Good morning and welcome to the first day of the Jefferies Industrials Conference. Laurence Alexander with the chemical sector. It's my pleasure to introduce Brady Ericson, who is the CEO of PHINIA. Without any further ado, we're going to jump in. Should we just turn this off? Let's start with just a very quick high-level introduction to PHINIA. If you can just frame the company in terms of core technology platforms, and particularly what you think differentiates you from the competitive landscape. Sure. I mean, we're about a $3.4 billion company, very diversified as far as the markets and the products. I would say we're a precision machining, fluid management, electrical component, and system supplier. We're doing obviously some fuel injection, some fluid management, selective catalytic reduction, dosing, starters and alternators. Now with our recent acquisition of SEM, we're doing ignition along with the engine control units and complete system integration for customers. That's kind of the base OE side of the business. We've got about 34% of our revenues come from the aftermarket, service, components, test equipment, training facilities, and the such as well. We're very well balanced. I think there's really no market or region that really makes up more than high single digits percentage of our revenue. There's nothing, there's no North American SAR or commercial vehicle heavy truck in Europe that's really going to move the needle because we're really diversified between light passenger vehicle, light commercial vehicle, heavy duty, on highway, off highway, gen sets, now getting a lot more into aerospace, and obviously having a large aftermarket really gives us some consistent cash flow as well. I think what as far as differentiates us is that global footprint and the technology. We currently spend gross about $200 million or close to 6% of our sales on R&D, but then what's even better is our customers pay us about $100 million a year for those services, for calibration and software support. Our net R&D is right around 3%, and that kind of shows you how integrated and what product types of services we can provide our customers. I found over the years, when people hear fuel injection, they think it's a fairly simple process. You're pumping a liquid or a mist down a pipe into a chamber. Can you talk just a little bit about how difficult it is, or how the difficulty is changing over time? What drives that? Is it, you know, combustion rates, fuel efficiency, engine design, but also the importance of bringing in new fuels and the contaminant sensitivity of those fuels into engine design? Yeah, I mean, it's a great question. I've been in automotive and transportation commercial for over 30 years now, and I thought turbochargers were pretty complex and engines were pretty complex, and then I got into the fuel injection side of the business. We're talking about, you know, our manufacturing processes are very capital intensive. We're building most of our fuel injection systems in a clean room environment. We're seeing tolerances that are plus or minus on the commercial vehicle side, ± half a micron. For folks to kind of give an order of kind of magnitude, that's slightly larger than the coronavirus. You know, it's that tight. We're dealing with pressures on a commercial vehicle application that are approaching 3,000 bar. Just to give people a reference, that's about 45,000 psi. If you can imagine when your tire blows and your tire is about 40 psi, imagine the pressures that are at 45,000 psi within those fuel injectors. We've got to have those injectors going up and down and doing pilot, about 12 injections per combustion cycle. It's moving up and down close to 100x a second, and that's the type of control that we have to have. Now, the challenges that you mentioned with fuel quality, whether it's adding biofuels, contaminants, deposits, those are all very challenging environments given those pressures and the temperatures that we're dealing with. We've got a wide variety of solutions and, you know, we're not just in, you know, we have gasoline, we have diesel, we have biodiesel, we do 100% ethanol, we do methanol, we do ammonia, we're doing hydrogen, we're doing natural gas. For us, we've also got a wide range of fluids that we can control, including ammonia and for selective catalytic reduction applications as well. Just to kind of tease that out a little bit more, when you think about the value capture discussion with an engine manufacturer who wants to move to a new fuel, you talk to the filtration companies and they're the holy grail. You talk to the injection companies and they're the holy grail. Then you have the people who say, no, it's the entire kind of, it's the software, it's the system. How do you see kind of the real point of attack for you to get your slice of the pie? I think the one nice thing about our, at least the products that we're serving right now, is that the competitive landscape is reducing, which is kind of nice. There are really kind of two major players that I think are going to be in the market between Bosch and ourselves. The other smaller players are already exiting. I think we see a lot of opportunity in the off-highway and aerospace industries where the competition isn't spending nearly as much as we are on R&D. I agree with you. I think the big challenge with the fuel systems, the filtration, I think you've got them up next, that are looking at that as well. They have to work hand in hand because if the filtration folks are letting a lot of contaminants come through and I have tolerances in my injectors that are, you know, one, two micron, if they don't filter it out, that's kind of a problem for me. We have to work hand in hand. Probably the most challenging side though is when we're talking about these pressures and when we start going to 100% ethanol and methanol, they start to get really corrosive. As far as our injector tips and the flow into the combustion chamber, that is going to be key. The filtration guys will help keep us safe, but as far as driving fuel efficiency and power and performance, it's going to be on the fuel injection side. Two of the other holy grails are the electronics and the software. We do the engine control system, we do the software, we have about 400 software and calibration engineers, and that's where the bulk of our $100 million from customers comes from, is us actually giving them a turnkey solution. That makes us also then very sticky, because there's a lot of individual component suppliers out there, but there's very few that can bring all the components together and give our customers a turnkey solution. A lot of our customers out there, they really kind of deemphasize the combustion side of things, and they no longer have the calibration and combustion expertise that they had maybe 10 years ago. We see more and more reliance on us and being that full system supplier for them. Could you talk a little bit about the evolution since the spin out? I find that usually it's about three to five years in that one really starts to think about culture change, issues with the operating culture, feedback loops, is the division alignment working properly for the end market, you know, all those kind of legacy inherited beliefs. Can you just walk through kind of what you've seen, what you want to change, where you see opportunities for improvement? Yeah, we were fortunate in the fact that, you know, probably at least a year or so, year and a half, I think I took over the fuel systems and the aftermarket group early in 2022. We knew that we were going to get spun out, you know, in that time, whether, in some form or fashion. We actually started that process in 2022, and then we finally spun out in mid 2023. As far as a culture, the structure that we wanted to have in place was already well on its way. I already say we're already over three years into it. From a culture and a structural standpoint, really kind of like where we are already. The structure that we have, I think it is right. From a legacy standpoint, if people know it, this was a lot of entities in the business that was spun out from Aptiv, Delphi Technologies, standalone, BorgWarner bought it, mixed in a few other things and spun us out again. Needless to say, we got spun out with a structure that maybe wasn't fit for our size and our businesses, which is why, you know, we've been working through the tax rates because we had a bunch of legal entities and a tax structure that didn't make sense for our business. We've been working through that. I think that's making some good progress. I think the next big one is really on the IT side. You know, we have four different ERP systems right now. We're in the process of consolidating that down to one, and that'll, you know, as we go, go down to SAP S/4HANA, that's going to be coming out for everybody. We're going to use that upgrade to then consolidate as well. I think we're really in a good position. As I mentioned to a lot of folks, you know, Q3 is going to be a really interesting quarter, I think, for investors as well, because it'll be the first time that we're actually comparing clean numbers to clean numbers. Q3 of last year was probably the first quarter that we had all the contract manufacturing done. We were out of all the transitional services agreements. Our corporate costs were all fully ramped up and in place. We don't have to explain, you know, a lot of things. We're excited to get kind of clean to clean from a quarter perspective. Again, I'll be honest, Q3 of last year was already when we started to see some of the commercial vehicle markets and OE markets kind of softening. It becomes an easier account for us as well. I really think that we're on a good pace right now. As we've announced, we just did the acquisition of SEM. I think we're now starting to step into being our own independent company and actually executing our strategies. I think from a cultural standpoint, when we announced the acquisition, people were super excited in the organization because if you can imagine the transition I just mentioned, probably since the early 2010s, was the last time that any acquisition into combustion was done. From BorgWarner to Delphi to Delphi Technologies, you know, Aptiv, they weren't making investments in combustion that was helping this group of individuals. When we made the acquisition, people said, wow, you're actually using some of that funds to actually help us and reinvesting in us versus reinvesting in autonomous or electrification or some other technology. You touched a little bit on kind of end market demand trends. Can you just talk about what you're seeing near term demand trends around the world and by end market? Yeah, I mean, since we've spun, our commercial vehicle off-highway business kind of went from a peak to now we're in a trough. I think we're kind of bouncing along the bottom right now from those markets. I think light vehicle has continued to be soft, but again, we're seeing some positive numbers coming out of both Europe and Asia right now. They're starting to see some recovery. Aftermarket continues to remain strong, and we continue to win, you know, a lot of new business and have new launches coming up with some market share wins that we've announced over the last few years. We're feeling pretty, pretty confident with where the markets are right now. What we always kind of tell folks as well, there's not any one market. You can't take a North American SAR or a European CV because any one of those things is only going to add up to maybe high single digits as far as our revenue, and so from our perspective and our focus to our team is I really don't care what the markets are doing. We have to increase economic value and deliver value to shareholders on a year-over-year basis, full stop. That's really where we're kind of focused on delivering for our customers. On the aftermarket business, can you unpack a little bit what's driving year-over-year growth? Is it sort of shifts in the vehicle park years ago that is now flowing through? Is it a maintenance cycle? Is there a regulatory? Can you just unpack a little bit what's driving that? Yeah, I mean, the last few years have been a little bit unique just because the average price increases due to tariffs, inflation costs, and whatnot probably juiced it a little bit because we had to put, rather than doing one annual increase, we've probably flown through two or three or four in a year. I think in 2022, I think this year, we'll probably do three price increases in North America and generally one kind of globally. On average, I would say there's going to be, you know, 1% - 2% price. 1% - 2% is going to be just the overall market kind of growing, and that's going to be with the average age of the car park increasing. I think we're around 12, 13 years now. Combustion engines in the car park are still continuing to grow. I think we also have about 1% - 2% growth that's going to be, you know, adding to our portfolio, adding additional product lines, releasing new part numbers into the system. That's kind of picking up a little bit of share. That kind of adds, you add those together and that gets our, you know, 4% - 6% on average for the aftermarket. That's where a lot of our growth has been in what I would consider propulsion-agnostic steering, suspension, braking applications that currently makes up, you know, right around 25% of our revenues in the aftermarket segment. We see some good opportunities for that to continue to grow as we add additional product lines to our portfolio. When you think about off-highway, can you unpack kind of the types of applications you're winning share in or you're quoting on? Yeah, I mean, marine, industrial, gen sets, ag, construction, aerospace, those are all areas that if you look at our prior parents, they really didn't focus on. We put a lot of effort and we see there's the addressable market in those segments is probably as big as our commercial vehicle and light passenger segments. It's a huge opportunity for us to grow. What makes it even more interesting for us is they've got new emissions regulations coming for Tier 4 and off-highway applications and the alternative fuels going into those markets that we've got some great technology. One of those great technologies that we just, you know, announced here recently is what we call GDI for diesel or gasoline direct injection. We're using our high volume gasoline direct injectors, making some tweaks to it and launching it for the diesel market. That's actually for a gen set and kind of a material handling, ag construction type application. That's a huge benefit for them. It gets them a lot of better emissions, better control, and actually is going to save them a lot of money by going from a mechanical system to a more electronically controlled system. Their calibration, their proliferation of parts comes down dramatically. We're getting a lot of interest in that. The reason why it's also important, it's a very cost-effective solution. Pretty much as you go up, you know, those systems are going to be anywhere from 350 - 500 bar. Generally, as you go up in pressure, the prices go up exponentially. When you go to 3,000 bar, even medium duty at 2,000 bar, these off-highway applications can't afford that complex and high pressure of a system. They need something more cost-effective, and we're the first to market with that lower cost system, and we're really seeing a lot of uptake in it. I could spend the entire time on the injection system, but you did mention kind of the non-combustion parts of the business. How do you see that evolving in your mix over the next five, ten years? Yeah, I mean, on the aftermarket side, the propulsion-agnostic, we see that continue to increase. Generally what we do, we've got over a $1 billion aftermarket. We've got a large distribution network. We have a good, strong customer base. The Delphi brand may not have a great reputation for investors, but it has a great reputation for workshops and mechanics. They know it's a strong brand. It's got great quality. We give great service. Delphi, at probably some point in its history, has probably made about nearly every part in a vehicle from the powertrain standpoint. As we continue to add product lines to our portfolio, there's a great uptick. Generally what we've done is we started with steering and suspension in Europe. We grew that. It really grew quite a bit. We're now bringing that to North America, South America, and Asia. As we continue to proliferate that, we'll then look for additional product lines to kind of bring out. That's generally the process that we go through. We don't try to do the big bang going globally all at once because that then has the risk if it doesn't take off. We spend a lot of money ahead of time. We like to kind of plant seeds and then continue to grow from there. Could you characterize your opportunity in non-mobility applications? I'm curious about stationary power or any other adjacencies like that. Yeah, I mean, we do a lot for gen sets, off-highway applications as well. Perkins with Caterpillar, John Deere, Kohler, we work with all of them. From our standpoint, if they need power, we're involved, or power generation on site, we have products and can support them. I think the other question on the aerospace side is another great example. We're launching with Safran, the first part here in Q4. The second one's going to be in Q1. Guess what? It uses the same engineers and some of the same manufacturing lines that we use for light vehicle and medium duty applications. Our strategy is really, we're just taking, we're leveraging our human capital and our manufacturing capital to go into these new markets. We don't have to go and increase R&D or increase CapEx to go into these new markets because it's using the same core technology that we have as a company. In hydrogen, I guess there's been a lot of discussion over the years about hydrogen for trucking. Can you characterize your opportunity there, and also are there adjacencies in the hydrogen ecosystem where you can add value? Yeah, I think people need to distinguish on the commercial vehicle and on-highway side. A lot of times when they talk about hydrogen, they talk about fuel cells. We're seeing people kind of pull back a bit on that because the fuel cells, as far as how robust it is and the cost of the system, is not necessarily there. We supply some parts for fuel cells, from a fuel flow standpoint and a fuel control, but we see a lot more opportunity in hydrogen combustion. With that said, I don't think it's going to be a significant revenue contributor to us until sometime in the 2030s. We continue to invest in it. We continue to launch new, you know, work with customers on development programs. I think it's a great technology. It's going to be, I think, very efficient, transparent to the end user, great range, obviously great, great emissions. I think it's just going to take a lot longer than people were expecting. It's a much more robust solution than fuel cells, because as far as contaminants and the hydrogen, combustion doesn't really care so much. Fuel cell is very, very sensitive to it. Guess.