Great. Why do not we kick off the next fireside chat? I am happy to present the next one with PHINIA. You may recall PHINIA spun off of BorgWarner about two years ago. They are a leader in light vehicle fuel injection systems, which is still seeing content growth because of higher direct injection adoption. It also has a very solid commercial and aftermarket business. Most importantly, it is a very strong cash flow generator, which I think is probably one of the most appealing parts of the story, targeting greater than 90% free cash flow conversion. Today, we are joined by President and CEO Brady Ericson. With that, I will just kick it off with questions. If you have any questions, definitely indicate, and I will try to answer you during the presentation. Why do not we kick it off with the news we were just talking about a second ago? You made a small acquisition this morning. What is the rationale? What is the thought on M&A? Why do this deal? Yeah. I mean, what we've communicated is, one, we were going to start small. This was small. We were looking for assets that have a large commercial vehicle industrial exposure, if it's an OE business or pure aftermarket. If it is an OE business, we want it to get replaced two to four times in its lifetime, so it also supports our aftermarket. That's really what this asset is. It's an ignition business for commercial vehicle applications and large bore engines for natural gas, hydrogen-type applications. We think it's interesting because it's part of the overall system on a commercial vehicle. We've got the fuel injection, the ignition, and the ECU and the calibration standpoint. We can add another product that we can both calibrate and provide services to our customers. It is in a space that we think is going to have continued growth, mid to high single digits growth through this decade and beyond, as we see continued penetration of natural gas and alternative fuels in commercial vehicles as they start to reduce their, I guess, fossil fuels and try to reduce their CO2. We see this as a natural extension of our business. It is at a multiple that makes sense when you compare it to our own multiple. We are trading, say, somewhere in between the five, five and a half times. We are acquiring this asset at 4.7. It is relatively regional in nature. We think by getting this asset and this technology, we will be able to take it globally, leveraging our existing footprint, and even drive some further growth as well. I should think about, is this the, are you thinking more aggressively now about M&A? Because I think you were more focused on buybacks. Is that a change or is this you've been looking for a while? We've been looking for a while. Again, it's relatively narrow. We want something that's going to have synergy with our existing portfolio. CV, industrial focus, comes with a nice aftermarket and is leveraging some of our existing engineering and manufacturing capabilities. It kind of narrows down pretty quick. Oh, by the way, it's got to be a good shareholder value when compared to our own shares. There's not a lot of assets out there that are trading that we can get at sub $5, but we think they're starting to become more available as some of these assets are realizing they need to cash out. They need cash, whether it's private equity and people getting more reasonable in their pricing expectations. For us, we still like our own share price at the current stock price. I think we'll continue buying back shares. If we're getting closer to seven or eight times, closer to a commercial vehicle or application, that will probably open up additional opportunities for acquisition. Got it. I kind of had the impression in the past that your preference was more aftermarket. Is that that you wanted to grow long-term with M&A or is that not true? Is that? No, it's true. I think we're currently about 34% of our revenues last year was aftermarket. Our goal is to get that north of 40%. This acquisition comes with a nice aftermarket that comes with it as well. They'll get some service parts. We are looking at pure aftermarket assets as well. That would make sense. Those multiples are probably going to be higher than five. We are going to be, again, cautious in that arena. We're buying an aftermarket company that does not manufacture their own components does not necessarily make a lot of sense to us. We're able to add new product lines on our own just with our own engineers. Why would I necessarily pay somebody else a premium to go get it when I can just hire more engineers to launch more products and expand our portfolio? Got it. There would be pretty good synergies on aftermarket because you'd have overlap on the. Oh, yeah. We've already got a billion-dollar-plus aftermarket and distribution. That's why it's easier for us if we want to add a product line. It's pretty efficient. I've got the salespeople. I've got the warehousing. I've got the distribution channels. I've got the brands that customers want. For us, that's why we see a continued growth in the aftermarket. We are looking at pure aftermarket companies that also have some manufacturing or remanufacturing that come with it. Just to buy somebody that's buying somebody else's product and reselling it is less interesting to us. I think it's maybe to wrap up this whole thing. What about on the light vehicle side? I mean, I've always kind of wondered there, in the injection, there's really two big competitors. We have Bosch, DENSO, then you, and then there's a few other smaller players. Are any of those, would those potentially be targets, or do you think those are just going to go away on their own, or? I think the smaller players are already going away on their own. On the light vehicle side, there's plenty of capacity. Buying one of these smaller players is actually going to be more complex because they have a different design and manufacturing processes than our others. It adds more complexity. I need engineers and then to maintain that different design for those different customers. I'd rather just take it via conquest and the next time around just gain the market share with our existing products and using our existing lines. We see that as a more cost-effective way to gain share than to try to buy somebody. The Continentals, the Vitescos, the Marellis that were in the 2-3-4%—they're kind of exiting. It does not make sense for them to try to grow it back up. We've gone from, on the GDI perspective, kind of the low double digits, 10-12%. We're now in the mid to high teens. We see that continuing through 20% or more by the end of the decade. Our overall goal is to keep our light passenger vehicle business in that $900 million - $1 billion revenue. We're gaining share, but that's offsetting some of the battery electric penetration rates and just the softer market. We'd love that to stay at about $1 billion so we can continue to keep those plants full, generating a lot of cash flow as we continue to grow the aftermarket, commercial vehicle, and industrial and off-highway applications. You actually are seeing, well, Continental is already known, right? So Marelli is already out too, or are they? I guess we don't see, I guess I'll put it this way. When we have RFQs and we go up against people, we don't see them. DENSO is also not looking to conquest business. They're going to protect their own core business, is what we've seen, but we do not see them developing next-generation technology and trying to, I don't see them when our business comes up for bid, they're not in there trying to take our business. We really think that there's two major players longer term in this space. Which would be you and Bosch. I'll defend on the DENSO side. They still have a really good product. That 350 bar system is probably going to last for a long time on a number of applications. They do not have to go to 500 bar, which is where we're going right now. I think they'll stick around for a long time. Obviously, they have some ownership and some influence from their OEMs may tell them to change if needed. I mean, most OEMs dual source. I mean, if there's only two, do you think you just get the lion's share of the smaller players? That would sound likely. Yeah. I mean, I think that's why we're continuing to grow share. I think there was a pathway, say, four or five years ago, people thought battery electrics were going to go to 100%. Some players kind of said, "Hey," or some OEM said, "Hey, we're going to go and single source now." That way, when it ramps down, I'll only have to deal with one person on the ramp down. That changed maybe three years ago when people realized that combustion is going to stick around. Some of those players that went single source are now kind of coming back and saying, "Hey, let's give an opportunity. Let's bring a second source in." I think we're benefiting from that. That's why our market share continues to grow. Yeah. It's a risky proposition for them to go single source, in my opinion. That's why they're pulling back from that single source strategy now. I think when you guided sales down 1-2%, how is that trending versus your expectation? Any color on how the quarter so far is trending versus your expectation? Yeah. I know some people were surprised, I guess, versus the estimates that were out there with Q1 revenue numbers. It was actually in line with what our expectations were. We thought Q1 was going to be soft. We had Q3 and Q4. We already saw some of the softness on the CV and the light vehicle side that continued into Q1. Q1 is typically a softer quarter for us just in general from the market because of Chinese New Year in Asia. They tend to build up in Q4. In North America, I think some of the customers were adjusting some inventory. They were a little bit slower coming back from the winter shutdown. We just continued at that lower run rate that we saw in Q3 and Q4. Q2 and Q3 tend to be the stronger quarters. I know a lot of people talk about seasonality. That's generally what it should be. I don't think we've had a typical seasonality in probably five years. Something's always caused a disruption to that normal cycle, whether it's tariffs, whether it's inflationary pressures and COVID. There's something always causing a disruption. From what we see, if that continues to play out, Q2 and Q3 should be stronger, and Q4 is generally a little bit softer because you're going into the holiday season. We're very confident in our overall guide. I think what we kind of told people, part of the reason why we were down 1-2% was FX-related. About $80 million effect on FX was in our guide. Since then, things have moved around quite a bit. Volume has actually come down, some revenue back up from tariff recovery and pass-through, as well as some FX. Net net, they all kind of they're all linked together because the dollar would not be getting weaker if it was not for tariffs and the slowing volume. For us, it is, I think, a good example of how resilient and global our business is, that even with the shock of North America, we still have other offsets. Europe is still doing well. China is seeing some uptick in the light vehicle side as well. Aftermarket continues to chunk away. That just kind of shows how resilient our portfolio is. In Q2, I mean, most suppliers are saying that it's kind of as expected, at least on the light vehicle side. Is that what you're seeing as well? Yeah. I mean, we see. It's kind of surprising because of all the tariffs and all the. Yeah. I mean, we see consistent order board. Again, what they put out or S&P put out from their guides is always maybe a month or two behind for us because we're shipping to the engine providers. We produce and ship to the engine. They have inventory of our parts. They have inventory of engines. They either ship it to vehicle. The vehicle then has inventory there before it kind of ships out and gets counted. We're actually kind of a leading indicator, maybe a month or two ahead of when the vehicle is. Again, our order board is consistent. We're happy with the guide, and we're going to keep chunking away. The commercial vehicle side, how is that holding? It's still low. I mean, I think the original expectation was that the Q3 and Q4 run rate was pretty soft. That was going to continue into Q1 and Q2. We were originally hopeful that we'd see some pre-buy in the second half. I think that expectation of a pre-buy is now gone. It's not going from a run rate perspective. We don't see it going down, but we see it maybe flat to maybe just a little bit up. From a year-over-year perspective, it's still going to be down double digits in Europe and the Americas because of that. It's not going down farther. It's just the comps because in 2024, we had a really strong Q1 and Q2 and then a soft Q3 and Q4. That Q3, Q4 softness continued into Q1 and Q2 and may continue in the Q3 and Q4. It is already running at a low rate. Whether we see a little bit of an uptick or flat in the second half is kind of the question. That is more of what we are kind of expecting, a relatively muted CV volume for the full year. The full year guide, I think margin is at the midpoint, about flat year over year. I guess sales are not changed that much. I mean, any major puts and takes that we're thinking about, or is it just that sales are fairly flat? You're kind of holding your. Yeah. I mean, again, we always target to have inflationary pressures offset by productivity improvements in the plant. Any price reductions, which tend to be very little to customers, are more than offset with the price reductions we are getting from suppliers. We know that we have to be able to maintain margins in a relatively flat environment. Again, we expect all of our locations, because each one is in a different dynamic of growing, flat, or down, they have got to manage their cost structures on a real-time basis. For us, if we have to do a very broad announced restructuring effort, in my opinion, that means we fail to manage on a real-time basis. We are doing a lot of things on a daily basis where one location that is probably all CV is already taking some actions to restructure some of their headcount to bring their cost structure in line with their volumes. Other locations are still hiring because they are growing. There is not one size that fits all that we are doing at broad brush because we have a very diverse portfolio and customer base. Can you maybe talk about your tariff exposure? You obviously have some, I mean, are most of your parts USMCA compliant? And do you might have to relocate those that aren't? Yeah. The way we've broken things down, I think we had about $4 million of impact in Q1. That was basically from the one month. About half of it hit the aftermarket segment. Half of it hit the fuel system segment. From the aftermarket side of things, we can pass through price quickly. We actually had the first price increase in April. They're preparing for a second price increase in July. They're going to get their recovery quickly, and it's very defined. On the fuel system segment, their impact, we're working with customers to get 100% pass-through. We have resolutions with the bulk of them, and we're probably going to finalize the last couple here and be able to book that here before the end of Q2. That may be a little bit diluted because it's basically whatever the cost is, we're passing it through. It has a little bit of a headwind from a margin perspective, but won't hurt the overall EBIT dollar number expectation. I think then if you then break down of our roughly $1 billion of revenue that we produce in Mexico for customers, about half of it stays in Mexico. Therefore, we don't need to worry about it. The customers, they're going to deal with that when the engine goes back into the U.S., if it does. Of the remaining $500 million, about 60% of that is USMCA compliant. The remaining 40% is about $200 million. That's what's seeing some of the tariffs. That $200 million is in revenue, and the tariff is on cost of goods sold, not on revenue. You got to take off another 20% or so. We've got plans. I think there's a couple of components that we have plans to increase the USMCA compliant by later on this summer, primarily on some of the commercial vehicle applications that should address a good chunk of that. Other than that, we don't see any wholesale changes in moving manufacturing around. It takes a while. We're in a pretty good position from USMCA compliant. Our expectation is that with the next negotiation, that threshold may go up a little bit. We're obviously looking to push above that level and get prepared for the next round of negotiations. You mean the next USMCA contract. Correct. Change in a second. The feeling is that as they renegotiate it, they may change some of whether they need more US content or the amount that's North America content goes up a little bit. So we're getting prepared for that as well. Of the, was it $200 million, that is, you said, 60% USMCA compliant. That 60 could go to, you said, those changes will help it go to 70-80. I think it could probably go to 80+. Oh, okay. I think the. For the material. The biggest challenge is primarily around aluminum castings. China is very competitive on the aluminum casting because energy costs in general are pretty cheap in China. There are some alternatives now. With some of the tariffs in place and the benefits, we're looking to resource that as well. Okay. With the changes in place, you'll get to close to 80. The other ones might take time because the. May take time. Again, some of them may. Because there's some drastic changes. Yeah. Some of it may even be to where it's still more cost-effective to leave it where it is, even with the tariffs, because it's a smaller percentage of the total value of the product. How about from a competitive standpoint? I mean, DENSO is a large competitor. I know they have facilities everywhere. Are you better off than your competitors and maybe could gain share post-tariffs because your footprint's a little better? I'd say our footprints are going to be similar. I mean, some of them have some U.S. manufacturing, but they're importing a lot from Europe and/or Asia as well. Again, on the fuel injection systems, they're really difficult to change. We were already expecting to gain market share, as we talked about earlier, and we expect that to continue. I don't want to gain too much market share on the light vehicle side because I don't want to add capacity. I'm trying to maximize utilization of those light vehicle assets. In some cases, we already have reallocated some of those light passenger vehicle assets to off-highway and industrial applications. There's plenty of capacity out there. Our focus is making sure we have the right technology and keeping those assets utilized. How about on the aftermarket side in terms of tariffs? Is that an opportunity? Are there some parts that do come from China? I'm not sure if your product. Yeah. I mean, we're in a really good position because not only can we purchase from other regions, but we can also produce internally, especially when we start looking at all makes. Obviously, if it's a we're making the OE side of things, we can make the OES, and we can make the aftermarket. As far as an all makes, where we try to get 95% coverage, we'll either just make a decision to make it internally or buy from a third party. We only buy, I think it's around $6 million or $8 million of content from China that gets imported into the US. A relatively small number. I think even with that number, we can then say, "Hey, with some tooling and some fixtures in my existing capacity that we already have available, we can bring more of that into our own facilities rather than buying from Asia." That make versus buy may change a little bit. That is generally something that within about six months, we can move it. Six to nine months, we can move production for the aftermarket. Are they aluminum castings you refer to? No, these are going to be more the fuel delivery modules and some of the canister components. They're coming from China? Some of the third party. Some of the all makes may come from China, but it's only about 8 million. We can move that locally. A lot of our competitors in the aftermarket, they are buying from Asia, pretty much all of their content. That is going to make us probably a little bit more cost competitive. We can localize more parts in North America as well. Okay. Let me go back to the core business. You talked about gaining share in gas direct injection. Where is penetration today? Because they're still within the ICE bucket. My understanding is it's still growing and seeing higher penetration. When do you think that peaks out? Yeah. I mean, it's close to there's probably a little bit more room. I think we're in the 65-70% penetration rate to GDI right now. There's still a lot of markets that probably aren't going to go GDI. We're still launching a new PFI application in South America with an E100. We still see some PFI applications for range-extending EVs in India as well for different technologies. I do think GDI will continue to get some penetration. There's still a lot of markets, Africa, Southeast Asia, Central America, that don't need those more advanced type systems. I think that's what we remind folks is let's not get caught up and think that the only market for our product is Los Angeles, Paris, and Shanghai. There's a lot of other business where product is going into other parts of the world that is not going EV. That's our, I won't say EV, battery electric vehicle, because I think people get confused when you just say electrified. We see South America is not going battery electric. They're going ethanol tends to be their path. India is going a lot more with natural gas and potentially hydrogen down the road as well. We see different markets. In those markets, you have port fuel and not gas direct injection? We have both. I think right now in Brazil and India, it's primarily port fuel injection. We see direct injection coming to those markets. That's where some of the market share gain is coming. Those are also markets that are not going battery electric. Yeah. Okay. Yeah. Okay. That is why in our view, battery electric vehicles' penetration rates are slowing down quite a bit in even China. They are probably in the mid-20s to high 20s, and they are kind of plateauing. If people have seen BYD, the consumers are not buying it, and they are having to drop prices to try to get consumers to buy the product now. I think battery electrics make a lot of sense. I think we will see globally battery electrics gaining some share. I think it is not going parabolic and going to 100. I think we are starting to get more asymptotic to where it may plateau at 25% or 30% or 35%, which means we are still going to have 50-60 million combustion engines being produced every single year. That is going to be a nice cash generator for us. I mean, that makes sense. Talking about the U.S. regs are probably going to change, and you're talking about PHEV and BEV. I mean, so very likely Trump is very anti-EV. It seems very likely the EV regs get lowered maybe substantially. Prior people I've talked to, PHEV was potentially taking off or full hybrid. I think a lot of that's been paused because we don't know what to build. I mean, what is your content there? Do you do a lot of direct injection in a PHEV? Or, I mean, is that a good opportunity for you? Is that neutral? Is that? It's neutral. I mean, whether it's a combustion, a hybrid, or a plug-in hybrid, same content for us. It's all very good because if you think about the engine for a plug-in hybrid has to have the same performance as a traditional combustion engine. Because a plug-in hybrid is only going to help you a little bit on some transient response and maybe that 20, 30, 40 mi of electric range. Once that gets used up, you need that engine still to have 300 horsepower to power you down the highway and to have that transient response and performing well. From our standpoint, the fuel injection, the penetration rates on hybrids and plug-in hybrids are even a little bit higher for GDI because those are the newer engines and the newer applications. From our standpoint, if it has a combustion engine in it, whether it's a plug-in hybrid, range-extending EV, full hybrid, or a combustion engine, there's still going to be a lot of combustion engines being produced for decades, if not for the rest of the century. Can you talk a little bit about your China exposure? I mean, how are you with the locals in China in terms of? Yeah. I think the two things, we actually have probably a pretty good exposure, at least in our opinion. On the light vehicle side, we're probably north of 80% of our revenues are with the local Chinese OEM. The BYDs, the Changan, the Li Auto, and the such, they're all of our customers. On the commercial vehicle side, it's 100% local Chinese OEMs. Okay. So you are benefiting in China from the. Oh, yeah. People ask us, are we concerned with the Chinese exporting their vehicles? We said, "No, we're not concerned because our penetration rates on the Chinese OEMs is as good as it is anywhere in the world." If they start exporting those vehicles, that's good for us as well. I think the one thing to remind folks is that in general, the engine's still being produced in China. They may eventually get some vehicle production in Europe, South America, and the such. They are probably still going to be producing the engine in China. If and when they want to put an engine plant somewhere overseas, we've got plants in every region of the world that if they want us to produce in Brazil for their Brazilian engine, we can do that in Europe for Europe. That is typically what we do from all of our manufacturing. For us in China, in Europe, and in North America, we generally design, develop, produce, source, and sell within that region. We have very little product that we try to ship in between regions. Got it. You talked about in the past trying to be 70% aftermarket and commercial by 2030. How do you think you'll get there? Is that still the goal? Actually, we kind of tweaked it a little bit. We may have to increase that a little bit because at our year-end 2024 numbers, I think it was in February we came out with kind of the new splits. We split the light vehicle market into light passenger vehicle and light commercial vehicle because we kept talking about it, but I do not think people fully understood it into where our light commercial vehicle business is over 18% of our revenue, 20% of our revenue, I think it is. Our light passenger vehicle is only like 28%. That light commercial vehicle will be your work trucks, your work vans, and more for small businesses. We thought it was valuable to carve that out and show the investors. That is when you add the light commercial vehicle, the medium duty, the heavy duty, and off-highway, now that adds up to 38-39% of our revenues. That actually changed things a bit. Our light passenger vehicle is now only 28%. We are already over 70% commercial vehicle and aftermarket. We are going to have to adjust those numbers. I would say our light passenger vehicle is probably going to go, our goal is to get that less than 20% of our revenues by 2030. As we continue to grow everywhere else, that is staying at about $1 billion. Us getting to $5 billion by 2030 puts our light passenger vehicle at 20%. The breakout, I mean, you're trying to highlight that the commercial vehicle, the light commercial vehicle is less at risk to EV or? Absolutely, because these are going to be your construction, your work trucks that are on site that do not necessarily have a lot of excess power available to them. We do not see the penetration rates in those applications. You will have a UPS for things. Some of those are going electric, with some success and some not so successful. We see a lot of demand continuing in that segment for combustion. We think that is also a segment that will benefit from alternative fuels, whether it is natural gas or hydrogen or some other type of e-fuel. It is just a very convenient way to power the vehicles. Maybe talk about the powertrain ECUs. I think today you buy most from BorgWarner, but you're now making your own or becoming your own. What does that opportunity look like for you in terms of being able to do your own? Yeah. It was very important for us to get access to those ECUs and that technology kind of going forward because our customers want us to provide a complete system offering. That is why we get about $100 million from our customers in non-recurring engineering support. They pay for calibration, integration of the ECU, and qualifying it. We have been awarded a couple of our own, I would say, PHINIA-designed ECUs that we are going into production with. Are we using our former parent to produce those right now? Yes, but it is our design. It is more as a contract manufacturing house. We have flexibility to use other third parties. If they are competitive, we will keep it with them. We have the option to use another third party going forward and/or if it makes sense for us to vertically integrate as well. You've also started talking about aerospace and defense. What are you supplying there and what is the opportunity that you see? I think it's a good longer-term opportunity for us. We're doing fuel injection and fuel management kind of components for them. I think we've already announced we'll be at the Paris Air Show next week. I'll be there meeting with customers. We're going through our quality certification process for the aerospace side. That should be done Q3, Q4. Our first launch in production with customers is Q4 of this year. Second product line launches in Q1 of next year. We've got a lot of RFQs in the pipeline and meeting with a lot of the engine manufacturers are visiting and are very interested in our capabilities. We think it has the potential to become a significant portion or at least a meaningful portion of our revenues 2030 and beyond. We're starting with a kind of a build-to-print. We're replacing another supplier. We're getting 50% of the volume. We think after a year or two of good performance, we'll take on 100%. We will continue to add more product to that portfolio kind of going forward. We think it fits with our capabilities. We actually converted one of our light vehicle lines to produce this part for aerospace, take out some of the automation. It is still precision machining, final assembly, validation, testing, quality system, supply chain management. Those are all things we're really good at. We are able to kind of go into this new market leveraging our existing human capital and our existing manufacturing capital. Do you need additional certifications? We need a quality certification. That's what we're going through. We've already added all the requirements into our facilities for that. Obviously, depending on whether it's military or commercial, there are restrictions on if it's a European business or a French business, the Americans can't kind of see it type of thing. We've got locations in the U.K., in the U.S., and all around the world. We can support a lot of those applications. We're working now on more commercial applications as well. We're starting to work with customers on their new engine platforms now. Initially, it's going to be replacing problematic suppliers, but we're already starting to get involved in their 2035 engine programs. We think it's going to be a nice fit for us because it's leveraging our precision machining, our fluid management capabilities, existing human capital. Same engineers can work on that and work on the light vehicle or commercial vehicle, same manufacturing capital. It is going to be an OE product that is going to have a lot of service parts for 30, 40 years and beyond. These are parts that are going to get replaced automatically almost every 1,000 hours or every 2,000 hours as part of their regular maintenance. It is going to create a nice echo effect on revenue. Even though the OE may be small, it is going to create a lot of aftermarket for decades to come. How big is that? I mean, you have some sales today, but it's. It's small right now. I think we have an aspirational goal to get that OE business to approaching $100 million by the end of this decade and to make it meaningful. I think there's more opportunities out there, but we're going step by step. All right. Cool. I think we're pretty much at time. So probably wrap it up there unless there's. Yeah. Thank you very much. Great. Thank you. Very helpful. Thanks very much.