Phinia (NYSE:PHIN) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
Phinia reported solid revenue growth in the first quarter, with net sales of $878 million, up 10.3% year-over-year, driven by both its fuel systems and aftermarket segments.
The company maintained a strong balance sheet, ending the quarter with $328 million in cash and total liquidity of $808 million, while returning $67 million to shareholders through share repurchases and dividends.
Phinia's strategic focus includes diversifying its portfolio across regions and markets, with notable wins in aerospace and defense and alternative fuel systems, contributing to long-term growth prospects.
Management reiterated its full-year 2026 guidance, projecting net sales between $3.5 to $3.7 billion and adjusted EBITDA of $485 to $525 million, despite ongoing geopolitical and trade uncertainties.
Operational highlights include successful cost management, continued growth with existing and new customers, and positive signs from the commercial vehicle market, particularly in China and Europe.
Full Transcript
OPERATOR
Good morning and welcome to the Phinia first quarter 2026 earnings call. I am Franz and I'll be the operator assisting you today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star1 on your telephone keypad. If you would like to withdraw your question, press star1 again. Thank you. I would now like to turn the call over to Kellen Perez, Head of Investor Relations.
Kellen Perez (Head of Investor Relations)
Thank you and good morning everyone. We appreciate you joining us. Our conference call materials were issued this morning and are available on Phinia's investor relations website, including a slide deck that we'll be referencing in our remarks. We're also broadcasting this call via webcast. Joining us today are Brady Erickson, CEO and Chris Groth, CFO. During this call we will make forward looking statements which are based on management's current expectations and are subject to risks and uncertainties. Actual results may differ materially from these statements due to a variety of factors including those described in our SEC filings. We caution listeners not to place undue reliance upon any such forward looking statements and with that it is my pleasure to turn the call over to Brady.
Brady Erickson (CEO)
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 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 deliver 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 remain 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 system segments. Total net sales in the quarter were 878 million, up 10.3% in 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 of 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 non operating 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 out 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 1.4 times, nearing our target of 1.5 times. 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 two days after historic Blizzard, which in hindsight may have been the universe's way of testing whether 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, but 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 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 an unmanned aerial drone. The program leverages our GDI injector technology to power the drone engine. It highlights our growing capabilities in advanced propulsion solutions for these 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 Finia'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 park. 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 two new customers in Europe and growing our propulsion agnostic program within the Asian Pacific region. We're doing a startup program with a global commercial vehicle on and off highway oem, reinforcing our long standing presence to supply starters for severe 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 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 that 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 Spinoff in July 2023. For 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 Groth (Chief Financial Officer)
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%. Unfavorable foreign exchange of 39 million as the euro, British Pound and Brazilian real strengthened against the US 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 and a cash and cash equivalents at quarter end were 328 million while available capacity under our credit facilities remained at approximately half a billion dollars for a resulting liquidity of 880 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 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 standalone 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 to 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 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 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 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 efficiency 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. Finia 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
Thank you and we will now begin the question and answer session. At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up the phone. When asking your question. Just a reminder, we ask you to please limit yourself to one question and a maximum of two follow up only and after that you can simply join the queue. Again, thank you and as of now I would like a few moments to compile the Q and A roster. Thank you. And your first question comes from the line of Joseph Spack from ubs. Please go ahead.
Joseph Spack (Equity Analyst)
Thank you. Good morning everyone. 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 provide some clarity there.
Chris Groth (Chief Financial Officer)
Yeah, 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 volume mix on it, but yeah, there's FX and tariffs, but yeah, 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 and 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 Spack (Equity Analyst)
Okay. So that we should expect that that sort of softer flow through to, to persist for the next couple quarters. Is that, is that the view?
Chris Groth (Chief Financial Officer)
Maybe for another quarter or so. It gets better as the year goes on. Because this is obviously going to, you know 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 Spack (Equity Analyst)
Yeah. And then Brady, you mentioned some, you know, green shoots and commercial vehicle. Like have you actually revised some of your outlooks for the different end markets? Like is that considered in your view or, you know, if things start to come in better, does that pretend some, some, some upside?
Brady Erickson (CEO)
Yeah, I mean, it's still early in the year, but we are seeing positive signs on order boards. You know, as far as orders for trucking North America. China is actually already starting to see some, some uptick in their revenues on the CV side. So the early indications are positive. As you know, the CV forecast was very back end weighted, you know, and so at least right now we're feeling good that we're starting to see some positive sign that 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. Yeah, we really saw it in Europe and Asia Pacific. In China specifically, Pascar was down slightly, but RCV More than made up for it. And then in Europe, the same thing. It was rather flat for us in Europe, but its CV was actually up.
Joseph Spack (Equity Analyst)
Okay, last question. Just can you remind us roughly like how much you paid in IPA 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, maybe prior
Chris Groth (Chief Financial Officer)
it was about 40 million. 40, 40 million in total for the three quarters. I think they've then replaced that with other tariffs kind of going forward. I mean, our expectation is most of those IPA tariffs will flow back to our OE customers. You know, once we get that, so we're already in conversations with them, it'll then have a, have an effect on, on revenue, no effect on ebitda. So it'll be to margin, no effect on EBITDA dollars.
Joseph Spack (Equity Analyst)
Okay. And you've, you've, you've, you've, have you filed for that refund already or. That's still a work in progress?
Chris Groth (Chief Financial Officer)
Yeah, yeah, 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.
Joseph Spack (Equity Analyst)
Okay, great. Thanks so much. I'll pass it on.
OPERATOR
More follow ups. Okay, your next question comes from Bobby Brooks from Northland Capital Markets. Please go ahead.
Bobby Brooks
Bobby, you there? Line if you're on mute, Bobby. Thank you. Hey, sorry, sorry about that, guys. Some technical issues, but yeah, congrats on the strong quarter. You know, 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, 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?
Chris Groth (Chief Financial Officer)
It's going into commercial production. It's for the engine manufacturer that's also making the drone as well.
Bobby Brooks
God. For defense applicants. It's. It's defense. And so it's a larger combustion, internal combustion engine. Got it. So it's for a larger gun. Got it, got it. And so that would be now your third customer, like in the aerospace defense market. Second customer, fourth program. Second customer, fourth program. All right, thank you for that clarity. And then, you know, there's a little bit of a sequential step up in sga. Could you maybe, Chris, could you maybe just expand a little Bit more on what drove that and maybe how to think about it Term for
Chris Groth (Chief Financial Officer)
most of it was just going to be the normal bonus and some of the other costs that we're seeing come through this year. Some of the share 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.
Bobby Brooks
Got it. That's so probably safe to think it's flat or a touchdown going forward. I'd say flattish. Yeah. I mean sequentially I think we were sequentially Q4 corporate costs were at 29. Are you talking about just SGNA or corporate costs? Talk about sgna like overall. Yeah, but I guess I should have settled on a year over year basis. That's. That's my bad. But just. And last one for me, you know I was just curious of 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 that's not all you have available and it might continue in second quarter. Just trying to get a sense of how that trends.
Chris Groth (Chief Financial Officer)
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 and roughly the same pass through area even with the 232 changes. But I don't see really a tailwind going forward. It'll be pretty much flat. So yeah year over year would be 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 you know, is kind of at a similar to as well it was stated mainly the 117 area. And again the you know the benefit that we've seen in FX for the last, you know, three, four quarters actually kind of gets us back to an FX rate where it was in 22 and 23 we first started coming out. So anywhere in that 115 to 120 we think is more of a normal. When it really dropped down to the, you know, 1 to 1105 in 2024 was more the abnormal.
Bobby Brooks
Got it. That makes sense. Appreciate the caller.
OPERATOR
All right. At this time, before we proceed again, I would like to inform everybody, if you would like to ask a question, Please press star 1 on your telephone keypad to join the queue. If you would like to withdraw a question, simply press star one again. Thank you. There are no further questions at this time. I would now like to turn the call back over to Brady Erickson for the closing remarks. Please go ahead.
Brady Erickson (CEO)
Great. Thank you. You know, we delivered a solid start to the year, reflecting the benefits of a diversified portfolio. Our disciplined execution, the strength of the markets that we serve. Really want to thank our teams for their continued commitment and execution, just keeping just solid performance consistently in a very, very dynamic environment. We continue to remain focused on delivering consistent growth and profitability while building a stronger Finia for the long term. So thanks everybody. Thanks for joining us this morning and have a nice day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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