Are we ready? Are we live? Okay, delighted to have, representing PHINIA, Chris Gropp, Chief Financial Officer, and Kellen Ferris Vice President of Investor Relations. Thanks for being here. Yep, thank you. [crosstalk] Thanks for having us. Yeah. It's not exactly a dump here, right? You brought us from all of us pasty people from Michigan, so we can come. Yeah, we need your vitamin D. We need your vitamin D. So any key messages at the top you wanna kind of emphasize to investors who are unfamiliar with the story or, you know, the mission? We are from Detroit, so everybody assumes automatically that we're a light vehicle and automotive company, and probably that was the majority of the history. But you also have to look at the fact that we are very much heavily in the aftermarket- Mm-hmm and CV business. So we're fairly decently balanced. We're 44% light vehicle, we're about a quarter CV, and we're also very heavily into the aftermarket business, which we really love, and it gives us a lot of balance. We are very unashamedly ICE internal combustion, which has been sort of a dirty word for a few years, but it's coming back just a little bit when people realize that they also go into hybrid and plug-in hybrid vehicles, which are starting to get a little bit more attention, even though they've been in the market for a while. So we are a spinoff. Obviously, people look at spins kind of sideways for a little while until they try to figure out what is it and what is this thing. So we're about a year past. We've completely separated from our former parent. We're off all of the TSAs. We have... I was in Mexico about a month ago, and we moved the final one of their production lines out of our facility to their facility, so all of our contract manufacturing is complete. So we're materially separated from them, so. Great. Just to kind of get this out of the way, we've had some suppliers that have given updates on the quarter, given some changes in demand or mix or recalls, things of that nature. We had a lot of the German auto complex warn and will be continuing to warn. So I didn't know if you wanted to make any comment on the quarter at all in terms of how it was looking versus expectations, or to have an opportunity to help manage expectations, or we could move on. But I just wanted to give you that opportunity. We really have been fairly decent. I'm gonna go back to the first six months of the year. We were, for the first six months of the year, we were only down 1% year over year, which is a little bit different than everybody else. Mm-hmm. And this is where our aftermarket comes in. So for the first six months, our fuel systems was down 3.5%. And most of that we expected because CV was expected to be coming down off of a very high year, off of a very high watermark. And China CV has not come back yet. So that's down 3.5%. But on the flip side of it, it was almost completely offset by aftermarket being stronger. Aftermarket, for us, is the... The largest chunk of our aftermarket is in Europe, and for the at last eighteen months, aftermarket has run better than expected. So it's been a good balance. Third quarter, obviously, we're still in the middle of third quarter. Mm-hmm. It's still coming in within our expectations so far. I will say that fourth quarter, we're hearing a little bit more noise, and I'm not gonna say that this has been an easy year for our logistics people because it's very up and down, up and down, up and down. Mm-hmm. We're hearing a little bit of noise coming out of the fourth quarter. I think it's still too early. Specifically in China. China ... right? China. Specifically in China. China. We're hearing a little bit more weakness coming out of China. Mm-hmm. I think it's too early because what always happens with China is they have to go into their build. Their biggest build period for automotive is in the fourth quarter. Mm-hmm ... so that they can get ready for their spring holidays. Mm-hmm. We'll see. I don't think it's gonna be extremely material, and I also think that we've got other parts of the business that are performing well, so. Stock's been a really strong performer, outstanding performer, absolute and relative to, not just autos, but the market this year, but you still think it's undervalued, and you still make a market for your stock as well. So tell us why you think it's undervalued even though it's up, you know, depending on the day, 40% or 50% year to date, and what's the market missing? It's always hard to understand what the market... Yeah. In general. So control what you can control. Yeah. You know, we do think it's still a little bit undervalued, but just in general, we understand. I mean, the market doesn't like uncertainty, and there's nothing certain in automotive right now, so that's sort of an issue. Yeah. But it goes back to understanding that we're not just a light vehicle business, that we do have some balance, we do have levers to pull. When I said that aftermarket in Europe, part of the aftermarket in Europe has to do with CV in Europe, and CV for service and aftermarket has run really well for us, especially coming out of Europe. We're also starting to see aftermarket in the U.S., in the Americas. It was a little bit light the first half of the year. It's coming back stronger- Mm-hmm ... in the second quarter, or in the third quarter, and hopefully will continue on into the fourth quarter from what we're seeing. So, yeah, so what do they not understand about us? I mean, it's only the fact that we used to be Delphi, who didn't have a great reputation in the market. Well, let me go. With finance people, they didn't have a good reputation- Mm-hmm ... necessarily. For sure, yeah. But with people, with OEs, with the public that know automotive, they love the Delphi brand. Mm-hmm. So we've kept the Delphi brand. We brand most everything in our aftermarket with Delphi... So it's kind of a tale of two companies. Mm-hmm. More effect, you know, more or less. BorgWarner bought it, did a lot of great work on, you know, splitting it apart, taking out a lot of the efficiencies, and I think that wasn't well understood. And then, you know, trying to understand when you come out and it's carved out financials, it was difficult even for us. We were talking about that a little bit earlier, going into Investor Day last year and being handed financials that were part of the carve-out, and it's like: Okay, I have to rethink about this again. So- Right. It's understandable. Great. We needed to prove something. We've had four quarters. We think we've proved ourselves a little bit, but you're only as good as your last quarter. Agreed. Last, last thing I'll say, just quickly, is just the longevity of the business. I mean, Delphi had never really invested or targeted off-highway prior to the spin. We have an application that's gonna go live later this year with an off-highway OEM. So it's a new market opportunity for us. It's actually getting. We're winning that and getting into that market as pull from customers. Customers are saying, "Hey, you should, you know, approach these groups to, you know, with your technology." And so we're getting into off-highway, aerospace, and several other kind of industrial markets, in addition to the aftermarket. Thanks, Kellen. William? I mean, maybe we can touch on market share dynamics. Mm-hmm. I mean, I think, like, this year, you know, the past few years, you guys have won a lot of share from the larger, more diversified major suppliers, that are trying to, decrease their ICE exposure. But, I mean, with EVs slowing and now a lot of these suppliers are going through restructuring, I mean, has that slowed that market exodus and that market share shift to you guys? We haven't seen it yet. I'm not gonna say it's not gonna happen. However, this is the other thing I guess I should have brought up, that people don't necessarily understand. There's not many people out there that do fuel injection systems. It's a very precise, very... We have very high tolerances. I've been in automotive thirty years. I've done solenoids, I've done chains, I've done a lot of different products, and I have to say that the first time I went into our, one of our fuel injection production facilities in the U.K., the precision and the level of tolerance was incredible, and you have to do it thousands of times a day. We don't have that many competitors. You have Bosch. They're the big one. You have Denso on the Japanese Keiretsu side. You have, if you get out of the fuel injection and get into the canisters and the fuel delivery module, you have a few more. You have a Marelli, you have a Vitesco, and things like that. They have been exiting, and on the Bosch side, they already have 50% of the market, and so there's a lot of the customers that don't want to give them more market. Mm-hmm. So we've been really, you know, looking at our quotes. We've actually won more conquest business away from Bosch than we have from our other competitors. But we haven't seen... I mean, there's nobody that's gonna enter the market because nobody's putting money into internal combustion. Is that partially the share gain from Bosch? Is that kind of a consequence of Bosch's strategy of just viewing those businesses as more runoffs, and you don't kind of relevant to your assessment? I think some of it's intentional from the customers- Okay ... because they don't want to place more business and put more pricing power there. Mm-hmm. So I think that is some of it. We also have. I think what's interesting is over the last two years, we've actually seen the hybrid trend coming back out of China before we started seeing it out of Europe or the Americas. We had one of the biggest OEs out of China, who is very known for their EV product, come to us just over a year ago and say: We need a hybrid and a plug-in hybrid and a range-extending vehicle in our portfolio. We have lots of EVs. We've got to get this into our portfolio. We need you to be up and running in 18 months. So we gave them a, you know, we gave them a quote, and they accepted it, and it's going fast and furious. We announced the 500 bar with Changan last year. I mean, the Chinese are really pushing the bar, but we're seeing them apply the hybrid, plug-in hybrid. Yeah, that's what got NEV to 55% of the market. It was, you know, partially it was EV stabilizing, but the real delta has been the plug-ins and hybrids. Right. Yeah. That's right. Yep. So are you getting a pricing power benefit with market share shifting? Yeah, I mean, we started. Again, this was after we did the acquisition with Delphi. We started looking at the fact that in the past, everybody had assumed, and especially on a fuel injection, if you're the incumbent, you typically you're always gonna get the service, but you're gonna typically get the follow-on programs. We made the conscious decision to assume you can't assume that there's going to be a follow-on program. The programs are typically for four to five years, and you could see a lot of reticence with the OEs to: "We're not gonna talk to you about more than four years or five years. We're not gonna talk about extensions." So therefore, we had to really make it clear with our people and in the quotes, you quote for four to five years. The capital has to pay for itself in that period of time. Therefore, it's kind of increasing the price, and we've continued to win business. So we're having to price in risk. There's risk in our volumes, there's risk in internal combustion in the entire market, so you have to price that in, and we've been able to. We've seen less price downs from OEs as there are fewer suppliers that can do what we do. OEs realize that they need to keep ICE-focused suppliers around. So we're definitely seeing, you know, automotive companies definitely not push price as much on the price downside. Chris, you mentioned, you know, from the benefit of your 30 years experience in autos, you know, autos are frequently in an uncertain position. You said we're in an uncertain position now. Outside of China, where would you say there's the greatest levels of uncertainty facing the business? I'm good on the CV side, so what we're seeing right now is the CV side is getting ready for pre-buys. They've already booked that out with us and stuff, but it's gonna be what happens with the regulations. We've already seen in the spring on the LV side that the U.S. now is saying that plug-in hybrids or a partially elect- [crosstalk]... You know, a partially internal combustion engine can be accepted in this. It came out this morning, some of the member states in the EU are pushing back against the EU on the regulations and saying, "We can't afford this. We need you to look at these regulations." So I think- Mm ... where it's going to be an issue is just the entire stability of what's gonna happen, and being careful with how you do the business. I mean, if the regulations are gonna change, and everybody's aiming toward some crazy cliff- Yep ... if the cliff doesn't become a cliff, then have we made the right decision? So to me, that is the biggest risk- Got it. Overall. Makes it challenging. William, where, where should we now? Maybe, maybe we can kind of go into direct injection. I mean, it's been such a driver of new wins, but, I mean, how much more opportunities are to go? So if you just take our basic system for a GDI, what we can bolt on also is we're doing our own in-house ECU. We've done the software for years, but the portion of our former parent was that had come with the Delphi acquisition, it went with them. They were doing the ECU hardware. We walked away with that we can do our own ECU hardware. We add our software is already there, so that would actually double the CPV on a typical GDI. We're also taking our GDI and applying it to diesel, strangely enough, but we've had a pull from the market on the off-highway side. So now we're taking GDI technology and developed a diesel direct injection for off-highway, so it's not necessarily a CPV play, but it does expand where we can go. We've also announced this year, aerospace. So we're taking it where we want it to. The other one is alternative fuel, and I haven't talked about that very much, but we have hydrogen. We're going into... We can do both hydrogen for internal combustion. We're also doing fuel cell, and we announced earlier this year that we're doing a fuel cell for hydrogen with Is hydrogen combustion? I mean, is there Yeah, it w- Is there real capital moving that way? We, you know, it's more on the CV side that we hear the hydrogen combustion- Yeah ... is of interest. Yeah. Um- There's a bit of a cult. There's a very small cult- Yeah ... around HCCL. Yeah. Yeah. I mean, the issue with fuel cells is that you have to have extremely pure hydrogen, which makes it very, very expensive. Whereas with combustion- Whereas if you go to a combustion, you can go to a less pure grade, so therefore, your pricing becomes more reasonable. It becomes very much the same as going to a gas station. You can have a hydrogen station, you can fill up in five minutes, and you can go. Mm. So it's been on the CV side, the heavy-duty side, medium duty, that there's a great deal of interest- Mm ... in that. And quite honestly, all of these OEs are looking for a variety of solutions. Yep. On the hydrogen side, we're, you know, we're investing in it carefully and definitely not expecting it to contribute revenue until at least the next decade. Yes. Mm-hmm. So Chris, I mean, you just mentioned it, and Kellen, I think you mentioned it before, the off-highway opportunity and just sort of like the non-automotive opportunity. I mean, maybe just kind of give us the mark-to-market on the trends that you're seeing. You know, obviously, you just announced the win today. Anything else that investors should know? And I guess just maybe sizing the opportunity in the long term, you know, as we think out the end of the decade, what's... what's... How should investors think about that? I mean, we're not putting it in there. We're saying it's going to be, right now, by the end of the decade, 2%-3% of our overall portfolio. I mean, very, very small. It's gonna grow very small, very slowly. Right. Once you get past twenty thirty up to twenty thirty-five, I would take a dartboard and throw it to see how. Yeah. ... what the percentage is going to be, because it's going to be... I mean, we're obviously doing ten-year projections. Mm-hmm. But there's a lot of... There's science. Yeah. It's educated science that we're putting into it. What about aftermarket? Because I think that's a, that's an area where I think, investing community isn't so... They're kind of shocked to see how big, you know, of a percentage of the business's aftermarket is, how durable it is, and I think some of the assumptions and simulations you run, which I think you believe are conservative. I believe they... I might be a little more conservative of the de-adoption and just how long it lasts. So maybe what are the kind of-- what's the four-one-one on, on the aftermarket side that you think maybe is not fully appreciated? Um- And then kind of your view of between now and end of decade, how... Like, when does it start to asymptote? ... I mean, we're assuming, aftermarket, we only assume is going to grow at most 2%, 1.5%-2%, at best. Now, does that pick up later on when you start to get into a much more aged, and some people, let's be honest, are going to hold on to those old internal combustion cars or trucks, big trucks, for a long time. Uh-huh. But we're just assuming a very small growth on those. So I don't think we're thinking of anything crazy. Do we see a plateau on that? We don't really see a plateau on that, even through twenty thirty-five. I think it... But we're also not seeing, like, a big growth curve. We just see it just kind of being steady for us, going out. I don't know. I don't think it's anything beyond that. I think we've pretty much hit it. Okay. Maybe kind of going back to something that Adam mentioned before. I mean, the stock has been a monster this year. I mean, you're nearing $50. Does that change the math on how you think about capital allocation and whether you buy back stock versus, you know, allocating it to different places? I think we're going to continue doing it in the same way we've done it all along, but $50 was better toward last week. This week, it's gone down a little bit, but the entire market's been a little bit brutal this week. We're looking at M&A. Obviously, we know that part of our growth story eventually is going to have to be M&A. Asset that doesn't return, so we're being very careful. You know, so it's going to go... Eventually, we'll find something. I think the market will turn eventually. There's a lot of stuff out there. So we will do bolt-ons, but it's got to pay back very quickly. Until then, we'll just keep looking at our stock and making the decision on, you know, share buybacks, and right now, that's working for us quite well. Just continue to look at it by quarter and figure out what the best use of the capital is and where valuations from, on the M&A side have been, too high. It's obviously can't continue to keep all the capital on the balance sheet. Maybe geographic opportunities, anything of the Japanese, Koreans, Chinese, domestics, where you think the most opportunity is in? Yeah, I said earlier, we get a lot of noise in the last 18 months to two years coming out of China. They come to us and ask for solutions and help, the range-extending vehicles, the plug-in hybrids and things. So we're getting a lot of noise coming out of there. Korea, we've always had a relationship and done business and sell to HMC, so Hyundai, we've always done business with them. The interesting thing about Korea is the discussions and decisions are made in Korea, but most of our production is either for the Chinese market or the Americas. A little bit of it goes into Europe, but that's where it's going into. From Japan, we've had inquiries coming out of Toyota. They... When they got the message and their engineers started hearing from Denso, that they didn't want to invest in the next generation of product, then certainly we got inquiries in. We've not gotten anything back from them. We've quoted, we've looked at some product. I've dealt with Toyota before. It's a long time for them to make a decision. You do a lot of quoting, you do a lot of discussions with them before you finally land anything and get any growth there. How deep are we in that kind of querying phase with Toyota? It depends, because I've quoted. I've been in two different BUs when we've quoted, with years and years ago in BorgWarner Air Products, and it took about a year and a half to two years, whereas I was also in the Morse division on chains, and I swear, every year, they came and looked at our chains and said, "We love your chains, but we can't quite do it. Mm-hmm. You know, that's like an ongoing process, so you never know. But we're still in discussions and. Where's the rest of the Japanese business right now? Or is it kind of- Really not any anywhere any farther. Okay outside of that. All right. White White space. Um- Okay. Brazil is also, we're still seeing a lot of business coming out of Brazil, including aftermarket. Remind us of content per vehicle differences or parity between hybrid or plug-in hybrid and a straight ICE? Really no difference. Where it becomes a difference is if you're talking about a port fuel injected product, which is what I would call very old school, but there's still some out there. Mm-hmm. We do still do some PFI, mainly in China. Mm-hmm. So, a port fuel injected system is going to be somewhere in the $50-$60 range, whereas a GDI is going to be double that, effectively. And then, if we add on an ECU, it's gonna double on top of that. But if you're just going ICE to GDI, it's the same thing. If I'm going to go into just a normal internal combustion engine with a GDI, and then the same thing into a plug-in hybrid or a hybrid, you're just talking about a GDI, so it's the same thing. We see a bigger jump on it on the commercial vehicle side. It's basically content per. It's the same system. The four-cylinder system, GDI goes for, like, about $100-$120 on a light vehicle, and that same system is about $1,000-$1,200 per CV. But on CV, it's not a GDI, it's going to be diesel- Yeah Injection system. It's $1,000, yeah. Diesel, where is diesel now? Where are we? Is it- ... It's a little low this year, but that was expected. We're expecting it to start picking up at the end of next year. We were asked about- We're talking passenger? Uh- Oh, passenger diesel? Yeah, I was thinking passenger. Oh, no, that's only about $250,000. Okay, it's really low. That, you know, that used to be, Delphi's bread and butter- Yeah - but that's down to about $250,000 a year, so. De minimis. It's all commercial. It's small. It's all commercial now. Yes. Okay. It's mainly all commercial- Mm-hmm at this point in time. Yep. William? Maybe just kind of broadly, anything new in terms of ICE hybrid extensions? I mean, not to frontrun any announcements, but in terms of what you're seeing from the OEMs in North America, anything in terms of, you know, from your perspective, change in strategy, how we should think about production? North America is. I mean, they're just now getting back into hybrids and discussing and putting those portfolios in. Mm-hmm. I mean, we said GM is our biggest customer, and we're selling them GDI right now. That has been our biggest growth over the last two years, is ramping up on GDI. Now, technically, well, they can put that into a hybrid. It's going into their big trucks, their big SUVs. That has continued to increase year-over-year from last year. That's been an increasing application. Now, would they apply it to a hybrid? They can. Right now, though, we're at max capacity on that. We'd actually have to go in and requote, and we have some capacity we could apply to it, but they're slower. That's why I said the Chinese have been much faster of coming to it. We're providing product that, let's say, GM can put onto that, but I think they're all still getting their portfolios in line and trying to decide which way they're gonna go. You recently changed your incentive structure of the management team. Mm-hmm -to align better with economic value added and cash flow metrics. I don't know if you wanna describe some of those, where those, you know, KPIs are and kinda how what drove that decision and the reaction. Actually, this is my favorite thing to talk about. This is like old-school BorgWarner when I came in, and actually, my company that I was in before is using economic value models. Uh-huh. As having been a controller in facilities, the easiest way to drive people to go in the same direction and not just look at the PNL, but to also drive efficiencies in your working capital, and just your capital in general, is to put them on the same metric. So our people, actually, it's been really well accepted. They know that my, my bonus, Brady's bonus, the entire management team's bonus, is exactly the same basis as the people in the operations. So we're all on the same boat. Mm-hmm. Everybody's rowing in the same direction. We're doing a lot of training, and the training is being a pull so that they understand, but just from my history, it's much easier for people to understand that it's not just about your PNL. If you really want to be efficient and, and drive value for the company and, and get a bonus, look at your inventory, look at your working capital. Capital. Everybody has a place to play in this. Yeah. And so- Okay ... our working capital is, has, come down since last year. Now, some of that has to do with the CMA we were doing- Mm-hmm ... with our former parent and a few other things, but it really has been... People are looking at it, they pay attention to it, and we're in a good spot. Great ... where we're landing right now. It's always good to end with your favorite topic. Yeah. Chris and Kellen, thank you for joining us. Yep. Thank you. Thank you. Thanks.