PHINIA Inc. (NYSE: PHIN), a leader in premium fuel systems,
electrical systems, and aftermarket products, today reported its
third quarter ended September 30, 2023 results and updated full
year 2023 guidance.
Third Quarter Highlights:
- U.S. GAAP net sales of $896 million, an increase of 4.3%
compared with Q3 2022.
- Excluding $26 million of contract manufacturing sales, sales
were up slightly compared to Q3 2022. Including currency and
pricing tailwinds, growth in light vehicle original equipment (OE)
sales were partially offset by lower commercial vehicle OE sales in
China.
- Operating income of $58 million and adjusted operating income
of $82 million, resulting in an operating margin of 6.5% and an
adjusted operating margin of 9.4%, a year-over-year decrease of 620
bps and 400 bps, respectively.
- Q3 2022 benefited from retroactive inflationary cost recoveries
affecting year-over-year comparisons. From a core performance
standpoint, the business reported solid overall margins. Q3 2023
segment adjusted operating margins were healthy at 11.3%, in line
with total segment adjusted operating margin in the first half.
Corporate costs of $19 million were in line with expectations.
- U.S. GAAP net earnings of $0.24 per diluted share.
- Excluding $0.29 per diluted share related to non-comparable
items (detailed in the non-GAAP appendix below), adjusted net
earnings of $0.53 per diluted share.
- Net earnings of $11 million with net margin of 1.2% and
adjusted EBITDA of $117 million with adjusted EBITDA margin of
13.4%, a year-over-year decrease of 420 bps.
- Net cash generated by operating activities of $155 million.
- Free cash flow was $118 million.
Key Wins in Strategic Growth Markets:
New business wins remained strong across all end markets. A few
examples of new business awards in Q3 are:
- PHINIA has been selected to supply fuel injectors to a major
aircraft equipment manufacturer.
- PHINIA secured its first major business award for a hydrogen
fuel cell program to supply hydrogen fuel system components for a
large OEM hydrogen fuel cell application for medium duty
trucks.
- PHINIA secured a significant GDi program with a prominent
domestic China OEM for its new light vehicle plug-in, electric
hybrid programs.
Brady Ericson, President, and Chief Executive Officer of PHINIA
commented: "Our Q3 results demonstrate solid operational
performance with total segment adjusted operating margins in line
with our first half average results. The business continues to show
underlying strength despite lower than expected revenue from our
China commercial vehicle business and less of a currency tailwind
than we had expected earlier in the year. I’m pleased with our
teams’ focus on serving our customers well and delivering high
quality product. PHINIA continues to win new business that we
expect will support annual low single digit top line growth. We
ended the quarter with $367 million in cash on hand, leaving us in
a solid financial position.
During the quarter, we initiated our shareholder return of
capital program with our Board of Directors authorizing a $0.25 per
share quarterly cash dividend, or roughly $12 million, and $150
million share repurchase program. In Q3, we quickly bought back $9
million of our shares during our open window for a total return to
shareholders of $21 million. We expect to continue to be
opportunistic in terms of future share repurchases.”
2023 Full Year Guidance:
With commercial vehicle sales running lower than expected in
China with key customers, impact from strikes in North America and
less favorable currency than expected, the company is revising its
FY 2023 outlook for net sales of $3.44 billion to $3.50 billion,
adjusted sales of $3.40 billion to $3.45 billion, adjusted EBITDA
of $465 million to $475 million, and adjusted EBITDA margins of
13.6% to 13.9%. Expected full year 2023 tax rate is also revised to
34%.
The company will host a conference call to review third quarter
2023 results and full year 2023 outlook and take questions from the
investment community at 8:00 a.m. ET today. This call will be
webcast at PHINIA Q3 2023 Earnings Call. Additional presentation
materials will be available at Investors.phinia.com.
About PHINIA
PHINIA is an independent, market-leading, premium solutions and
components provider with over 100 years of manufacturing expertise
and industry relationships, with a strong brand portfolio that
includes Delphi, Delco Remy® and Hartridge. With 12,900 employees
across 44 locations in 20 countries, PHINIA is headquartered in
Auburn Hills, Michigan, USA.
Working across commercial vehicle and industrial applications
(heavy-duty and medium duty trucks, off-highway construction,
marine, agricultural and industrial applications), and light
vehicles passenger cars, trucks, vans and sport-utility vehicles),
we develop fuel systems and aftermarket parts that keep combustion
engines operating at peak performance, as cleanly and efficiently
as possible, while at the same time investing in future
technologies that will unlock the potential of alternative
fuels.
By providing what the market needs today, to become more
efficient and sustainable, while also developing innovative
products and solutions for a cleaner tomorrow, we are the partner
of choice for a diverse array of industrial and aftermarket
customers –powering our shared journey toward a carbon-neutral and
carbon-free tomorrow.
(Delco Remy® is a registered trademark of General Motors
corporation under license to PHINIA)
Forward-Looking Statements: This press release contains
forward-looking statements as contemplated by the 1995 Private
Securities Litigation Reform Act that are based on management’s
current outlook, expectations, estimates and projections. Words
such as “anticipates,” “believes,” “continues,” “could,”
“designed,” “effect,” “estimates,” “evaluates,” “expects,”
“forecasts,” “goal,” “guidance,” “initiative,” “intends,” “may,”
“outlook,” “plans,” “potential,” “predicts,” “project,” “pursue,”
“seek,” “should,” “target,” “when,” “will,” “would,” and variations
of such words and similar expressions are intended to identify such
forward-looking statements. Further, all statements, other than
statements of historical fact contained or incorporated by
reference in this press release, that we expect or anticipate will
or may occur in the future regarding our financial position,
business strategy and measures to implement that strategy,
including changes to operations, competitive strengths, goals,
expansion and growth of our business and operations, plans,
references to future success and other such matters, are
forward-looking statements. Accounting estimates, such as those
described under the heading “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Critical
Accounting Policies and Estimates” in our Information Statement
furnished with the Company’s Registration Statement on Form
10-12B/A filed with the Securities and Exchange Commission (“SEC”)
on June 9, 2023 and subsequent reports filed with the SEC, are
inherently forward-looking. All forward looking statements are
based on assumptions and analyses made by us in light of our
experience and our perception of historical trends, current
conditions and expected future developments as well as other
factors we believe are appropriate in the circumstances.
Forward-looking statements are not guarantees of performance and
our actual results may differ materially from those expressed,
projected or implied in or by the forward-looking statements.
You should not place undue reliance on these forward-looking
statements, which speak only as of the date of this press release.
Forward-looking statements are subject to risks and uncertainties,
many of which are difficult to predict and generally beyond our
control, that could cause actual results to differ materially from
those expressed, projected or implied in or by the forward-looking
statements. These risks and uncertainties, among others, include
the ability of PHINIA to succeed as a standalone publicly traded
company, which is a smaller company relative to BorgWarner; the
possibility that the spin-off will not achieve its intended
benefits; the possibility of disruption, including changes to
existing business relationships, disputes, litigation, or
unanticipated costs; the uncertainty regarding the expected
financial performance of PHINIA; supply disruptions, work stoppages
or similar events impacting us or our customers, such as the United
Auto Workers (“UAW”) strikes against Ford, General Motors,
Stellantis North America and Mack Truck and the current shortage of
semiconductor chips that has impacted OEM customers and their
suppliers including us; competitive challenges from existing and
new competitors including OEM customers; the challenges associated
with rapidly-changing technologies, and our ability to innovate in
response; the ability to identify targets and consummate
acquisitions on acceptable terms; the failure to promptly and
effectively integrate acquired businesses; the potential for
unknown or inestimable liabilities relating to acquired businesses;
our dependence on commercial vehicle, industrial application and
light vehicle production, which are highly cyclical and subject to
disruptions; our reliance on major OEM customers, including impacts
from lower than expected commercial vehicle sales with key
customers in China; fluctuations in interest rates and foreign
currency exchange rates; our dependence on information systems; the
uncertainty of the global political and economic environment; the
outcome of existing or any future legal proceedings, including
litigation with respect to various claims and any governmental
investigations; future changes in laws and regulations, including,
by way of example, taxes and tariffs, in the countries in which we
operate; impacts from any potential future acquisition or
disposition transactions; and the other risks noted under “Risk
Factors,” and in other reports that we file with the SEC. We do not
undertake any obligation to update or announce publicly any updates
to or revisions to any of the forward-looking statements in this
press release to reflect any change in our expectations or any
change in events, conditions, circumstances, or assumptions
underlying the statements.
PHINIA Inc.
Condensed Combined Statements of
Operations (Unaudited)
(in millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Fuel Systems
$
561
$
534
$
1,621
$
1,545
Aftermarket
335
325
997
952
Net sales
896
859
2,618
2,497
Cost of sales
719
658
2,080
1,964
Gross profit
177
201
538
533
Gross margin
19.8
%
23.4
%
20.6
%
21.3
%
Selling, general and administrative
expenses
104
100
306
301
Other operating expense (income), net
15
(10
)
60
1
Operating income
58
111
172
231
Equity in affiliates’ earnings, net of
tax
(2
)
(5
)
(8
)
(8
)
Interest expense
22
5
34
14
Interest income
(4
)
(2
)
(9
)
(3
)
Other postretirement income
—
(8
)
(1
)
(25
)
Earnings before income taxes
42
121
156
253
Provision for income taxes
31
32
75
66
Net earnings
$
11
$
89
$
81
$
187
Segment Adjusted Operating Income and
Segment Operating Income Margin (Unaudited)
(in
millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Fuel Systems
$
55
$
84
$
160
$
193
Margin %
9.8
%
15.7
%
9.9
%
12.5
%
Aftermarket
46
48
143
137
Margin %
13.7
%
14.8
%
14.3
%
14.4
%
Segment adjusted operating income
$
101
$
132
$
303
$
330
Margin %
11.3
%
15.4
%
11.6
%
13.2
%
PHINIA Inc.
Net Debt (Unaudited)
(in
millions)
September 30, 2023
December 31, 2022
Total debt, including amounts due to
former parent
$
800
$
1,270
Cash, cash equivalents and restricted
cash
$
367
$
251
Net debt
$
433
$
1,019
Non-GAAP Financial Measures
This press release contains information about PHINIA’s financial
results that is not presented in accordance with accounting
principles generally accepted in the United States (“GAAP”). Such
non-GAAP financial measures are reconciled to their most directly
comparable GAAP financial measures below. The provision of these
comparable GAAP financial measures for 2023 is not intended to
indicate that PHINIA is explicitly or implicitly providing
projections on those GAAP financial measures, and actual results
for such measures are likely to vary from those presented. The
reconciliations include all information reasonably available to the
Company at the date of this press release and the adjustments that
management can reasonably predict.
Management believes that these non-GAAP financial measures are
useful to management, investors, and banking institutions in their
analysis of the Company's business and operating performance.
Management also uses this information for operational planning and
decision-making purposes.
Non-GAAP financial measures are not and should not be considered
a substitute for any GAAP measure. Additionally, because not all
companies use identical calculations, the non-GAAP financial
measures as presented by PHINIA may not be comparable to similarly
titled measures reported by other companies.
A reconciliation of each of projected Adjusted EBITDA and
Adjusted EBITDA Margin, which are forward-looking non-GAAP
financial measures, to the most directly comparable GAAP financial
measure, is not provided because the Company is unable to provide
such reconciliation without unreasonable effort. The inability to
provide each reconciliation is due to the unpredictability of the
amounts and timing of events affecting the items we exclude from
the non-GAAP measure.
Adjusted EBITDA and Adjusted EBITDA Margin
The Company defines adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) as net earnings less
interest, taxes, depreciation and amortization, adjusted to exclude
the impact of restructuring expense, merger, acquisition and
divestiture expense, other postretirement income, equity in
affiliates' earnings, net of tax, impairment charges, other net
expenses, and other gains and losses not reflective of our ongoing
operations. Adjusted EBITDA margin is defined as adjusted EBITDA
divided by adjusted sales.
Adjusted Operating Income and Adjusted Operating
Margin
The Company defines adjusted operating income as operating
income adjusted to exclude the impact of restructuring expense,
merger, acquisition and divestiture expense, intangible asset
amortization expense, impairment charges, other net expenses, and
other gains and losses not reflective of the Company’s ongoing
operations. Adjusted operating margin is defined as adjusted
operating income divided by adjusted sales.
Adjusted Sales
The Company defines adjusted sales as net sales adjusted to
exclude certain agreements with BorgWarner that were entered into
in connection with the spin-off.
Adjusted Net Earnings Per Diluted Share
The Company defines adjusted net earnings per diluted share as
net earnings per share adjusted to exclude the tax-effected impact
of restructuring expense, merger, acquisition and divestiture
expense, impairment charges, other net expenses, and other gains,
losses and tax amounts not reflective of the Company’s ongoing
operations.
Free Cash Flow
The Company defines free cash flow as net cash provided by
operating activities less capital expenditures, including tooling
outlays.
Adjusted Sales (Unaudited)
(in
millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Net sales
$
896
$
859
$
2,618
$
2,497
Spin-off agreement adjustment
(26
)
—
(26
)
—
Adjusted sales
$
870
$
859
$
2,592
$
2,497
Adjusted EBITDA and EBITDA Margin
(Unaudited)
(in
millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Net earnings
$
11
$
89
$
81
$
187
Depreciation and tooling amortization
35
36
105
109
Provision for income taxes
31
32
75
66
Intangible asset amortization expense
7
7
21
21
Interest expense
22
5
34
14
Interest income
(4
)
(2
)
(9
)
(3
)
EBITDA
102
167
307
394
Merger, acquisition and divestiture
expense, net
13
5
72
27
Royalty income from BorgWarner
—
(9
)
(17
)
(22
)
Restructuring expense
4
3
10
8
Equity in affiliates' earnings, net of
tax
(2
)
(5
)
(8
)
(8
)
Other postretirement income
—
(8
)
(1
)
(25
)
Asset impairments and lease
modifications
—
(2
)
—
4
Adjusted EBITDA
$
117
$
151
$
363
$
378
Adjusted sales
$
870
$
859
$
2,592
$
2,497
Adjusted EBITDA margin %
13.4
%
17.6
%
14.0
%
15.1
%
Adjusted Operating Income and Operating
Income Margin (Unaudited)
(in
millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Operating income
$
58
$
111
$
172
$
231
Merger, acquisition and divestiture
expense, net
13
5
72
27
Intangible asset amortization expense
7
7
21
21
Restructuring expense
4
3
10
8
Royalty income from BorgWarner
—
(9
)
(17
)
(22
)
Asset impairments and lease
modifications
—
(2
)
—
4
Adjusted operating income
82
115
258
269
Net sales
$
896
$
859
$
2,618
$
2,497
Operating margin %
6.5
%
12.9
%
6.6
%
9.3
%
Adjusted sales
$
870
$
859
$
2,592
$
2,497
Adjusted operating margin %
9.4
%
13.4
%
10.0
%
10.8
%
Adjusted Net Earnings Per Diluted
Share
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Net earnings per diluted share
$
0.24
$
1.89
$
1.72
$
3.98
Non-comparable items:
Merger, acquisition and divestiture
expense, net
0.21
0.11
1.47
0.57
Restructuring expense
0.06
0.05
0.17
0.13
Royalty income from BorgWarner
—
(0.19
)
(0.36
)
(0.47
)
Asset impairments and lease
modifications
—
(0.04
)
—
0.09
Tax adjustments
0.02
0.04
0.02
0.02
Adjusted net earnings per diluted
share
$
0.53
$
1.86
$
3.02
$
4.32
Free Cash Flow (Unaudited)
(in millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Net cash provided by operating
activities
$
155
$
45
$
188
$
122
Capital expenditures, including tooling
outlays
(37
)
(26
)
(117
)
(86
)
Free cash flow
$
118
$
19
$
71
$
36
Adjusted Sales Guidance
(Unaudited)
(in
millions)
Full Year 2023 Guidance
Low
High
Net sales
$
3,445
$
3,500
Spin-off agreement adjustment
$
45
$
50
Adjusted sales
$
3,400
$
3,450
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231106069778/en/
IR contact: Michael Heifler VP Investor Relations
investors@phinia.com +1 947-262-1992
Media contact: Kevin Price Global Brand & Communications
Director media@phinia.com +44 (0) 7795 463871
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