PHINIA Inc. Chicago Industrials Summit

Good morning. Thank you, PHINIA, for joining us at our Chicago Industrial Summit. We are excited to have Brady, Chris, and Gordon with us today.

Thank you. For purposes of this fireside, we will go through some prepared slides.

Brady will kick off on that, then we will go to Q&A. I want this to be as interactive as possible. Thank you for joining us here again. With that, I will let you kick off on the slides.

Great. Thanks, Brian. Thanks everyone for joining. We will flip through a couple quick slides here, kind of give you a quick overview of the company and our strategy, and then go from there. First up, is how we go to market is through product leadership. We continue to try to ensure that we have some of the best products that provide the greatest value to our customers. We think we have strong positions in all the product lines that we are participating in, whether it is fuel injection, starters and alternators, and aftermarket businesses. We are leveraging a lot of that capability. We are not what we consider a commodity. We try to win on our technology and our performance of our products.

We go to market and we actually service a bunch of different markets out there, and that is why we can really consider it more of a diversified industrial because of the variety of end markets that we serve. We then couple that with a lot of our financial discipline, where we evaluate every single quote that we have out there, expectations on return on invested capital. Our minimum hurdle rate is 15%, is what we expect to deliver on any of our new programs, and continue to drive that as part of our business. All of our decisions are really around how do we maximize shareholder return. That is where our financial discipline, that stable growth, our capital allocation strategies is really going to shine through, is where we are focusing on that shareholder return.

When we talk about the diversity, I think this slide here really kind of goes through a lot of our strategy. Not only do we have diversity around the regions, we also have diversity in our customer base. Our top five make up 37%. Our top one is in the high teens, like 16%, 17%. Two through five are all in the mid-single digits. So we have a lot of diversity in our customer base. Then finally, as I mentioned, a real diversity in our end markets. Service, which will include original equipment service as well as independent aftermarket, makes up 35% of our revenue. So that is actually the largest end market that we serve. That is followed by light passenger vehicle at 25%, medium and heavy duty on highway commercial vehicle at 15%, light commercial vehicle at 19%. Then probably our fastest growing segment is the off-highway industrial.

Other that will include the aerospace, the gen sets, the ag, the construction. People will ask us a lot about going into all the different end markets. What is interesting for us, it is really the same engineers and the same manufacturing equipment. For us, we are able to leverage our human capital and our manufacturing capital to go to these different end markets. So we are not having to invest a bunch of money now in the hope of delivering additional revenue and profitability later because we are able to repurpose a lot of our existing lines. There is actually a light passenger vehicle diesel line that we repurposed to do some of the aerospace work, because the processes, the materials, the precision machining, the final assembly of the test is all similar. The same thing with the engineers.

We are not converting mechanical engineers and trying to have them do power electronics. We are having mechanical engineers, and it is a pre and post injector for a turbine engine. So it is fluid management, it is precision engineering. It is the same engineers that we have on aerospace, commercial vehicle and light vehicle, because it is the same basic technology. It is just different flow rates, different pressures. So we are able to shift our resources depending on where the growth is coming. That, in our view, is going to deliver a consistent growth rate, and make us very resilient in a relatively volatile market. We did just recently announce the acquisition of stoba Group here at the end of June, gave a little bit of more insight in our latest earnings calls. You will see here, we see it as consistent with our strategy.

It's going to add another aerospace and defense certified location in Germany. Very precision machine components. They have a lot of intellectual property and trade secrets on how they manufacture the products, the tight tolerances that they're holding. They're one of our largest suppliers, a critical supplier for us. Although their third party or total revenues are about $200 million, $120 million, that was to us. We see that as not only as a way to get some critical technology inside, but also make our supply base a little bit more resilient. As we've seen in many of the European supply base and others, there's a lot of concerns with the financial viability. These small to midsize companies are a concern.

We saw this as an opportunity to not only expand our exposure into aerospace and into different customers, but also to solidify our supply base as well. We think it was a fair multiple at 6 times EBITDA. We think that will just nicely kind of slide right into our organization. Their plants are close to our plants as well, and it gives us some ability to continue to optimize their manufacturing footprint with ours as well. Just a quick highlight. We did report earnings a few weeks ago as well. Another good solid quarter, $130 million of EBITDA, $940 million of sales. Another strong sales quarter for us. Year-over-year growth versus prior year EPS continuing goes up around 20% adjusted EBITDA from prior year. We continue to maintain a strong balance sheet. Share repurchases continue even with the acquisition that's coming.

Our leverage is pretty conservative at 1.3 times. Our target's around 1.5, so we have a little bit of room there as well. Again, the 1.5 plus or minus we think is a good level right now. As we shared at the investor day, as we continue to grow and as we continue to get our interest rates maybe a little bit lower, maybe we go from 1.5 to 2. But we still want to maintain a relatively conservative balance sheet. We're not going to be levering up to 3 times and what we consider excessive because there are going to be some cycles that we have to weather. I think this is a nice summary of our discipline and financial discipline and capital allocation discipline. Since we've spun, we just had our third anniversary back in early July.

In that time, we bought back close to 24% of our shares, returned $665 million to shareholders. We've increased our dividend. We established a dividend and increased our dividend twice already. Maintained good leverage. We produce predominantly in low-cost countries. We've seen some nice organic growth rate and also now with the SEM acquisition integration last year, now the stoba Group acquisition, we're finding those nice little tuck-in at reasonable prices that continue to support our business kind of longer term. We think this is a really strong slide for us on how we have a good strong foundation. We're investing for the future growth. We're disciplined in that area. Again, I think some of our capital return to shareholders has also been extremely strong over that period. That then kind of leads into what our overall expectations have always been for the decade.

Through the cycles, we will see that average organic growth rate in that 2%-4%. I think this year we are right around 3%, 3.5% this year. Cash flow continues to remain strong. We still have some opportunities to continue to grow EBITDA, and we expect that to be solid in the 14%-15% range. Then that target modest leverage at 1.5. So, I think if you take a look at what we have delivered over the last three years, I think our goal is to be consistent kind of in the ups and downs. Even with the commercial vehicle market being really hit pretty heavy over the last couple of years, we still kind of held our numbers. We are relatively flat to maybe a little bit up. Continue to deliver good, strong cash flows. That is one of the benefits of the diversity of the markets that we serve.

There is no one market that is going to really drive or one platform that is going to drive our revenues. So I know people are more excited about light vehicle or more around CV, but again, medium heavy duty CV is still only 15% of our revenue. So yeah, we will see a little bit of uptick there. We are seeing a little bit of headwind in light passenger vehicle in China. India is now really kind of ramping up, and we are building a new plant there as well to support that growth. Alternative fuels is really growing well, whether it is natural gas, ethanol, methanol, both light vehicle and commercial vehicle, hydrogen as well. We think there is a lot of opportunities for us to continue to grow in these different markets and different regions of the world. With that, I will pass it back to you, Brian.