Phinia (PHIN) Q1 2026 Earnings Transcript

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Date

Thursday, April 30, 2026 at 8:30 a.m. ET

Call participants

• Chief Executive Officer — Brady Ericson
• Chief Financial Officer — Chris Gropp

Takeaways

• Net Sales -- $878 million, up 10.3% year over year; adjusting for foreign exchange and SEM, sales grew 3.6%.
• Adjusted EBITDA -- $115 million, a $12 million increase year over year, with a margin of 13.1%.
• Segment Adjusted Operating Income -- $107 million with a margin of 12.2%.
• Fuel Systems Segment Sales -- $549 million, representing 12% growth, with a 9.3% adjusted operating margin.
• Aftermarket Segment Sales -- $329 million, a 7.5% increase, with a 17% adjusted operating margin.
• Adjusted EPS -- $1.29, up 37% year over year from $0.94.
• Cash Position -- $328 million at quarter end; total liquidity of $808 million.
• Net Leverage Ratio -- 1.4x, approaching the 1.5x target.
• Capital Returned to Shareholders -- $67 million in the quarter via $56 million in share repurchases and $11 million in dividends.
• Share Repurchase Authorization Remaining -- $258 million authorized for future buybacks.
• Adjusted Free Cash Flow -- $42 million, with capital expenditures at 3.6% of net sales, below a 4% target.
• Revenue Drivers -- $39 million positive foreign exchange impact, $17 million from volume/mix, $12 million from tariff recovery, and $14 million from SEM; individual amounts do not sum to total due to offsetting factors.
• Tariff Pass-Through -- $12 million recovery; $3 million positive impact to the bottom line, mainly offsetting last year’s expenses.
• Operational Performance by Region -- Strong sales in the Americas and Asia, flat in Europe, with positive contributions from commercial vehicle (“CV”) order growth in North America and China.
• Aerospace and Defense Win -- New program secured with a second customer for unmanned aerial drones, leveraging GDi injector technology and advancing the segment to four cumulative programs.
• Alternative Fuel Growth -- Won a compressed natural gas fuel rail program with a leading Indian OEM, marking the third major alternative fuel contract in India in as many quarters.
• Aftermarket New Business -- Portfolio expanded with a major Americas distributor, two new customers in Europe, and a growing propulsion-agnostic program in Asia-Pacific.
• 2026 Outlook -- Revenue guidance reaffirmed at $3.5 billion to $3.7 billion; adjusted EBITDA expected between $485 million and $525 million with a margin of 13.7%-14.3%; adjusted free cash flow projected at $200 million to $240 million; adjusted tax rate between 30%-34%.
• Dividends and Repurchases Since Spin-Off -- $120 million paid in dividends and $492 million in buybacks since July 2023, totaling over $600 million returned to shareholders.
• Tariff Refunds -- About $40 million paid in IEEPA-related tariffs during the prior year three quarters; management expects most refunds will "flow back to our OE customers."
• SG&A and Corporate Costs -- Sequential step-up due to bonus, equity compensation, and management share tranches; IT restructuring is "offsetting a little bit," with costs expected to remain "flattish."

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Risks

• Adjusted EBITDA margin was weighed down by negative sales mix in Fuel Systems due to new program launches not yet operating at full ramp; Chris Gropp said, "it's some programs that we're launching. They're not up to full volume. It's mainly in Europe and Asia-Pacific. They will get up to a better volume mix, but it's going to take about a year until they're at their full capacity, and then this should go away."
• Forward-looking guidance does not include potential impacts from "recent or future government policy changes" such as tariffs or tax reforms, which could alter revenue assumptions or cost structure if enacted.

Summary

PHINIA (NYSE:PHIN) reported double-digit net sales growth and expanded adjusted EBITDA in the first quarter, underpinned by favorable foreign exchange, volume/mix improvements, and tariff recoveries. Management highlighted new business momentum in both segments, including entry into the aerospace and defense market with a key unmanned aerial drone program win. Capital returns to shareholders since the 2023 spin-off surpassed $600 million, reflecting both aggressive buyback activity and higher dividends. The company reaffirmed its 2026 financial outlook, citing a diversified portfolio and continued operational discipline, while noting that program ramp-up timing and possible policy changes may influence margin performance in coming quarters.

• Management described the commercial vehicle market outlook as "very back-end weighted," with early-year order boards showing signs of improvement, especially in North America and China, yet held off on upward revisions until more data emerge.
• The Aftermarket segment's growth was attributed to aging fleets and the extension of customer relationships through expanded product offerings across multiple geographies.
• Management clarified that tariff pass-through benefits would become "immaterial" beginning in the second quarter, with foreign exchange contributions expected to normalize as well.
• Segment diversification was reinforced by export wins in India (alternative fuels) and China (direct injection rail for luxury SUVs), and the company's strategic focus was placed on increasing share in regions slower to adopt electric vehicles.

Industry glossary

• GDi Injector Technology: Gasoline direct injection technology used for more precise fuel delivery to internal combustion engines, increasing efficiency and performance.
• IEEPA Tariffs: Tariffs imposed under the International Emergency Economic Powers Act, often affecting import costs and subject to refund or pass-through if regulations change.
• SEM: Segment or subsidiary referenced in performance bridge; not defined in the transcript, but impacts revenue and EBITDA figures as an attributable unit.

Full Conference Call Transcript

Brady Ericson: Thank you, Kellen, and thank you, everyone, for joining us this morning. I will start with some highlights on the first quarter and discuss our strategy at a high level. Chris will then provide additional details on our first quarter results and discuss our 2026 financial outlook. We will then open the call for questions. The first quarter developed largely as we expected with highlights including solid revenue growth from both Fuel Systems and Aftermarket, keeping us on track to achieve our full year guidance. At the same time, we've maintained a healthy balance sheet while paying dividends and repurchasing shares.

While the environment continues to evolve rapidly, our teams are managing our business well and delivered results that strengthen our foundation for the long-term. Our diversification across regions, customers, end markets, and products helped offset variability in any single region or segment. Now let's jump into the first quarter results on Slide 5. In the first quarter, PHINIA continued to demonstrate resilience in a mixed macro environment. Demand conditions across key end markets remained steady, supported by durable replacement cycle fundamentals and some encouraging green shoots in the commercial vehicle industry. At the same time, we navigated ongoing geopolitical and trade-related uncertainty, including tariff volatility, shipping disruptions, and regional production variability.

We faced these challenges with strong operational execution and disciplined cost management. For the fourth consecutive quarter, we delivered year-over-year growth in both the Aftermarket and Fuel Systems segments. Total net sales in the quarter were $878 million, up 10.3% from the same period of the prior year. Excluding FX impacts and the contribution of SEM, revenue was up 3.6%. we reported adjusted EBITDA of $115 million for the quarter, up $12 million and a margin of 13.1%. Total segment adjusted operating income was $107 million with a 12.2% margin. The Fuel Systems segment delivered a strong quarter with sales of $549 million, up 12% and adjusted operating margin of 9.3%.

The Aftermarket segment had sales of $329 million, up 7.5% with adjusted operating margin of 17%. Adjusted earnings per diluted share, excluding nonoperating items, was $1.29 for the quarter compared to $0.94 in the same period of the prior year, a 37% increase year-over-year. Closing now with a comment about our balance sheet. PHINIA continues to demonstrate financial stability and consistency. We exited the quarter with a cash position of $328 million and total liquidity of $808 million. Our net leverage ratio was 1.4x, nearing our target of 1.5x. We returned $67 million to shareholders in the form of share repurchases and dividends. Our balance sheet provides financial flexibility to support future growth initiatives and return to shareholders.

During the quarter, we also hosted a successful Investor Day in New York, 2 days after historic blizzard, which in hindsight, may have been the universe's way of testing whether our investors were truly committed. They showed up, so did we. We were able to showcase the diversity of our products, our business model, and our long-term growth outlook. We had more than 200 live viewers watching from 30 countries. So all in all, it was a great experience for us and want to thank everyone who helped make such a wonderful inaugural Investor Day. In summary, while the external environment continues to evolve, we remain focused on the things that we can control.

The first quarter performance underscored the durability and resilience of our business amid a rapidly changing global environment by serving a broad mix of regions, customers, end markets, and products. Moving to Slide 6. We had a good quarter when it comes to new business, which reflects continued progress across multiple fronts. Importantly, we are continuing to grow with our existing customers while also bringing in new ones, and we're starting to see real traction in some newer areas for us. Aerospace and Defense is an area where we are incrementally winning business and building a presence with customers.

Recent wins highlight the strength of our offering and our ability to compete and win in adjacent markets with the same manufacturing and human capital as well as an important long-term growth opportunity. During the quarter, we were awarded a new program with a new customer for use in unmanned aerial drone. The program leverages our GDi injector technology to power the drone engine. It highlights our growing capabilities in advanced propulsion solutions in the aerospace and defense market. It is encouraging to see our capabilities translate into success in this new market as we continue to expect to see additional announcements in the future.

Additionally, this quarter included notable wins across Fuel Systems and Aftermarket channels, reinforcing customer trust, technology differentiation and PHINIA's ability to deliver premium solutions to our customers. In addition to the aerospace and defense win I just highlighted, notable fuel system wins in the quarter include compressed natural gas fuel rail assembly with a leading global OEM, marking our third consecutive quarter of a major alternative fuel program win in India, direct injection fuel rail assembly with a major Chinese OEM supporting a luxury SUV platform equipped with a dual fuel injection V8 engine. Now to Slide 7. Our Aftermarket business continues to be a steady and reliable contributor to our solid results.

We're seeing consistent demand driven by an aging fleet and a growing vehicle parts. As vehicles stay on the road longer, we are well positioned to support our customers around the world with the quality parts and service they depend on every day. Our strong and recognizable brands, broad and consistently expanding product offerings, and focus on customer service are helping us build deeper relationships and win new opportunities. Recent wins were across diverse geographies, further strengthening our position in the independent aftermarket.

A few notable wins during the quarter include expanding our product portfolio with a major warehouse distributor in the Americas by adding steering and suspension and vehicle electronics, adding 2 new customers in Europe and growing our propulsion-agnostic program within the Asia-Pacific region. We're doing a start-up program with a global commercial vehicle on an off-highway OEM, reinforcing our long-standing presence to supply starters for civil duty and long-haul applications. These wins show our consistent progress towards seamlessly diversifying into higher-growth end markets by leveraging our existing human and manufacturing capital. Now moving next to Slide 8. This is from our Investor Day deck and is a reminder of the diversification of our business across regions, customers, and end markets.

Off-highway, industrial, and other, which includes aerospace and defense and power generation, is our fastest-growing end market followed by service. We expect both of these end markets to become larger parts of our overall business in the years to come. Customer and regional diversification has also been beneficial for us. We've highlighted numerous natural gas fuel injection wins in India and have strong relationships with the Chinese OEMs as roughly 80% of our revenues for China are for the local OEMs, putting us in a favorable position as they look to grow their market share globally, which we expect to be a tailwind for us.

As we highlighted in prior calls, several regions of the world are not switching to electric as quickly as previously expected and some markets like South America and India are leaning into ethanol, natural gas, and alternative fuels rather than battery electric altogether. As we shared in our Investor Day, we see our business continuing to diversify further as well as moving towards higher long-term growth markets. Moving next to capital allocation on Slide 9. There's no change in how we're thinking about capital allocation. We're staying disciplined and balanced, continuing to invest in our business to support long-term growth, both organically and through strategic opportunities to strengthen our competitive position and expand our long-term opportunities.

At the same time, we are committed to maintaining a healthy balance sheet and returning cash to shareholders through dividends and share buybacks. This approach reflects our strong financial position, our confidence in the path ahead, and our focus on long-term value creation. During the quarter, we repurchased approximately $56 million worth of shares and paid $11 million in dividends, with $258 million remaining under our current share repurchase authorization. Since the spin-off in July 2023 through the first quarter of this year, we have repurchased $492 million worth of shares, representing approximately 23% of our original share count and paid $120 million in dividends.

In total, we've returned over $600 million to shareholders through share buybacks and dividends since July 2023. We've achieved all of this while keeping net leverage below our target, preserving strong liquidity, and continuing to fund the growth of the business. I will now turn the call over to Chris to discuss our financial results in more detail and discuss our 2026 outlook.

Chris Gropp: Thanks, Brady, and thanks to all of you for joining us this morning. As a reminder, reconciliations of all non-GAAP 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. In the first quarter, we delivered results in line with our expectations and reflect both the strength of our diversified portfolio and the benefits of our operational discipline. Diving into the details, which you can find in Slides 10 and 11 of the presentation, I will bridge our revenue and adjusted EBITDA for the first quarter. Specifically, during the quarter, we generated $878 million in net sales, an increase of 10.3% versus a year ago.

Compared to Q1 2025, our top line rose 4.9% on favorable foreign exchange of $39 million as the Euro, Chinese Renminbi, British Pound, and Brazilian Real strengthened against the U.S. dollar. We saw a positive contribution from volume and mix of $17 million or 2.1% as higher sales in the Americas and Asia offset flat sales in Europe. Revenue in the quarter also benefited from tariff recovery of $12 million, while SEM contributed sales of $14 million in the quarter. Excluding the FX impact and the SEM contribution, sales were up 3.6% in the quarter. Moving next to the bridge on Slide 11.

Adjusted EBITDA was $115 million in the quarter with a margin of 13.1%, representing a year-over-year increase of $12 million and a 20 basis point increase in margin. Supplier savings and cost control measures were a $6 million tailwind. Net tariff pass-throughs were $3 million. volume mix, SEM, and all other changes were an additional $3 million year-over-year. The operational performance of our segments and functions was solid and in line with our high expectations. We continue to effectively execute our disciplined capital allocation strategy, successfully balancing significant cash return to shareholders with the potential for strategic accretive M&A.

Cash and cash equivalents at quarter end were $328 million, while available capacity under our credit facilities remained at approximately $0.5 billion for a resulting liquidity of $808 million. Our strong cash generation enabled us to continue returns of capital to our shareholders through cash dividends and buybacks. In January, our Board approved increases to both our quarterly dividend and share repurchase program, reaffirming their confidence in our disciplined approach to capital allocation. Cash flow from operations was $53 million, an increase of $13 million over the first quarter of 2025.

Adjusted free cash flow was $42 million, our best first quarter since becoming a stand-alone company with capital expenditures of 3.6% coming in below our target of 4% and efficient uses of working capital in the quarter. Share repurchases and dividends represented our primary use of capital with value back to our shareholders of $56 million and $11 million, respectively, in the quarter. We remain confident in our ability to generate strong free cash flow to support our future capital allocation priorities. Our broadening portfolio of products, solutions, and services, coupled with our healthy balance sheet will enable us to continue to deploy capital with discipline, focused on delivering long-term sustainable, profitable growth, creating value for our shareholders.

Now moving next to Slide 12 to comment on our 2026 outlook. We had a solid start to the year and reiterate the full year guidance we issued earlier this year. Specifically, at the midpoint of our revenue outlook range of $3.5 billion to $3.7 billion, we would expect an increase in net sales in the mid-single-digit range, inclusive of FX. Excluding expected FX, our growth is projected to be in the low single-digit area. We are guiding adjusted EBITDA to be $485 million to $525 million with an EBITDA margin of 13.7% to 14.3%.

We believe the business is well positioned to continue generating meaningful free cash flow and our 2026 outlook for adjusted free cash flow is $200 million to $240 million. We expect the adjusted tax rate to be in the 30% to 34% range. Overall, we expect to continue to deliver strong results in 2026 as we drive operational efficiencies and search for new areas of growth for both segments. As a reminder, our outlook does not account for potential impacts from recent or future government policy changes that could influence our operations or technical centers.

This includes measures such as additional tariffs, tax reforms, or any other policies that may either increase or decrease our revenue assumptions and/or alter our cost structure. It should be noted, however, we do not see a material change in our tariff position based upon the recently issued Section 232 tariff clarifications. We are also not currently experiencing any material supply chain or revenue disruptions related to the conflict in the Middle East. As we look forward to the rest of the year, we are taking disciplined actions to manage controllable factors, including optimizing costs, aligning supply with and where current demand exists while preserving financial flexibility.

PHINIA is well positioned to navigate global market conditions and changes, and we are confident in our operations and our ability to generate sufficient cash for our needs while also continuing to invest in the future. We want to thank all of you for joining us today on the call. We're ready to open the call. Operator, please open the lines for questions.

Operator: [Operator instructions] And your first question comes from the line of Joseph Spak from UBS.

Joseph Spak: Chris, maybe to start, just the negative mix that weighed on the EBITDA line relative to the positive volume growth. Maybe you could sort of give us a little bit of sense of sort of what really drove that? What sort of products or anything? And I'm assuming that's in Fuel Systems, not Aftermarket, but maybe you could provide some clarity there.

Chris Gropp: Hello, Joe. Yes, a little -- it's mainly going to reside in the Fuel Systems and it's relating to some programs that are launching and have not gotten fully up to full ramp. There's also -- well, he's talking just about the mix on it. But yes, there's FX and tariffs. But yes, it's some programs that we're launching. They're not up to full volume. It's mainly in Europe and Asia-Pacific. They will get up to a better volume mix, but it's going to take about a year until they're at their full capacity, and then this should go away. Not a concern for us. We knew this was going to be an issue as they ramped up.

Joseph Spak: So we should expect that sort of softer flow-through to persist for the next couple of quarters? Is that the view?

Chris Gropp: Maybe for another quarter or so, it gets better as the year goes on because this is obviously going to how the year flows in automotive, you start off and you get going and then third quarter, you hit full volume. So it gets better as the year goes on.

Joseph Spak: Yes. And then, Brady, you mentioned some green shoots in commercial vehicle. Like have you actually revised some of your outlooks for the different end markets? Like is that considered in your view? Or if things start to come in better, does that portend some upside?

Brady Ericson: Yes. I mean it's still early in the year, but we are seeing positive signs on order boards as far as orders for trucking in North America. China is actually already starting to see some uptick in their revenues on the CV side. So early indications are positive. As you know, the CV forecast was very back-end weighted. And so at least right now, we're feeling good that we're starting to see some positive signs that's coming, and we'll probably evaluate again maybe later on this summer once that order board fills in for the second half of the year.

Chris Gropp: Yes, we really saw it in Europe and Asia-Pacific. In China specifically, pass car was down slightly, but our CV more than made up for it. And then in Europe, the same thing. It was rather flat for us in Europe, but CV was actually up.

Joseph Spak: Last question, just can you remind us roughly like how much you paid in IEEPA-related tariffs last year? And have you filed for a refund? And if you get that, do you think you can keep any of that? Or is that something you're going to have to give back to your customers who reimbursed you for it maybe prior?

Chris Gropp: It's about $40 million.

Brady Ericson: $40 million in total for the 3 quarters. I think they've replaced that with other tariffs kind of going forward. I mean our expectation is most of those IEEPA tariffs will flow back to our OE customers once we get that. So we're already in conversations with them. It will then have an effect on revenue, no effect on EBITDA. So it will be accretive to margin, no effect on EBITDA dollars.

Joseph Spak: And have you filed for that refund already? Or is that still a work in progress?

Brady Ericson: Yes. I mean we're still working through that. So some of them have started to go through. The process is going to be slow. but we're not booking anything until we receive the cash.

Operator: Your next question comes from Bobby Brooks from Northland Capital Markets.

Robert Brooks: Sorry about that, guys, some technical issues. Yes. Congrats on the strong quarter. The first question I was looking to hear on was it was nice to read about the fuel injector win for the drone engine. Just was curious on, is that -- like first, is that a specific drone company or an aerospace company making drones? And second, is this for a product that is going into commercial production? Or is it still in the testing phase?

Brady Ericson: It's going into commercial production. It's for the engine manufacturer that's also making the drone as well. It's defense. And so it's a larger combustion -- internal combustion engine. So it's for a larger [indiscernible].

Robert Brooks: And so that would be now your third customer like in the aerospace defense market?

Brady Ericson: Second customer fourth program.

Robert Brooks: Second customer fourth program. Thank you for that clarity. And then there's a little bit of a sequential step-up in SG&A. Could you maybe -- Chris, could you maybe just expand a little bit more on what drove that and maybe how to think about it turning forward?

Chris Gropp: Most of it was just going to be the normal bonus and some of the other comps that we're seeing come through this year, some of the shares, it's the third year in session. And so it's the third year tranche of the performance and other shares that go into effect for the management teams going down. So that's the biggest issue. That kind of -- that acceleration sort of stops overall and stays flat from here on out. But we also did -- we were down a little bit on some of our IT costs. So the restructuring program that we announced last year is going into effect. And we are seeing some reductions in our IT structure area.

So that did offset a little bit.

Robert Brooks: So probably safe to think it's flat or a touch down going forward?

Chris Gropp: I'd say flattish.

Brady Ericson: Yes, I mean sequentially, I think we were -- sequentially Q4 corporate costs were $29 million. Are you talking about just SG&A or corporate costs?

Robert Brooks: I'm talking about SG&A like overall.

Brady Ericson: Yes.

Robert Brooks: I guess I should have said on a year-over-year basis, that's my bad. But just -- and last one for me. I was just curious, obviously, you guys had like a $12 million benefit in the first quarter from tariff recoveries. How should we think about that going forward? Is that -- I would guess it's not all you have available and might continue in the second quarter? Just trying to get a sense of how that trends.

Chris Gropp: So we did have a $12 million benefit. We had $12 million in tariff pass-through. We had a $3 million positive drop to the bottom line where we recovered some that were related to last year's expenses. Going forward, we see the tariffs on a quarterly basis in roughly the same pass-through area, even with the 232 changes. But I don't see really a tailwind going forward. It will be pretty much flat. So...

Brady Ericson: Yes, year-over-year, I mean, pretty much immaterial. So you won't see that from a year-over-year perspective. So really, I think as we get into Q2, tariff becomes immaterial and FX is kind of at a similar to [indiscernible] as well. I would say mainly the 117.

Chris Gropp: Yes, yes.

Brady Ericson: And again, the benefit that we've seen in FX for the last 3 or 4 quarters actually kind of gets us back to an FX rate where it was in '22 and '23 when we first started coming out. So anywhere in that 115 to 120, we think is more a normal when it really dropped down to the 121, 105 in 2024 was more of the abnormal.

Operator: [Operator Instructions] There are no further questions at this time. I would now like to turn the call back over to Brady Ericson for the closing remarks. Please go ahead.

Brady Ericson: Great. Thank you. We delivered a solid start to the year, reflecting the benefits of our diversified portfolio, our disciplined execution, the strength of the markets that we serve. I want to thank our teams for their continued commitment and execution, just keeping this solid performance consistently in a very, very dynamic environment. We continue to remain focused on delivering consistent growth and profitability while building a strong PHINIA for the long term. So thanks, everybody. Thanks for joining us this morning and have a nice day.

Operator: Thank you, everyone, for joining the conference. That concludes our meeting for today. All participants may now disconnect. Thank you.

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