Phinia at UBS Auto & Auto Tech Conference: Strategic Outlook Amid Market Volatility

On Wednesday, 04 June 2025, Phinia Inc. (NYSE:PHIN) participated in the UBS Auto & Auto Tech Conference 2025. The company highlighted its strategic resilience amidst market volatility, underscoring robust performances in Europe, Asia, South America, and India. However, challenges in North America were noted. Phinia’s leadership expressed confidence in its full-year guidance, emphasizing the longevity of ICE engines and strategic capital allocation.

Key Takeaways

• Phinia’s full-year guidance remains strong despite North American market volatility.
• The company is leveraging its expertise in ICE engines, hybrid technologies, and alternative fuels.
• Strategic capital allocation includes share repurchases and potential M&A opportunities.
• Cost savings initiatives are underway to mitigate tariff impacts and improve margins.
• Phinia is focusing on expanding into non-transportation markets like aerospace.

Financial Results

• Q1 Performance: The first quarter saw some softness due to the Chinese New Year and slower recovery post-winter shutdown.
• Guidance: Full-year guidance is reaffirmed with an expected EBITDA growth of 14.5% over the next three quarters.
• Tariffs: A $4 million tariff impact in Q1 is being addressed, with recovery efforts expected to resolve most issues by quarter-end.
• Cost Savings: Initiatives include productivity improvements and reduced discretionary spending.
• Share Repurchases: $100 million repurchased in Q1, with an additional $200 million authorized.

Operational Updates

• Market Performance: Europe, Asia, South America, and India are performing well, with North America showing volatility.
• Aftermarket Strength: Aftermarket sales, particularly in North America, are stronger than expected.
• ICE Engine Longevity: The company sees a longer-than-expected lifespan for ICE engines, with ongoing customer conversations about extending support for hybrid programs.

Future Outlook

• Commercial Vehicle Growth: Anticipated growth in commercial vehicles in late 2025 and into 2026.
• Strategic Initiatives: Phinia is exploring M&A opportunities and expanding into sectors like aerospace and off-highway applications.
• Capital Allocation: The company will evaluate its share repurchase program quarterly, balancing it with M&A prospects.

Q&A Highlights

• Customer Production Schedules: No significant deviations from expectations.
• Tariffs: Most tariff pass-through mechanisms are in place, with remaining resolutions expected soon.
• M&A: A steady flow of opportunities with more realistic seller pricing.

For further details, readers are encouraged to review the full conference call transcript.

Full transcript - UBS Auto & Auto Tech Conference 2025:

Unidentified speaker: Next up, we’re very pleased to have with us, Finia, you know, tier one supplier for automotive, commercial vehicle, aftermarket, parts, market capital a little

Brady Erickson, CEO, Finia: bit under 2,000,000,000, but

Unidentified speaker: I know Brady wants to to get that higher. Should be higher. Thanks for thanks for joining us. We do we do have Brady Erickson, CEO Chris Gropp, CFO. So I mean, I guess, just to kick things off, three weeks left in the quarter, probably have schedules out here for the balance of the year, probably heading into third quarter ready.

Can you just talk a little bit about what you’ve seen, how you’ve seen the quarter play out in terms of the customer production schedules, how have those developed, anything meaningful? Obviously, there’s always some shipments some adjustments here and there on the light vehicle side in particular, but anything material to sort of note that sort of played out different than what you thought earlier in the quarter?

Brady Erickson, CEO, Finia: No. I mean, our our view is in our our full year guide, I think we’re still comfortable with it. And again, just as a reminder, folks, we’re seeing probably most of the volatility in the North American market, but that’s still a small percentage of our business. Europe is still kinda hanging in there doing well. Asia doing well.

South America doing good. India doing good. And our aftermarket continue to be strong. So from our perspective, it’s, you know, it’s kinda well within our original expectations. Mhmm.

We know q one was a little bit soft. That’s primarily because of the, you know, a Chinese New Year always in q one. And, you know, I think people came out after the the winter shutdown and Christmas shutdown a little bit slower. But as far as current run rates and ADI, you know, we think things are pretty consistent right now to our expectations.

Unidentified speaker: When you’re talking about some of that volatility in North America, is that on the it’s just specific specific time at the light vehicle side or including some of the

Brady Erickson, CEO, Finia: commercial vehicles? Commercial vehicle as well. I think we’re seeing some of that. But in in many ways, it’s just more noise in investors or the market or press Mhmm. Our order boards have remained pretty consistent.

Mhmm. Again, we supply into the into the engine manufacturers, and they tend to have less capacity. And so they continue to kinda run at a pretty consistent clip on the engine side, and maybe the vehicle side may see a little more volatility.

Chris Gropp, CFO, Finia: We’ve had slightly more strength on the aftermarket in North America than we expected. We’re not talking massive numbers, but it has picked up, and it’s been stronger coming back stronger. Last year, it was our European aftermarket was extremely strong, and that’s held. But we’re seeing North America aftermarket actually coming up.

Unidentified speaker: What’s what’s driving that?

Chris Gropp, CFO, Finia: Good question.

Brady Erickson, CEO, Finia: I think, well, we we did some some organizational changes there as well, and we continue to to bring more products to market. Okay. We announced it with each of our earnings calls, you know, some of the new wins. And aftermarket, you win and generally within three to nine months, you’ve got the business coming in. So it’s a much faster cadence.

Again, Europe, I think last last couple years was really strong because we rolled out steering, suspension, and braking as a new product line. And now we’re starting to bring more of that product line in North America, and so they’re seeing a little bit more pickup there too. Okay.

Chris Gropp, CFO, Finia: We’ve also had strength in China light vehicle. So GDI has been really selling well in China.

Unidentified speaker: In North America, and let’s stick on the light vehicle side, I just want to sort of it seems like there’s some near, mid, and long term dynamics that I’d sort of like to sort of walk through. In the near term, for instance, we know GM is one of the big customers. And again, not saying IHS or sort of S and P is sort of the bible. But if you look at some of their forecasts there, I think they do have some of their programs down somewhat materially in in the back half of the year. Wondering if that is sort of something that’s embedded into your outlook as well or whether you think there’s maybe some adjustments that need to happen there.

Brady Erickson, CEO, Finia: We think there’s probably more adjustments. Again, we see, you know, a consistent order border across pretty much all of our customers. What we what we saw kinda last year, q three and q four were soft, and that’s kinda continued into this year. And so from a from a run rate and a production, we haven’t seen a lot of changes. We were originally hoping to see things kinda pick up in the second half, both on commercial and light.

Mhmm. Maybe the pickup isn’t there as much as we expected, but it’s not going down from kinda current run rate that we see right now.

Unidentified speaker: Mhmm. And I guess, you know, mid and longer term. Right? And I think this is sort of in your view since the spin out is that, you know, the the ICE engine has much a much longer tail than than than people expect. That’s proven, I think, to be correct.

And I think if you look at the way regulatory policy on emissions and EVs and California sort of is evolving, maybe there’s even more extension than sort of people thought. Now, I know none of that is officially settled or set in stone yet from a policy perspective, but I am curious if you’re starting to have some conversations with your customers about supporting programs for longer or maybe even some new programs that, you know, might be hybrid, might have be plug in hybrid or whatever, but still have sort of that combustion engine that would need a Finia product.

Brady Erickson, CEO, Finia: Yeah. I mean, from our perspective, the conversations with customers have been consistent. It was happening before we spun.

Unidentified speaker: Mhmm. People didn’t believe us. Mhmm.

Brady Erickson, CEO, Finia: But these these things were happening with, know, some of our Chinese OEM customers that are known for battery electric vehicles. They were asking us for 350 and 500 bar g d r g d I technology for their plug in hybrids and full hybrids and range extending EVs back in ’21 and ’22. Mhmm. Because they recognize that the battery electrics are good for some applications in some percentage of the population, but it’s not for a %.

Unidentified speaker: Mhmm.

Brady Erickson, CEO, Finia: And so I think we even saw it, you know, with with GM with their latest announcement with their engine plant. Well, now they make a press release about it. In New York. Yeah. Three years ago, they were doing a billion dollars to their flint and truck, but they didn’t make a press release about it.

You know, they just didn’t highlight it. And so I think people are just you know, whatever gets on the front page, they think that’s the first time it’s ever happened, but it’s actually been happening for for years now.

Unidentified speaker: Mhmm.

Brady Erickson, CEO, Finia: And then even, you know, we’re we’re we’re talking with folks, and I still don’t think they understand when they talk about electrification. For some reason, they always bundle together plug in hybrids. Mhmm. And a plug in hybrid still has a wonderful combustion engine in it with a GDI system in it. It has to have the same performance as a standard combustion engine.

Mhmm. Because that plug in hybrid is only gonna be good for, you know, some transient response improvement and maybe 30 or 50 miles. And so you still have to have the full performance and drivability in that combustion engine in that plug in hybrid. And that still requires a full, you know, GDI type system, and and I think it’s confusing folks.

Unidentified speaker: Yeah. That’s a good point. I I guess, like, know, you sort of brought up China earlier where, obviously, this has been more pervasive, like, we’ve all seen the advent of, you know, the ERES or the range extender EVs in in in China, which also have a combustion engine, but maybe just for a different purpose. But are are are those also using GDI technology? Or or

Brady Erickson, CEO, Finia: is GDI or PFI. I think we’ve got a PFI application, you know, launching with the range extender. But there’s still some technology that they’re gonna need depending on, you know, how they wanna use it and how efficient. I think the initial ones will probably be, you know, a PFI. They’re trying to make it, you know, run steady state, you know, as efficiently as possible.

But I think there may be a potential down the road where there’s a cost effective GDI system that works for them too.

Unidentified speaker: Okay. And then just with the with the with the customers specifically in in in North America, I mean, I think, at least to to me, my understanding was that there were conversations with customers about extension of current program and and your programs. I I I guess the question is though now, like, are we actually even seeing conversation about new potential programs?

Brady Erickson, CEO, Finia: Yes. I think they are. I don’t think we’ll see a ground up engine development, you know, as far as new blocks, new heads. Mhmm. But I think they’ll they’re already working on, hey.

How do we convert some of our combust pure combustion to hybrid? Mhmm. And they’re looking saying, hey. We need we need to go from three fifty to 500 bar. Yeah.

Hey. Can you increase the the the compatibility with e e 15 or e 20 or e 80 or e 100, you know, alternate fuels? And that’s gonna require some adjustments to our fuel injection systems. And so I think we’re seeing more and more of that now. I think we’ve announced, you know, our first e 100 in Brazil.

You know, we’re in we’re in ethanol. We’re in natural gas. We’re in diesel, gasoline, hydrogen, ammonia. We can do all those types of fluids, and we’re gonna continue to develop the next generation technology for them. And and because I think it’s they’re gonna continue to have these engines for decades to come in in parts of the world.

Some parts of the world may go more electrification, but I still think we’re gonna be seeing combustion engines in, you know, in fifty, sixty million units a year.

Chris Gropp, CFO, Finia: We see the extensions on the light vehicle side, but where we really see more of a request for an extension and commitment to longer term is on the CV side for sure. And Brady’s for sure been in conversations with the owners, the people that are running those companies and asking us to stay in longer to give them commitment. And we’ve actually had, quotes come back to us because some of our competitors didn’t want to commit beyond 2030 and beyond. And so we’ve actually had them come back and had the buyers actually come back and ask us to requote because they need commitment beyond that period of time.

Unidentified speaker: It’s actually a great segue to the next question, which was on the competitive environment. And maybe you just sort of gave an inkling to the answer here. But, you know, I think part of the interesting aspect of the Finia story was, you know, you had this market which, maybe wasn’t gonna decline as much as some people thought. But b, you definitely had competitors who chose to exit the market because they thought there wasn’t a future in it, which led to share gains for for you. I guess, now that you’ve proven to be maybe more right than wrong, have you seen any retracement on some of those strategies from the competitors and say, maybe we don’t wanna get out as fast.

Maybe we should invest some capital here.

Brady Erickson, CEO, Finia: I I think it’s gonna be very this is a very capital intensive and very r and d intensive product line, you know, for for direct injection. Once you go direct injection, there’s a lot of competitor that fell off because port fuel injection was relatively low tech. A lot of people were in it, and and and therefore, it was, you know, a much more competitive market. Once you go to direct injection, your number of competitors get down shrunken get shrunken significantly. Now a lot of the small players that were in the low to mid single digits, you know, market share, they’re the ones that are exiting.

Mhmm. And for them to not invest in r and d and then try to reinvest to kinda get back in, I don’t think it makes any financial sense for them whatsoever because we don’t need more capacity Mhmm. Necessarily because the market’s still gonna be kinda flat to down. Mhmm. So they’re gonna get back in, and there’s gonna be four or five competitors and they’re, you know, one tenth the size of the largest competitor, I think it’s gonna be very difficult for them to compete.

So I think the smaller players are gonna continue to kinda exit. And, you know, some of them have sold off some of their plants and manufacturing already. And then I think it’s basically the the the three big ones with Bosch, Denzo, and ourselves. And I think we’re we’re the ones that are the clear clearly committed to this Right. Midterm and long term.

And, you know, we’re focused on the next generation technology and being great partners for them. And I’m you know, I think one of our competitors is not necessarily saying they’re committed to long term. And another one is is, you know, in it significantly. So I guess they’ve got the the bulk of the share. Right.

But again, it’s a small piece of their overall business. And Well, that’s what I

Unidentified speaker: was gonna say. Like, I think whether, you know, and I don’t wanna sort of make it better, but I think, like, when you look at the the larger competitors, right, like one, I think you’re a question you you could have a question over the past couple years, just commitment to the product. But the other consideration, right, internally at that organization is capital to that product versus other potential alternatives. Right? And that’s sort of, again, that you’re sort of solely focused, you’re committed, right?

Like, this is what you’re investing in. I guess that was sort of the real impetus of the question. Like, have you seen any evidence that there’s been a retracement on their strategy to maybe start to reinvest a little bit more or commit some

Brady Erickson, CEO, Finia: I think I I wouldn’t say add more capital. I think it they maybe get some a little bit more aggressive on pricing to keep their existing programs. Mhmm. I think on new programs and on our own business, we haven’t lost any of our own business. So we’re not losing what we consider kinda maintaining our current business.

The the the conquest business for us to gain market share may be a little bit tighter with with one of them, but there’s still other markets that we continue to grow in. And again, our goal for our light passenger vehicle business is just to gain enough market share to keep our revenues flat. And so there’s a okay. They’re getting a little more aggressive, but guess what? The combustion engine decline is not as cheap anymore.

So I don’t need to gain as much in order to keep that, you know, just shy of about a billion dollars of our revenue.

Unidentified speaker: But is there is there still not like, if if they’re sort of trying to start to play the price game to sort of maintain share, they didn’t make the necessary investments in years prior, Isn’t there a technology gap that, like, yes, your product might be a little bit more expensive, but, like, look what you’re getting for this product. And does that does that help you win in a way?

Brady Erickson, CEO, Finia: Absolutely. That’s why we’ve been winning a lot in China with our 500 bar technology. And so we’re the first one to market with that, and we continue to gain more customers and launching it more applications. And and that is an area to where, you know, we’re differentiating. If if they wanna go down that path, it’s a great solution for them.

Do they have to have 500 bar technology? No. They can spend more money on variable cam timing or turbocharging or more valves. There’s other technologies they can use, but it may not be as cost effective as switching to our 500 bar technology.

Chris Gropp, CFO, Finia: I understand that most of the technology, if they shed it, what they’re shedding on the R and D side are the people, the engineers that really understand this. Because I’ve been in a and Brady has been in a lot of different automotive businesses, but I’ve never been in one that had such precision. And it was there was such knowledge held by the engineers themselves, and they’re driving it. So if they’ve gone through, if our competitors have gone through, and if they have shed those heads or pushed them out to try to spend on other areas, it’s hard to get that back. It creates a huge gap, and we have not done that.

We really still have all of that still that asset remaining because it’s important Mhmm. The technology, for sure.

Unidentified speaker: Maybe just going back a little bit to your like the here and now and your recent results and your outlook. I think you talked about $4,000,000 tariff impact in the first quarter that you expected to get some recovery. I’m not sure if that’s happened yet or if that’s sort of taken so that’s been settled. We’ve gotten that.

Brady Erickson, CEO, Finia: Not all of it, but third

Chris Gropp, CFO, Finia: quarter is

Brady Erickson, CEO, Finia: still I think we’ve resolved with most of our customers already you know, the the pass through mechanism at a %. We’re confident we’ll get there with with the rest of them, you know, in the quarter. Maybe a little bit of hangover, but I I don’t expect much. I think this is a much easier one to to share exact information of what we’re paying and the implications. Mhmm.

I think we’ve got those systems and processes in place from the inflationary costs pass through and the challenges that we had from ’22 and ’23. So we fired it back up again, and Chris and her team have done a great job to actually add it as a line item to track it and make it very clear and transparent for our customers Mhmm. You know, kinda going forward.

Unidentified speaker: And just to be clear, like, that $4,000,000 or sort of what you embedded to keep going forward from a tariff perspective, that relates to the non USMCA compliance portion that you’re incurring that you have to

Brady Erickson, CEO, Finia: And or if their reciprocal tariff got put put in place, you know, some of our suppliers have some impact depending on the material they’re bringing in. So that was just in total of all both from our suppliers as well as us, you know, shipping to our customers in The US. We’ve worked, you know, a lot with them in order to mitigate it, whether it’s shipping directly to their plant in Mexico, whether it’s, you know, increasing our USMCA compliant and plans to offset. So we’re working very quickly and closely with customers to try to mitigate it first. Mhmm.

We’re not just putting up our hands and saying, hey, you’ve gotta pay for it all. Right. We’re really working with them as a partner to try to resolve it as quickly as possible Because we ultimately want them to be successful, and we’re trying to offset as

Unidentified speaker: much as possible for making to the consumer. Right. Now I think is is part of the reason why some of those reimbursement mechanisms have been, you know, swimming along in terms of customer conversations is because and I think this is, my my timing might be off here. But I think, like, when you issued your guidance, we didn’t yet have this 3.75% sort of mechanism for the automakers to recover. So once they got that ability, did that make those conversations a little bit easier to sort of try to get started to get reimbursements?

Brady Erickson, CEO, Finia: I I think it it may have, but, again, we were well down the path even before that came out. You know, I think the expectation was there. The communication was there with customers of what was expected. And it’s not something that we can just kind of, you know, absorb on our own. You know, the numbers are just too big.

Chris Gropp, CFO, Finia: Plus, it’s in two different pieces. So the aftermarket, it’s actually in piece price, and we’ve already pushed through one price increase for that. And I have already put notification out of possibly another one. We’re not gonna do it if we don’t need to, but there’s possibly gonna be another one. And then the other is basically a surcharge based on the HTS code of the component that, you know, that it ends up being.

So it’s coming out in two different pieces. But, yeah, I agree with you that when we went out, that last MSRP, basically, duty drawback was not in place. Mhmm. That gives the argument for us to push it through even more because at the end of the day, they have a pool of money that they can then pull back and and

Unidentified speaker: Is it Chris, is there any, like, earnings or sort of cash flow timing impact we should expect for this? Like like, are they are they actual are the automakers actually paying you for this yet? Or or because it’s it’s part of the it is Yeah.

Chris Gropp, CFO, Finia: No. So some of it is gonna be in the surcharge, which is going to come in on their normal terms. So it’ll be based on our normal either forty five days or whatever their payment days are. We’ve had one that is wanting to do it on a quarterly basis, and they’re a very good partner. So we’re contemplating that.

But it’s not a big cash wise, it’s not gonna be a big issue.

Brady Erickson, CEO, Finia: Okay.

Unidentified speaker: I think just sort of heading back to the guidance, and this has sort of been one of the bigger, you know, I think investor conversations we’ve had since you reported was, you know, the the reiterated EBITDA guide, you know, about, you know, for I think it implies, like, 14 and a half percent over the balance over the next three quarters. Now I understand, like, that’s just average there. Right? Like, it’s not nothing is sort of smooth like that. But, it it does imply, I think, based on sort of everything else you’re saying, like, there’s some additional cost savings needed in order to sort of get that run rate EBITDA up.

And I know you sort of talked about some there’s maybe some uniqueness to some of the first quarter margin that sort of shouldn’t repeat. But I guess this is a long winded way of asking the question, which is like how can investors get comfortable with the step up from 1Q levels to sort of what’s implied and needs to happen over the balance of the year?

Brady Erickson, CEO, Finia: I guess the first thing I’d do is take a look at all of our quarters. There’s always going to be there’s not a direct tie between revenue and EBITDA, and there’s a quarter where we had, you know, north of 15% EBITDA for the quarter on lower revenues. And so there’s always gonna be some kind of puts and takes, you know, in each quarter. We get we’re fortunate enough that we actually get to take a look at our forecast Mhmm. In a detailed manner.

You guys have to kinda guess a little bit. And and so from our perspective, we’re we’re very comfortable with our revenue guide and our EBITDA dollar guide. Mhmm. I think the the challenge is really gonna be on the, say, that $4,050,000,000 dollars of of of tariff pass through with no margin Mhmm. On the OE side.

Does that put a little bit of pressure on the EBITDA percentage? That’s not gonna put pressure on the EBITDA dollars. And again, I think in general, you know, we saw the the volume impact that we’re seeing and now is in our latest forecast is offset by the the the tariff pass through as well as some FX, you know, being less of a headwind. And so they’re kind of balancing each other out. And and so, again, we take a look at our numbers and what we see in the EDI, we’re very comfortable with where we are in the guide.

Unidentified speaker: Are there some additional costs

Chris Gropp, CFO, Finia: We do have cost savings. I mean, our teams are working on that all of the time. They are I mean, you’ve seen our GSM numbers. They are looking for savings all the time. That is coming through.

And then productivity with our units, that’s just something that they constantly do is looking at, you know, better productivity. So Yeah.

Brady Erickson, CEO, Finia: I mean, with with things with uncertainty, we’ve already, you know, gone to folks saying, hey. As far as travel, you know, discretionary spending, what can we do to try to mitigate that, you know, over time? The so people are doing that, kinda delaying some hiring. But again, we still see the number of new program launches and our new business wins and our growth still there in the long term, and that’s what we’re really focused on a little bit less, you know, just specifically on one quarter. With with the OE being down and aftermarket up, that’s also gonna be from a mix perspective, good from a margin perspective as well.

So I think there’s gonna be, you know, some some puts and takes. And again, we’re still very confident

Unidentified speaker: with our with our guide. Well, glad you found the budget to join us here in New York. So metals. So just remind us sort of of the, you know, steel, aluminum sort of metal buys, some of the exposures there. And then, you know, we obviously saw over this past weekend sort of another round of tariffs, maybe, maybe not, but I guess, maybe yes.

So what’s sort of the sensitivity there in terms of sort of your the pass through agreements you have for any changes that occur there?

Brady Erickson, CEO, Finia: Yeah. From a commodity standpoint, aluminum, copper, steel, those are all the standards that kinda go up and down. Commodity cost as a as an overall percentage of our sell price is relatively low low single digits. Most of the components we have going into our into our parts are gonna be highly complex machine, you know, type components. Probably the biggest part of it is gonna be aluminum castings Mhmm.

You know, for our starters and alternators. But can’t the cost of those go up?

Chris Gropp, CFO, Finia: Yes. But they’re on the in they’re on the index. On the They get automatic password.

Unidentified speaker: To your customer?

Brady Erickson, CEO, Finia: Yeah. Okay.

Unidentified speaker: Yep. So there might be a little bit of timing there as well with that. Yeah. They’re they’re relatively

Brady Erickson, CEO, Finia: yeah. Well timed. Exactly.

Unidentified speaker: Okay. And then, you know, the other sort of, you know, topic that’s come into a bunch of focus of late is is rare earths. I’m not sure if you have any sort of direct exposure there on on rare earths, but would be curious to see even if there’s an indirect exposure, meaning you’ve seen any sort of fluctuations or sort of changes in production schedules because maybe there’s a holdup in some other part of the vehicle, and so your is saying, you know, hold up hold up shipments.

Brady Erickson, CEO, Finia: Yeah. I mean, again, our our strategy is we’re generally designing, developing, sourcing, producing, region. Okay? So if probably most of the rare earths that we have in some of the ECUs is in China for China Mhmm. There’s no restrictions for that.

It’s more coming out of China, and there’s very little that we actually have coming out of China.

Chris Gropp, CFO, Finia: That’s 97% of our direct exposure is To rare earths. In China.

Brady Erickson, CEO, Finia: China for China. Customers. And then again, the the rest of it, same thing. You know, there’s not a lot of rare earths. We have you know, with our stars and alternators, we’re in pretty good shape.

And we haven’t seen any any customers drop out production. I think most of the disruptions, again, are generally gonna be at vehicle plants, and we’re supplying the engine plants. And so I think we’ve seen the engine manufacturing stay relatively consistent because the the vehicle plants, think, can generally even if they’re down, they can make it up once they get the slug of material in. For the engine guys, engine plants, they they can’t flex 30%, forty % like some of the vehicle plants that are running one shift.

Unidentified speaker: Got it. That’s super helpful. You know, we talked a little bit about earlier, you know, some of the the the way policy around emissions and EVs seemingly headed in in in The US. I don’t think I think you’ve always sort of talked about your capacity and your sort of footprint as sort of being sufficient. Is that something you may need to reevaluate if, you know, we we, you know, California is removed, ICE is much longer than expected, is is is your footprint rather calibrated for, you know, how things seem to be trending now?

And like to your point, it’s like you guys always believe this, the rest of us are just sort of waking up to it. Yeah. Yeah.

Brady Erickson, CEO, Finia: I mean, from our we we like our existing footprint right now. It has we have some surge capacity capability there. But again, I I don’t see combustion engines ramping up. Right. I just think it’s not going down or ramping down as much as before.

And so I think we’ve got plenty of capacity to meet their demand, and and we’re continuing to reinvest.

Unidentified speaker: Because the the the the plants were capacitized for, you know, back when there were no electric vehicles, so or or the footprint anyway. So conceptually, you could go up to that.

Chris Gropp, CFO, Finia: On the diesel side, but on the GDI side, really, that started coming in after. So we’re you know, we have capacity, but it’s not excessive. And where we’ve had even diesel capacity, we’ve been able to take that capacity and convert it for other uses and for other products.

Brady Erickson, CEO, Finia: And again, our from a manufacturing standpoint, our our equipment is relatively fungible. And so we had a lot of excess capacity in Europe at one point for GDI. We sent lines to China, and that’s a lot of the ramp with GM came from the lines we had in Europe to ramp up here in North America. And so those that that actually was ramped up quite a bit from a revenue. It went from basically a zero to

Chris Gropp, CFO, Finia: Yeah.

Brady Erickson, CEO, Finia: Full full speed over the last couple of years, and we’ve sent one of those lines down to Brazil as well for for for GDI down there and as well as e 100.

Unidentified speaker: Now on commercial vehicle, you mentioned that’s where maybe there’s sort of been bigger change, right? Like especially post 02/1930, I think, where people realize that the combustion engines, for longer. I know you had talked about when there was sort of this greater hope or idea for sort of a pre buy this year or last year that their customers were sort of funding some of that capital. Did that actually end up occurring? Or has sort of that been pushed

Or I I

Brady Erickson, CEO, Finia: think I mean, we had to be ready to produce yet this year. So with the lead times of, you know, twelve, eighteen months to get some of this stuff in place, they’re kinda in in flight already Mhmm. And kinda continue to ramp up, you know, capacity for those just in case. Do we do we expect to see that big pre buy for the North American business? No.

But I do see I do expect it to kinda come up latter half of ’20 ’5 and into ’26. We’ll see how much we need. At the same token, our our customers also buy third party engines. Mhmm. So they could also change some of the mix between they’ve sometimes been limited in capacity on their own engine, and this may free up some opportunity for them as well.

Unidentified speaker: Yeah. I guess the question is is, like, does does that capacity that they’re sort of helping pay for for, you know, a quote, unquote surge actually end up paying dividends well into sort of 2030 and beyond now that sort of the combustion engine sort of lasts last long.

Brady Erickson, CEO, Finia: Yeah. I mean, we You to re you

Unidentified speaker: get to reuse it. Right? Or do

Brady Erickson, CEO, Finia: they take We can we we can our plants. We can continue to use it. It could help us with our footprint. Or if they have another another new business program, we can put on that for them and and support them. But it is, you know, allocated and and you know, for them.

Mhmm. And if they have a demand for it, we’ll produce on it for them. Mhmm. If if they don’t have a demand and we can use it in other areas, we can do that too. One of the

Unidentified speaker: things that’s come up with in talking to some of the automakers is that they are having discussions with supply base, and I’ll use that as sort of a broad term, right, about, right, upping US content or, you know, or I guess, at first USMCA content, eventually sort of US content. Right? And it seems like that’s sort of being targeted for higher value parts, right, that maybe that involve less labor, etcetera. I’m curious whether you’ve started to have any conversations with your customers about what would it or what could it look like if you were to sort of move shift capacity? No.

Brady Erickson, CEO, Finia: Our focus is is, you know, being prepared for the renegotiation of the USMCA. Mhmm. And our view is making sure we get all of our parts USMCA compliant as well as probably getting prepared for a higher percentage in order to be to maintain USMCA compliant with the renegotiation. You know, our our plants have have been in place for twenty, thirty, forty years. And to think that we’re gonna uproot those plants and move something, I think, doesn’t make a lot of sense.

Are we is there some potential for us to do or source with some suppliers in The US for highly precision machine components, potentially? But, you know, those are things that generally take a couple years to get requalified and approved. And so it’s a it’s a it’s gonna be a slower process. And I think the industry is gonna have to see, you know, some stability first to then to make the right right right decisions. But we have not had any conversations with customers saying, hey.

We want you to move plants back to to North America.

Unidentified speaker: So is your view just because, you know, it’s not the first time this has sort of come up about this upcoming USMCA renegotiation. Is your view that USMCA compliance might remain, you know, exempt as, you know, for sort of vehicles made in The US, but that the requirements to be USMCA compliant might move Maybe a

Brady Erickson, CEO, Finia: bit more stringent whether there’s a US content requirement or rather than 7070% or 75%. Mhmm. You know, from North America, it gets bumped up to, you know, 75, 80, 80 five percent. And do you think you

Unidentified speaker: have enough flexibility in your facilities to sort of, like, obviously, we don’t know what it’s going to. But like, do you think, you know, barring it being some, you know, some extreme, like, you could sort of adjust to be compliant with those Yeah.

Brady Erickson, CEO, Finia: I I think we can. And again, as I mentioned, you know, a lot of our manufacturing equipment, if there’s something that we need to do to add more capacity to one region, we can move things, you know, I wouldn’t say easily, but it it’s possible. And and we’ve done that and proven that we can do that before. So it may change, you know, you know, where we produce some components, some of the key components that may justify us to move it over. Mhmm.

But we don’t see any wholesale changes in our footprint at this point.

Unidentified speaker: K. Maybe just to, you know, bring the conversation home, I want to start and talk about the balance sheet and capital allocation. So I think you bought back around $100,000,000 worth of stock last quarter. Just remind us sort of how you think about cash, how you what level you’re sort of comfortable minimum cash, minimum liquidity you’re comfortable going to. And Brady, in the past, you’ve also sort of talked about some potential sort of tuck in M and A, how you sort of evaluate that versus share repurchases.

Sure.

Brady Erickson, CEO, Finia: I think on minimum cash, I think, conservatively, I think it was about $2.02 25. Now we’re working I’d like to see if we can find other ways to get that a little bit lower, but, you know, $2.02 25, the way that we’re currently structured, you know, makes sense. And we currently, I think, you know, end of quarter, we had $3.78, so we have plenty of excess cash. Our debt’s at net debt’s at 1.4. Our target’s kind of at 1.5.

We said we’d potentially go up as high as two for the for the right kinda m and a at this point, but adding debt just to add debt doesn’t make sense. Mhmm. The from a from an m and a perspective and a share repurchase perspective, they’re gonna be competing. You know, do do I buy myself at five times EBITDA with a known long range plan and something that we have a lot of confidence in? Or do I buy, you know, a similar type asset at seven times that has risk to it?

It’s gonna make a lot more sense for me to continue buying my shares. Now we are limited based on our from the spin to the tax matters agreement. It says we can only buy back up to 20% of our shares through July third of this year.

Unidentified speaker: Coming up pretty soon.

Brady Erickson, CEO, Finia: It’s one one month away. We’ve after our hundred million that we purchased in q one of this year, we bought back 16 and a half percent of our shares since we’ve spun. Mhmm. And so we’re getting kinda close to that. The board you know, we’re getting close to that limit, and the board authorized another 200,000,000 of share repurchases in q one of this year.

So we still have over 300,000,000 available on that share repurchase program. But each each quarter, we’re gonna sit down, take a look at our our debt, take a look at our cash flow projections, take a look at where we’re trading, take a look at the m and a pipeline, and kinda decide, hey. What what’s this next quarter look like? Based on what that is, we may then put together a grid and or a target of share repurchase for that quarter Mhmm. And then review it within the next quarter.

Mhmm. And so doing anything longer than that, you don’t know what’s gonna happen six months from now. So this that allows you some flexibility. But was so

Unidentified speaker: just to be clear, once once we get

Brady Erickson, CEO, Finia: past July third of of this year? No. No more restrictions.

Unidentified speaker: Right. So it’s more the the restriction is sort of versus the other opportunity set. It’s not really a restriction. It’s more constraint.

Brady Erickson, CEO, Finia: Yeah. It’s gonna be, hey. If we if we see a really good deal that’s trading at at or below our multiple or that we think is gonna add more value to our shareholders than buying back our shares, then we’ll consider it. Mhmm. You know, if if we’re trading at, you know, 10 times Mhmm.

That’s gonna make some of the m and a that we can acquire at six or seven a lot more attractive than buying our shares at 10 times.

Unidentified speaker: I guess just on the m and a environment, I mean, how would you sort of describe it out there? I’m sure you you know, you always sort of, you know, have a a pipeline or sort of funnel. You know, it it’s always interesting to me what happens to those sort of, you know, I I guess, you know, buyers and sellers when there’s periods of high uncertainty or sort of disruption. So are you seeing that funnel widen? Is there a little bit of loosening?

Or how would you sort of describe it?

Brady Erickson, CEO, Finia: I mean, we’ve always seen a consistent flow of M and A, just not many that we like and or was at a valuation that we thought was fair. And so the the volume of deals we’re seeing is is still the same, but I do think that sellers are becoming a little more realistic on their pricing expectations. And, you know, we’re getting close on a on a couple smaller ones and but we’ll see. You know you know, even from the day we spun, we were in negotiations and talking with folks because m and a takes a long time. Mhmm.

You never wanna rush it. You never wanna just jump on with whatever is available. You want something that fits your criteria and fits your business. And so we don’t need to do an m and a to continue to execute our strategy and deliver great shareholder value over this decade. And so we’re being very selective Mhmm.

And we’re looking for assets that make a lot of sense for our own capability. So we’re precision machining, fluid management, electronics and controls, calibration capability. We want parts that, you know, are gonna get serviced two to four times over their lifetime to support our aftermarket and really focusing a lot on, you know, commercial vehicle and industrial and, you know, areas that are are gonna have less headwind to electrification. I mean, maybe you

Unidentified speaker: sort of just touched on this, but like, what about, like, I guess, are there opportunities where you think you could use sort of your core competencies to expand or sort of diversify by end market? So into, you know, away from sort of transportation markets of light vehicle, commercial vehicle?

Brady Erickson, CEO, Finia: Yeah. I mean, we’re doing that right now. I mean, again, our our strategy, we think, is a is a lower risk, but a highly cash generative strategy to where we’re leveraging our human capital and our manufacturing capital to go into these end markets. You know, the engineers that we had working on light vehicle diesel are the ones that we moved to GDI, the ones that we moved to commercial vehicle, are the ones that are now working on the aerospace, you know, injectors. The manufacturing equipment.

Well, guess what? The manufacturing equipment that we’re using for aerospace is a refurbished light vehicle diesel line. You know, take out some of the automation, but it’s still, you know, precision machining, coatings, assembly, final test, quality systems. It’s the same manufacturing processes and core competencies.

Unidentified speaker: Why is it less automation?

Brady Erickson, CEO, Finia: Because it’s low volume.

Unidentified speaker: Just lower volume. Okay.

Brady Erickson, CEO, Finia: But pricing, you don’t need to sell so many of them in order to get the margins and and the revenues because these are, you know, these are some of these applications. You know, I think we’re starting out. I saw some of the numbers where we’re gonna have, you know, upwards of $510,000 per engine. That’s not a lot of volume. Mhmm.

But, you know, there’s opportunities for us to increase that by a factor of 10, you know, per engine. So there’s there’s a lot of opportunities. We’ve converted one of our GDI lines to to diesel to actually run a 350 bar diesel applications for an off highway application. Because as tier four emissions and tier five emissions are coming out, they need more advanced fuel injection systems. And so, you know, we can convert that, you know, over to off highway applications using those same engineers and same equipment.

So we’ve got a lot of flexibility, you know, in our manufacturing capital and our human capital.

Unidentified speaker: Great. Well, I think it’s a great place to close, and we’re we’re out of time. So, thank you for joining us. Appreciate the time.

Brady Erickson, CEO, Finia: Sure.

Chris Gropp, CFO, Finia: Thank you.

Brady Erickson, CEO, Finia: Take care.

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