

Analysing the dividend and share repurchase activities reveals the company's commitment to returning value to shareholders. With $12 million paid in dividends and $23 million spent on share repurchases, PHINIA signals a shareholder-friendly capital allocation policy. However, the sustainability of these practices should be evaluated against the backdrop of the company's adjusted free cash flow and long-term debt levels.

The balance sheet conditions, with strong cash and cash equivalents and available credit, alongside long-term debt, provide a mixed picture. On one hand, there's ample liquidity to accommodate short-term obligations, but on the other, the increased debt due to the new note issuance could pressure future financials, particularly if the economic environment results in tighter credit conditions or decreased demand.

While the balance sheet and cash flow details provide a snapshot of the company's current financial health, investors should monitor the trend of these figures over time to assess the company's ability to manage debt and continue investing in growth while rewarding shareholders.

AUBURN HILLS, Mich.--(BUSINESS WIRE)-- PHINIA Inc. (NYSE: PHIN), a leader in premium fuel systems, electrical systems, and aftermarket solutions, today reported results for the first quarter ended March 31, 2024.

First Quarter Highlights:

• U.S. GAAP net sales of $863 million, an increase of 3.4% compared with Q1 2023.
  • Excluding $17 million of contract manufacturing sales, sales were up slightly compared to Q1 2023. Favorable pricing and currency were partially offset by lower commercial vehicle sales in Europe.
• Operating income of $71 million and adjusted operating income of $97 million includes the benefit of a supplier settlement and inflationary pass-through. Operating margin of 8.2% and an adjusted operating margin of 11.5%, represents a year-over-year increase of 130 basis points (bps) and 170 bps, respectively.
  • Q1 2024 segment adjusted operating margin of 13.6% also includes the benefits noted above.
  • Corporate costs of $18 million were in line with expectations.
• U.S. GAAP net earnings of $0.62 per diluted share.
  • Excluding $0.46 per diluted share related to non-comparable items (detailed in the non-GAAP appendix below), adjusted net earnings of $1.08 per diluted share.
• Net earnings of $29 million with net margin of 3.4%, a year-over-year decrease of 80 bps.
• Adjusted EBITDA of $131 million with adjusted EBITDA margin of 15.5%, a year-over-year increase of 160 bps.
• Net cash generated by operating activities of $31 million.
  • Adjusted free cash flow was $13 million.

Key Wins in Strategic Growth Markets:

New business wins remained strong across all end markets. A few examples of new business awards in Q1 are:

• Important contract extension win and volume uplift to supply fuel injectors to a leading global original equipment manufacturer (OEM), in the commercial vehicle (CV) segment for its European business.
• Contract extension for important GDi fuel system with leading global OEM, supporting the customer with its localization plan in South America.
• Conquest business win to supply GDi fuel systems to a leading global OEM for one of its light vehicle (LV) platforms in North America.

Brady Ericson, President, and Chief Executive Officer of PHINIA commented: "I am pleased to report that we began the new year delivering strong first quarter results which support our full year guidance. The strong performance in the quarter was driven by our Aftermarket business, coupled with positive contributions from inflationary pass-through and a supplier settlement. Furthermore, the first quarter showcased the operating discipline of our teams as we are focused on realizing efficiencies and margin expansion across our business segments.

"Our capital allocation strategy continues to be a balanced approach of investing for growth and returning value to our shareholders through cash dividend and share re-purchases. To that end, during the quarter, we paid $12 million in dividends and repurchased $23 million of our outstanding shares. Additionally, in early April, we strengthened our financial position even further with the issuance of $525 million of senior secured notes which enabled us to repay our Term Loan B facility and outstanding balance on our revolving credit facility. The completion of this refinancing initiative was an important step and provides us with more financial flexibility under which we can continue to invest in the strategic growth and evolution of the company.

"We have delivered against the initiatives we have laid out and our financial results are also reflective of this. New business wins are at record levels with a significant portion being new business conquests which bodes well for further market share gains. Additionally, we are well positioned from a balance sheet perspective to execute our operating strategy and to address market conditions as they unfold for the remainder of 2024 and beyond.”

Balance Sheet and Cash Flow:

The Company ended the quarter with cash and cash equivalents of $325 million and $424 million of available capacity under its revolving credit facility. Long-term debt at quarter end was $706 million.

Capital expenditures during the quarter were $43 million with the funds primarily used for investments in new machinery and equipment related to new program launches. Dividends paid to shareholders in the quarter were $12 million while share repurchases totaled $23 million. Net cash provided by operating activities was $31 million and adjusted free cash flow was $13 million.

2024 Full Year Guidance:

The Company reaffirms its FY 2024 outlook for net sales of $3.42 billion to $3.58 billion, adjusted sales of $3.40 billion to $3.55 billion, net earnings and margin of $125 million to $160 million and 3.7% to 4.5%, respectively, adjusted EBITDA of $470 million to $510 million, and adjusted EBITDA margin of 13.8% to 14.4%. PHINIA expects to generate $160 million to $200 million in adjusted free cash flow. Adjusted tax rate is expected to be in the range of 28% to 32%.

The Company will host a conference call to review first quarter 2024 results and take questions from the investment community at 8:30 a.m. ET today. This call will be webcast at PHINIA Q1 2024 Earnings Call. Additional presentation materials will be available at Investors.phinia.com.

About PHINIA

PHINIA is an independent, market-leading, premium solutions and components provider with over 100 years of manufacturing expertise and industry relationships, with a strong brand portfolio that includes DELPHI®, DELCO REMY® and HARTRIDGE®. With over 13,000 employees across 44 locations in 20 countries, PHINIA is headquartered in Auburn Hills, Michigan, USA.

Across commercial vehicles and industrial applications (heavy-duty and medium-duty trucks, off-highway construction, marine, aviation, and agricultural), and light vehicles (passenger cars, trucks, vans and sport-utility), we develop fuel systems, electrical systems and aftermarket solutions designed to keep combustion engines operating at peak performance, while at the same time investing in advanced technologies to unlock the potential of alternative fuels.

By providing what the market needs today to become more efficient and sustainable, while also developing innovative products and solutions for a cleaner tomorrow, we are the partner of choice for a diverse array of commercial vehicle, industrial, light vehicle and aftermarket customers – powering our shared journey toward a cleaner tomorrow.

(DELCO REMY is a registered trademark of General Motors LLC, licensed to PHINIA Technologies Inc.)

Forward-Looking Statements: This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical fact that provide current expectations or forecasts of future events based on certain assumptions and are not guarantees of future performance. Forward-looking statements use words such as “anticipate,” “believe,” “continue,” “could,” “designed,” “effect,” “estimate,” “evaluate,” “expect,” “forecast,” “goal,” “initiative,” “intend,” “likely,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “pursue,” “seek,” “should,” “target,” “when,” “will,” “would,” or other words of similar meaning.

Forward-looking statements are subject to risks, uncertainties, and factors relating to our business and operations, all of which are difficult to predict and which could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements. Risks, uncertainties, and factors that could cause actual results to differ materially from those implied by these forward-looking statements include, but are not limited to: adverse changes in general business and economic conditions, including recessions, adverse market conditions or downturns impacting the vehicle and industrial equipment industries; our ability to deliver new products, services and technologies in response to changing consumer preferences, increased regulation of greenhouse gas emissions, and acceleration of the market for electric vehicles; competitive industry conditions; failure to identify, consummate, effectively integrate or realize the expected benefits from acquisitions or partnerships; pricing pressures from original equipment manufacturers (OEMs); inflation rates and volatility in the costs of commodities used in the production of our products; changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international trade relations; our ability to protect our intellectual property; failure of or disruption in our information technology infrastructure, including a disruption related to cybersecurity; our ability to identify, attract, retain and develop a qualified global workforce; difficulties launching new vehicle programs; failure to achieve the anticipated savings and benefits from restructuring and product portfolio optimization actions; extraordinary events (including natural disasters or extreme weather events), political disruptions, terrorist attacks, pandemics or other public health crises, and acts of war; risks related to our international operations; the impact of economic, political, and market conditions on our business in China; our reliance on a limited number of OEM customers; supply chain disruptions; work stoppages, production shutdowns and similar events or conditions; governmental investigations and related proceedings regarding vehicle emissions standards, including the ongoing investigation into diesel defeat devices; current and future environmental and health and safety laws and regulations; the impact of climate change and regulations related to climate change; liabilities related to product warranties, litigation and other claims; compliance with legislation, regulations, and policies, investigations and legal proceedings, and new interpretations of existing rules and regulations; tax audits and changes in tax laws or tax rates taken by taxing authorities; volatility in the credit market environment; impairment charges on goodwill and indefinite-lived intangible assets; the impact of changes in interest rates and asset returns on our pension funding obligations; the impact of restrictive covenants and requirements in the agreements governing our indebtedness on our financial and operating flexibility; our ability to achieve some or all of the benefits that we expect to achieve from the spin-off; other risks relating to the spin-off, including a delay or inability to transition key infrastructure, services and solutions, a determination that the spin-off does not qualify as tax-free for U.S. federal income tax purposes, restrictions under the Tax Matters Agreement, and our or BorgWarner Inc.’s failure to perform under various transaction agreements; and other risks and uncertainties described in our reports filed from time to time with the Securities and Exchange Commission.

We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PHINIA Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except earnings per share)
	Three Months Ended March 31,
		2024				2023
Fuel Systems	$	527			$	509
Aftermarket		336				326
Net sales		863				835
Cost of sales		671				663
Gross profit		192				172
Gross margin		22.2	%			20.6	%
Selling, general and administrative expenses		104				99
Other operating expense, net		17				15
Operating income		71				58
Equity in affiliates’ earnings, net of tax		(3	)			(3	)
Interest expense		22				6
Interest income		(4	)			(3	)
Earnings before income taxes		56				58
Provision for income taxes		27				23
Net earnings	$	29			$	35
Earnings per share— diluted	$	0.62			$	0.75
Weighted average shares outstanding — diluted		46.1				47.0

PHINIA Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in millions)
	March 31, 2024			December 31, 2023
ASSETS
Cash and cash equivalents	$	325		$	365
Receivables, net		1,023			1,017
Inventories		489			487
Prepayments and other current assets		80			58
Total current assets		1,917			1,927
Property, plant and equipment, net		888			921
Other non-current assets		1,173			1,193
Total assets	$	3,978		$	4,041
LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-term debt	$	90		$	89
Accounts payable		612			639
Other current liabilities		420			420
Total current liabilities		1,122			1,148
Long-term debt		706			709
Other non-current liabilities		300			297
Total liabilities		2,128			2,154
Total equity
Total liabilities and equity		1,850			1,887
	$	3,978		$	4,041

PHINIA Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)
	March 31, 2024				March 31, 2023
OPERATING
Net cash provided by (used in) operating activities	$	31			$	(33	)
INVESTING
Capital expenditures, including tooling outlays		(43	)			(38	)
Proceeds from asset disposals and other, net		1				—
Net cash used in investing activities		(42	)			(38	)
FINANCING
Repayments of debt, including current portion		(3	)			—
Dividends paid to PHINIA stockholders		(12	)			—
Payments for purchase of treasury stock		(23	)			—
Payments for stock-based compensation items		(3	)			—
Cash outflows related to debt due to former parent		—				(100	)
Cash inflows related to debt due from former parent		—				30
Net transfers to former parent		—				67
Net cash used in financing activities		(41	)			(3	)
Effect of exchange rate changes on cash		12				4
Net decrease in cash and cash equivalents		(40	)			(70	)
Cash and cash equivalents at beginning of year		365				251
Cash and cash equivalents at end of period	$	325			$	181

PHINIA Inc.
Net Debt (Unaudited)
(in millions)
	March 31, 2024			December 31, 2023
Total debt	$	796		$	798
Cash and cash equivalents		325			365
Net debt	$	471		$	433

Non-GAAP Financial Measures

This press release contains information about PHINIA’s financial results that is not presented in accordance with accounting principles generally accepted in the United States (GAAP). Such non-GAAP financial measures are reconciled to their most directly comparable GAAP financial measures below. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.

Management believes that these non-GAAP financial measures are useful to management, investors, and banking institutions in their analysis of the Company's business and operating performance. Management also uses this information for operational planning and decision-making purposes.

Non-GAAP financial measures are not and should not be considered a substitute for any GAAP measure. Additionally, because not all companies use identical calculations, the non-GAAP financial measures as presented by PHINIA may not be comparable to similarly titled measures reported by other companies.

A reconciliation of each of projected Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Free Cash Flow, which are forward-looking non-GAAP financial measures, to the most directly comparable GAAP financial measure, is not provided because the Company is unable to provide such reconciliation without unreasonable effort. The inability to provide each reconciliation is due to the unpredictability of the amounts and timing of events affecting the items we exclude from the non-GAAP measure.

Adjusted EBITDA and Adjusted EBITDA Margin

The Company defines adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as net earnings less interest, taxes, depreciation and amortization, adjusted to exclude the impact of restructuring expense, separation and transaction costs, other postretirement income and expense, equity in affiliates' earnings, net of tax, impairment charges, other net expenses, and other gains and losses not reflective of our ongoing operations. Adjusted EBITDA margin is defined as adjusted EBITDA divided by adjusted sales.

Adjusted Operating Income and Adjusted Operating Margin

The Company defines adjusted operating income as operating income adjusted to exclude the impact of restructuring expense, separation and transaction costs, intangible asset amortization expense, impairment charges, other net expenses, and other gains and losses not reflective of the Company’s ongoing operations. Adjusted operating margin is defined as adjusted operating income divided by adjusted sales.

Adjusted Sales

The Company defines adjusted sales as net sales adjusted to exclude certain agreements with BorgWarner that were entered into in connection with the spin-off.

Adjusted Net Earnings Per Diluted Share

The Company defines adjusted net earnings per diluted share as net earnings per share adjusted to exclude the tax-effected impact of restructuring expense, separation and transaction costs, impairment charges, other net expenses, and other gains, losses and tax amounts not reflective of the Company’s ongoing operations.

Adjusted Free Cash Flow

The Company defines adjusted free cash flow as net cash provided by operating activities after adding back adjustments related to the ongoing effects of separation-related transactions, less capital expenditures, including tooling outlays.

Adjusted Sales (Unaudited)
(in millions)
	Three Months Ended March 31,
		2024				2023
Fuel Systems net sales	$	527			$	509
Spin-off agreement adjustment		(17	)			—
Fuel Systems adjusted sales		510				509
Aftermarket net sales		336				326
Adjusted sales	$	846			$	835

Adjusted Operating Income and Operating Income Margin (Unaudited)
(in millions)
	Three Months Ended March 31,
		2024				2023
Operating income	$	71			$	58
Separation and transaction costs		17				18
Intangible asset amortization expense		7				7
Restructuring expense		2				4
Royalty income from Former Parent		—				(5	)
Adjusted operating income	$	97			$	82
Net sales	$	863			$	835
Operating margin %		8.2	%			6.9	%
Adjusted sales	$	846			$	835
Adjusted operating margin %		11.5	%			9.8	%

Segment Adjusted Operating Income and Segment Operating Income Margin (Unaudited)
(in millions)
	Three Months Ended March 31,
		2024				2023
Fuel Systems	$	55			$	43
Margin %		10.8	%			8.4	%
Aftermarket		60				48
Margin %		17.9	%			14.7	%
Segment adjusted operating income	$	115			$	91
Margin %		13.6	%			10.9	%

Adjusted EBITDA and EBITDA Margin (Unaudited)
(in millions)
	Three Months Ended March 31,
		2024				2023
Net earnings	$	29			$	35
Depreciation and tooling amortization		34				34
Provision for income taxes		27				23
Intangible asset amortization expense		7				7
Interest expense		22				6
Interest income		(4	)			(3	)
EBITDA		115				102
Separation and transaction costs		17				18
Royalty income from Former Parent		—				(5	)
Restructuring expense		2				4
Equity in affiliates' earnings, net of tax		(3	)			(3	)
Adjusted EBITDA	$	131			$	116
Adjusted sales	$	846			$	835
Adjusted EBITDA margin %		15.5	%			13.9	%

Net Earnings to Adjusted Net Earnings (Unaudited)
(in millions)
	Three Months Ended March 31,
		2024				2023
Net earnings	$	29			$	35
Separation and transaction costs		16				18
Intangible asset amortization		6				7
Restructuring expense		2				3
Royalty income from Former Parent		—				(5	)
Tax adjustments		(2	)			(2	)
Adjusted net earnings	$	51			$	56

Adjusted Net Earnings Per Diluted Share (Unaudited)
	Three Months Ended March 31,
		2024				2023
Net earnings per diluted share	$	0.62			$	0.75
Separation and transaction costs		0.34				0.38
Intangible asset amortization expense		0.13				0.15
Restructuring expense		0.03				0.06
Royalty income from Former Parent		—				(0.11	)
Tax adjustments		(0.04	)			(0.04	)
Adjusted net earnings per diluted share	$	1.08			$	1.19

Adjusted Free Cash Flow (Unaudited)
(in millions)
	Three Months Ended March 31,
		2024				2023
Net cash provided by operating activities	$	31			$	(33	)
Capital expenditures, including tooling outlays		(43	)			(38	)
Effects of separation-related transactions		25				19
Adjusted free cash flow	$	13			$	(52	)

Adjusted Sales Guidance (Unaudited)
(in millions)
	Full Year 2024 Guidance
	Low				High
Net sales	$	3,420			$	3,575
Spin-off agreement adjustment		(20	)			(25	)
Adjusted sales	$	3,400			$	3,550

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240425084517/en/

IR contact:

Gordon Muir

Vice President and Treasurer

investors@phinia.com

+1 574-210-5713

Media contact:

Kevin Price

Global Brand & Communications Director

media@phinia.com

+44 (0) 7795 463871

Source: PHINIA INC

FAQ

What were PHINIA's first quarter 2024 U.S. GAAP net sales?

PHINIA reported U.S. GAAP net sales of $863 million for the first quarter of 2024.

What was the operating income for PHINIA in the first quarter of 2024?

PHINIA reported operating income of $71 million for the first quarter of 2024.

What is PHINIA's adjusted EBITDA for the first quarter of 2024?

PHINIA's adjusted EBITDA for the first quarter of 2024 was $131 million.

What is PHINIA's 2024 outlook for net sales?

PHINIA expects net sales between $3.42 billion to $3.58 billion for the full year 2024.

What is PHINIA's adjusted EBITDA guidance for 2024?

PHINIA's adjusted EBITDA guidance for 2024 is between $470 million to $510 million.

What is PHINIA's expected adjusted free cash flow for 2024?

PHINIA expects adjusted free cash flow of $160 million to $200 million for the year 2024.