PHINIA Inc.

Good morning. My name is Brianna and I will be your conference operator today. At this time I'd like to welcome everyone to the FINIA Q4 2023 earnings conference call. Please note that today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, simply press star one again. I will now turn the call over to Michael Heifler, FINIA Investor Relations. You may begin your conference.

Thank you, Brianna, and good morning everyone. We appreciate you joining us. Our conference call materials were issued this morning and are available on FINIA's Investor Relations website, including a live deck that we will be referencing in our remarks. We are also broadcasting this call via webcast. Joining us today are Brady Erickson, CEO, Chris Krop, CFO. Today we will discuss our Q4 and full year 2023 results and forecasts for 2024. Please keep in mind when we make year over year second half 2023 to first half 2023 comparisons, we are comparing our standalone results, including actual or expected corporate costs to perform our results with corporate allocations when we were part of Board Warner. During this call, we will be making forward looking statements which are based on management's current expectations and are subject to risks and uncertainties. Actual results may differ materially from these statements due to a variety of factors, including those described in our SEC filings. And with that, it's my pleasure to turn the call over to Brady.

Thanks, Mike. Thank you all for joining us this morning. I'd like to thank our more than 13,000 employees who remain focused on delivering quality products to our customers and making our six months as an independent public company successful. I'd also like to thank our customers who have been highly supportive and have been awarding us new business at a record pace. I'll get into some of those numbers shortly and then hand it over to Chris for more details. First, let me provide an update on our journey so far. As I mentioned in our last call, I continue to spend considerable time with our customers, employees, and investors. The feedback has been overwhelmingly supportive and positive about Finian's focus on its core business and strategy for the future. Customers appreciate our commitment to combustion products and that we will be a reliable partner for them for decades to come. They are aligned with our efforts to develop robust, practical solutions for today and the carbon neutral and carbon free solutions of tomorrow. Our employees are excited that the profits and resources are being reinvested in our product lines and operations to further strengthen and grow our business. Finally, our investors are supportive of our strategy, commitment to being financially disciplined, and our focus on total shareholder returns. Continuing to deliver solid financial performance and executing on our strategies will be key to building shareholder confidence. Along these lines, we are separately announcing today that our compensation committee has approved the company's 2024 Incentive Compensation Program that we believe will best align our leadership team with shareholders' interests. As I've been sharing since our investor day last year, we are managing the business with a laser focused on generating economic value or EV and free cash flow. The 2024 annual cash incentive will be based on the company's achievement of two equally weighted performance metrics, EV and free cash flow. This program sends a clear message throughout our organization that investment decisions are made through the lens of earning an adequate return on capital. Our 2024 long-term equity incentive will be solely based on the company's relative total shareholder returns compared to that of a peer group company. We have filed a separate 8K this morning with more details. Let's go ahead and jump to the fourth quarter highlights on slide four. I'm pleased to share that we ended 2023 in a strong note. Chris and I challenge the team to find incremental efficiencies and with their efforts along with lower than expected impact from the strikes in North America and less of a currency headwind than expected, we came in at the top end of our revenue range and above our revised guidance range for an adjusted EBITDA and adjusted EBITDA margin perspective. Chris will provide more specifics later. Providing great products and service for our customers has allowed us to continue to win business across all product lines and in all regions in support of our strategies. A few examples from Q4 on slide five. Phinney has secured a new Conquest business to supply a GDI fuel system to a leading OEM specializing in hybrid and low emission powertrain technology in the light vehicle segment. Phinney will want to contract extension to supply heavy-duty diesel systems to a leading global OEM securing revenue in our core commercial vehicle segment. And Phinney achieved an important business win to supply medium-duty diesel systems to a leading global OEM retaining and expanding our income and revenue. Now let's move to slide six. We accomplished a lot in 2023. From the successful spin to strong operational performance. One area I want to highlight is a performance on securing our long-term future. In 2023 we had robust quote activity and strong win rates. When we were the incumbent, we won over 90% of the time. When trying to win Conquest business, we won over 60% of the time. In total, approximately 40% of our business wins in 2023 were Conquest. Our objective to increase market share to offset market headwinds is working well and I'm very pleased with our results. With these gains and our significant exposure to commercial vehicle, industrial and aftermarket businesses, we see continued organic growth through this decade and beyond. Finally, since becoming independent, we returned $47 million to our shareholders via dividends and share repurchases. Now looking to 2024, we see the momentum continuing. Regarding the transition from our former parent, we now believe we are several months ahead of our original timeline and we expect that we will be exiting all material transitional service agreements or TSAs by the end of summer. We're also planning to exit all contract manufacturing agreements or CMAs with our former parent by the end of Q2 in a stepped and managed fashion. We will also be launching several key new technologies that will help our customers improve efficiency and reduce the CO2 output of their engines. We've also made progress on our corporate costs and are now confident that we will achieve our original target of $80 million per year or $20 million per quarter as we are nearly fully staffed and most of the service and support contracts have been finalized. Our constant drive for efficiency and improvement across all areas of our business, operations, supply chain, engineering, corporate and even opportunistically refinancing our debt on more favorable terms is what will allow us to continue to return capital to our shareholders and drive long-term shareholder value. As you can see on slides seven and eight, our focus remains on growing our CB industrial and aftermarket business while optimizing our light vehicle OE business. We remain aligned and confident in achieving our 2030 revenue target of $5 billion with greater than 70% of our revenues coming from CB industrial and OES independent aftermarket channels. On slide nine, we will execute on our strategies in a very disciplined manner in order to maximize shareholder returns by utilizing our ROIC-based investment analysis. In other words, efficient and profitable growth, not just growth. Capital return to our shareholders will continue to be a key part of our plan to maximize shareholder value. And finally, maintaining our strong balance sheet and liquidity ensures we'll be a consistent and reliable company for all of our stakeholders. This leads us to my last slide on page 10. Given our strategies and execution thus far, we remain confident we will be able to deliver an average organic growth rate through the decade in the 2% to 4% range. We plan to do this in a appropriate leverage. We believe our business is resilient with about a third of our revenue coming from the OES and independent aftermarket channel, which generally performs well even in poor economic conditions. Our commercial industrial business, making up nearly a quarter of our sales, provides a stable growing opportunity. And in the light vehicle segment, we see our increasing market share and higher market penetration rates of GDI, especially in hybrids, supporting our position that our light vehicle business has staying power. With that, I'd like to pass it over to Chris to dive deeper into Q4 and full year 2023 results and our 2024 guide.

Thanks, Brady, and good morning, everyone. I also want to thank our team for their extraordinary efforts this year and their hard work in closing out 2023 on a positive note. As we discuss our results and outlook, please keep in mind there continue to be TSAs and CMAs with our former parents, which we are rapidly facing out. Also, we continue to work with them on balance sheet items related to the SPIN and expect it will take the next few quarters for operational payables and to inform them to close out. In Q4 2023, we generated $858 million in adjusted total sales, up slightly versus a year ago. Our adjusted earnings per share were $0.71. We earned $89 million in adjusted operating income and $127 million of adjusted EBITDA, resulting in an adjusted operating margin of .4% and an adjusted EBITDA margin of 14.8%. A year over year decrease of 80 basis points and 20 basis points respectively. These results were meaningfully better than what we expected going into the quarter for the following reasons. The impact from the North American strikes only reduced our revenue by $5 million in the quarter, which was less than we had anticipated. We had strong commercial recoveries and cost controls and a somewhat lower headwind from currencies as the dollar softened in the quarter. Let me now bridge our revenue, which you can find on page 12 of the deck we made available on our website. Our sales performance in the quarter was affected by continued softness in our CD business in China. Volume mix was a headwind of $20 million, mostly due to lower CD sales in China as I just mentioned. We saw favorable sales from positive customer pricing and inflation pass through of $12 million and FX was a $15 million tailwind in the quarter. As we move to slide 13, the teams managed their business well as volume mix impact with only $3 million or approximately a 15% downside conversion. We also had additional supplier savings to help improve our results offset by $19 million of inflationary costs from suppliers. As a reminder from the prior page on the sales bridge, we recovered $12 million of inflation from customers for recovery of just under 70% in the quarter, all in a good Q4 result. Slides 14 and 15 summarize the full year. Volume and mix upside conversion was light due to mix. We recovered over 70% of supplier inflationary costs from our customers and drove additional efficiencies from our supply base. From a core business performance standpoint, our segments reported overall solid margins. Q4 segment adjusted operating margins were healthy at 12.6%, exceeding our first month's performance by 90 basis points. As our aftermarket segment rebounded depressed margins in Q3 on the back of strong cost control, strength and sales in Europe and price. Looking at our performance on a segment level, Q4 fuel systems margins, while strong at 10.3%, contracted somewhat on a year over year basis due to lower CV sales in China and partially due to supplier inflationary cost recovery from our customers. On the supplier front, as we have mentioned, we are making strong progress and will see some benefit in 2024 from resourcing and or settlements. Our aftermarket business adjusted operating margin recovered from a weak Q3 coming in at 16.3%. Still down 40 basis points from the same period a year ago as non-commodity inflationary costs were not recovered by prior pricing actions and we experienced weaker mix. Corporate costs were well controlled coming in at 19 million. We continue to expect approximately 20 million in quarterly corporate costs going forward. Q4 cash from operations was 62 million. During the quarter, we generated adjusted free cash flow of 55 million. I'm particularly proud of the team for focusing on inventory efficiency. We reduced overall inventory by 42 million from the end of Q3. We continue to see an opportunity to further improve our working capital going forward as we institutionalize inventory optimization programs, exit the CMAs and complete production realignments. Next, turning to liquidity. We are committed to a strong financial foundation and have ample liquidity to run our business and execute our strategy. We ended the year with 365 million in cash and 425 million of committed revolver availability, giving us total liquidity of more than 790 million and net leverage of less than one time. Now let's look at 2024. I'll share our guidance, assumptions and insights into our expected performance starting on slide 16. From a market perspective on the OE side, industry-wide CV volumes in 2024 are expected to decline by mid to high single digits in North America and Europe, while other global CV markets are expected to be flat to up slightly. Global LV volumes are expected to be down low single digits with engine production declining mid single digits. Our good performance in 2023 has set the stage for the coming year and beyond. We expect strong earnings and cash generation in 2024 as we continue to drive operational efficiencies, exit agreements with our former parent and grow our aftermarket sales. Now let's move to slide 17. For 2024, we expect adjusted sales of 3.4 billion to 3.55 billion, down 1% to up 3% in a difficult market environment. Market headwinds are being offset by our resilient and growing aftermarket and market share gains on the OE side. We expect adjusted EBITDA of 470 million to 510 million and adjusted EBITDA margins of .8% to 14.4%. For -over-year comparisons, we would assume corporate costs of 80 million for 2023 rather than the 64 million related to carve-out accounting. This gives us a 2023 starting point of 3.45 billion in revenue, 474 million in EBITDA and a .7% EBITDA margin. In 2024, we expect aftermarket growth, inflationary cost pressure reduction, and resolution of troubled supplier issues to offset lower CV volumes in North America and Europe. FENIA expects to generate 160 million to 200 million in adjusted free cash flow. Our adjusted tax rate is expected to be between 28 to 32% as we continue to work on reducing this to at or below 20% over the next couple of years. In closing, I want to reiterate Brady's message regarding our focus on financial discipline and generating strong shareholder returns. And with that, we'll now move to the Q&A portion of our call.

Rianna, can you queue up our questions,

please?

At this time, I would like to remind everyone in order to ask a question, please press star one. Your first question comes from Jake Scholl with BNP Paribas. Your line is open.

Hey, guys. Congratulations on the great quarter. First, I just want to dig in a little bit on the cash flow. So, I think that, you know, I think everyone will agree that's a pretty healthy number. So, can you talk a little bit about your capital allocation priorities for the year? You're already at that sub one-time net leverage target. So, how should we quantify your buyback expectations? And then, can you just help us bracket the separation-related charges that are embedded in that guide?

Yes, on the first, on the capital allocation side of things, obviously, we're in a net debt position we like, and we want to continue to maintain that, and that's going to give us, you know, a lot of opportunities to apply our free capital in other locations. As we did in Q4, we continue to accelerate our repurchase program, and we continue to see, you know, stock repurchases as a key element to driving shareholder value. We're going to continue to opportunistically purchase shares as we also look at, you know, additional organic and inorganic opportunities. And so, we'll look at, you know, where we can optimize, you know, ROIC for any of those capital allocations.

The second? Was cash.

The second, Jake, was around? Sorry, the second part of that was just around the separation-related charges in the free cash flow that we're looking at.

I mean, on separation charges, they're basically exit. The only thing that Moore-Warner is caring for us is, mainly IT-related, the majority of the TSAs are done. The only thing remaining are, they're helping us bridge over for IT, which will go into Q2. So, really, anything that they're caring for us, we're going to replace with our own IT charges, so there's no really other, it's just going to be replacement.

Yeah, it's basically, it's in our numbers. I think a lot of the, we actually had quite a few transitions happen in the last week or so where we're creating clones. And so, again, that's included in our 20 million of corporate costs and in our current guide. And generally, as with the contracts that we've signed up, as we transition away from, you know, maybe their clouds and servers to our servers, we kind of know where those costs are going to be, which is why we're confident in our overall costs and guides.

I said another way, it's just replacement costs. Whatever we're paying them for IT and other services, we replace generally at the same rate of cost.

Perfect, thank you. And then, previously, when you guys talked about your 2030 targets, you said that for GDI revenue to stay flat from 2026 to 2030, you need about three points of market share gain. And, you know, we've seen pretty strong conquests win this year. So, can you just provide an update on how you guys are thinking about share gain over the past year? Both the next few years and the second half of the decade. Thank you.

Yeah, I think in general, we are continuing to win. There's still a lot more quoting that's going to be happening in the next years as I think hybrids and plug-in hybrid volumes continue to remain strong. Getting into specific, you know, market share gains, we're still very confident in being able to hit our 2030 numbers. And as we kind of get closer to launching those programs, we'll kind of convey, you know, whether that growth rate can increase. But at this point, we're still very confident in our 2030 targets. And I just mentioned, as you know, most of the programs that are awarded now will launch in, say, roughly two years. Some a little bit faster, some a little bit later, and they're long-length programs. And so, we're feeling very confident in our positioning on the

GDI side.

Perfect. Thank you.

Your next question comes from John Murphy with Bank of America. Please go ahead.

Good morning, everybody. I just wanted to follow up on that line of questioning, you know, on the GDI side and your exposure to hybrids. I mean, Brady, you know, as you look at obviously there's a shift back or maybe a shift back towards hybrids and plug-in hybrids, and the share gains there might be pretty material, you know, as far as a segment or a powertrain over the next few years as EVs are sputtering and there's a push, obviously, towards lower emissions and higher fuel economy. So, as you look at your forecast, what have you generally encompassed in your hybrid penetration, you know, sort of in your outlook in your 2030 targets? And are you seeing some early signs of potential upside here?

Yeah, I mean, obviously, if hybrids stick around longer, that's obviously a good thing for us. GDI penetration rates on hybrids is generally higher than on non-hybrids, and obviously the per vehicle on GDI is significantly higher than a PFI application. I think a lot of the wins that we have now, I think, are positive and are going to put us in a very good position if hybrids kind of stay where they are and we see continued penetration in hybrids. We're going to continue to view, you know, keep an eye on where penetration rates are. I think people were really surprised this year on the strength of hybrids, so it's always going to be difficult to predict on what we think hybrid penetration rates are going to be in 2028, 2029. But I think in general, I think people are realizing that a hybrid solution is a really good solution for many consumers and many markets in the world right now, which is why I think consumers are buying them, because they get a lot of benefit and I think a lot of significant amount of CO2 reduction for the environment. And so I do think as people update those forecasts, hybrids have a higher penetration rate, I think will benefit from that.

Okay, and then just a second question. You guys were talking about $80 million of cost and rationalization, you know, savings targets. It seems like you're making good progress on that. How much of that is included in the 24 Outlook? Is that what's included in the 24 Outlook and is there any potential upside, because it does seem like you're executing a little bit ahead of plan?

Yeah, I mean, we're right online again at the overall corporate costs and the corporate costs also includes all of our stock compensation for all employees as well. And so right now, it's, you know, we've been running 19, I think the last couple quarters, I think we're right in line with that. And so I think obviously we'll continue to drive other operational improvements in other areas, as well as some of our supply chain that caused some headwinds this year. And so we think we're in a good position right now and the team's really coming together.

And just to be clear, it isn't our 2024 plans. It's all baked in.

Gotcha, that's helpful. And just the last one on that target of getting to 20% or so on the tax rate from 20 to 32% in your 24 Outlook. What's the time frame on grinding down to that? And would that mean, you know, that your cash taxes are down by a similar amount, just to understand the potential cash flow impact going forward?

Yeah, one quick question. I think Chris may have misspoke. I think you said 20, 27%. They heard 20%.

And

so we're heading down towards 27 or below. So then I'll ask. You said

20

%? May I probably use my handwriting probably?

No,

I know I we Mike and I heard 20 as well. So we're sorry.

Sorry, I missed read.

Thanks for the question. I

was wishing. No, it's so this year, we've already put in place a plan to work it, but it's going to obviously with these things take a bit of time. So as I said, we're going to get to between 28 and 32% this year. And we just have to continue chunking away at it going down. But anything because we have so much business that's overseas, it takes a good period of time to get all of this stuff in place. So it's going to take a couple of years.

But that will be mostly cash that that delta. Is that correct?

Yes.

Thank you very much. I appreciate

it.

Your next question comes from Colin Lengus with Wells Fargo. Please go ahead.

Oh, thanks for my question. Just to follow up on the hybrid. Can you remind me of the content per vehicle opportunity? Is it just that there's higher take rates on GDI and hybrids? Or do you actually have more product opportunity on a hybrid as well?

Yeah, I think two things. One is GDI penetration rates on hybrids are a little bit higher than on on traditional combustion engines, primarily because no one's working on a next generation traditional combustion combustion. And so all the newer engines tend to be hybrid and GDI is a key technology they're using from a from a content, whether it's a GDI standardized or a GDI hybrid is going to be similar. With that said, you know, one of the things that we're winning now is our ECU user engine control units. And so they're sourcing more systems. And that typically, it's a new, I guess, kind of product line for us, we were purchasing those from our former parent and reselling those, but some of the next generation product, there are designs, and we'll be sourcing those and supplying those directly to our customers. So there is some content increase that we see on the overall GDI system.

Got it. And there's been a lot of sort of negative, you know, push outs on electric vehicles. Are your conversations on sort of the next generation engines and hybrids changing at all? Are you seeing customers, you know, looking to develop new programs? Or are they just extending the life of programs that are already in place for the most part?

I mean, for us, we didn't see a slowdown in code activity in the last few years. And so the code activity is still high. And so I think a lot of it is going to be around, hey, they want more volume, or much higher volume than they were originally expecting, or they're being extended.

But we did see some customers come in that we had not really spoken to on GDI before come in and ask for GDI applications. And then CV is a little different. I mean, they're really looking to extend and make sure that we're going to be there.

Right. But I think on the hybrid side, we've had a number of customers and hybrid applications that were on that are now asking for two times as many as we were originally contracted. And so I think it's not necessarily new programs. I think it's volume increases and or extensions.

Okay. And just lastly, what are your assumptions? A lot of suppliers have been calling out, you know, high labor inflation, other cost inflation, and the expectation that they could get recoveries this year. Are you seeing continued headwinds into this year? And do you expect to get recovery from your customers?

Our blended labor rate increase for this next year, because it's different around the world, is between four and five percent. For the most part, it's leveling back out. But there are a few areas in the world where it is much higher. For instance, in Mexico, and in those cases, we do expect to get reimbursement, because that's the we got it last year. We will go for reimbursement anyplace that it's sort of out of the what I would call the original norms.

But we do see overall inflationary costs, I guess, muting a little bit. You know, so I think it's not as high it was the last couple of years. But there are still going to be some pockets or specific, you know, labor inflation items that we'll be looking into.

Okay, thanks for the question.

Your next question comes from Winnie Dong with Deutsche Bank. Please go ahead.

Hi, can you guys hear me? Yes, we can.

Hello. Oh, thank you. I was wondering if you can comment on maybe the dynamics of your various markets. It seems like it's, you know, either mostly flat or down. But your revenue is sort of flat-ish for 2020, where I look. I was wondering if you can just maybe go into a bit more details on the maintenance of revenue performance, a bit more details on the penetration and share gains that you talked about earlier.

Yeah, I think in

general, I think the, you know, the CV markets are going to be relatively globally depressed, especially in North America and Europe. Last year was a pretty robust market. I think people are expecting this year to kind of be down. But the same token, they're preparing for 25 and 26 rebound with new emissions regulations and potential pre-buys. And so we're working with customers on making sure we're installing additional capacity now to be prepared for that pre-buy. So it's just part of the cyclicality that we see on the CV sector. But we continue to see, you know, strong demand for our products and market share gains, which is why our OE business is still relatively flat. As we mentioned on the light vehicle side, the market is down about 5% for engines production because EVs are, despite a lot of the press out there, EV penetration is still increasing. And so with a flat to down light vehicle market and increasing EV penetration, although slower than people were expecting, we still see engine production being down about 5%. But with our, again, with our market share gains in our GDI business, we're able to offset some of those headwinds in our OE business. Hopefully that'll slow down a little bit and the global market for light vehicle will go back up and we'll continue to gain market share and put us in a pretty good position. I think our aftermarket, just the one benefit that we have with close to a third of our revenues in the aftermarket, it continued to be a strong growth area. You know, regardless of the overall market, as people delay purchases, they're still buying service parts and keeping their vehicles on the road. And that's a good balance, I think, for overall businesses is, you know, a third of the business is going to continue just to chunk away. And we continue to gain momentum in our aftermarket customers as well, growing, you know, low to

mid single digits.

Thank you. That's very helpful. And then maybe a longer term question, you know, just like the earlier questions on EV sort of, you know, adoption slowing down and also the administration potentially, you know, relaxing limits on some tailpipe emissions and potentially, you know, adoption of EV getting slower in out years and requirements going lower in the out years. I'm just curious, you know, as it relates to your five billion target for end of decade revenue, like at what point do you think there's potentially upside to that target and opportunities you might have there from a regulatory perspective?

I mean, obviously, we're going to continue to try to drive that higher provided we can have programs that we think are going to bring significant value. So that's always going to be our number one focus in that five billion. It's roughly, you know, our assumption is a two to four percent average organic growth, as well as some bolt on acquisitions that's going to help us, you know, continue to increase our CV as a percent of revenue and aftermarket in our portfolio. And those are with relatively modest assumptions and modest acquisitions using our existing pre-cash flow. Are there going to be opportunities for us that could drive that higher? I think there will be. Obviously, our assumptions are still, you know, with significant EV penetration rates. And the question is going to be, you know, what, where, where is it? Where does it start to plateau? There's obviously differing opinions out there. Some are saying, hey, they think that it's, EVs are going to continue to grow, but globally, they're going to plateau around 30%. Is it 35 or 40? We'll kind of see. And obviously, the lower, the better it is, you know, for us. And again, we are in a market that, you know, competition is declining, not increasing. So there's definitely opportunities for us to continue to gain share. And as I mentioned earlier, there's also content opportunities for us as we continue to provide more complete systems, including ECUs and calibration services

for those customers.

Very helpful. Thank you so much.

Your next question comes from Dan Levy with Barclays. Please go ahead.

Hi, Trevor Young on for Dan Levy today. Thanks for taking the question. So first, I just wanted to go, you know, you touched a little bit on the ECUs in your remarks here in the Q&A, but I was just curious, you know, you called out the first internally designed and developed ECU being launched this year, and you highlighted electronic systems as the growth area. And I was just curious if you could give a little bit more color on, you know, what all you're doing within that area. You know, the team, did you bring in new hires to do this yourself versus buying from your former parents, things like that? And then also just progress?

Yeah. Yeah, I mean, we actually started bringing over engineers from our former parent, probably about close to two years ago. And so we started doing that as a lot of their engineers were focused on their next generation inverters and high voltage. And so we already had all the software engineers and all the calibration engineers were already within our four walls. And so that's how they were split. The hardware side was on our former parent side, and we had all the software and calibration engineers. And so we started bringing over the hardware folks as they didn't have time to support our ECU needs. And so it started about two years ago. And as I mentioned, we're actually going to be launching our first Finia designed ECU as part of our system later on this year. It's actually in a hydrogen application. And we won our first, you know, Finia design and Finia source application that we'll be launching in the next few years as well. And so we're starting that progress already. In some cases, we will use our former parent as a program and our calibration and software. And so we'll continue to grow that business. What we also see with some of these recent awards is as customers have moved more and more of their resources into electrification, they have less resources on their combustion and hybrid applications. So that means they want to then source the entire fuel system, including the ECU and calibration services to one supplier. And we're ready to provide that service for them.

Yeah.

Yeah, I think metrics.

I

think metrics

will be...

Yeah.

Sorry, on the metrics and progress, I think I gave a number of examples that we started from a Finia design this year to being awarded a Finia design and developed and sourced. And we'll continue to see that grow, you know, with our customers through the decade. I think if you go back to our old investor day deck back in June, you'll see on there where we had like a $5 billion adjustable market opportunity was opening up to us. And that's what we see us going after. And we think there's an opportunity for us to continue to grow our share of ECUs hopefully closer to in line with our mid-teens, you know, GDI and CV diesel fuel injection penetration rates.

That's very helpful. Thank you. And then I guess just on GDI, the share portion of it's been talked about quite a bit. I guess I was just curious with more interest coming into hybrids of late, have you seen an uptick in competition? I know in the initial deck, you know, in your investor day, you kind of laid out people, suppliers exiting that space a bit and gaining from that. Have you seen any indications of more suppliers either wanting to stay in the space longer or even maybe entering it?

I have not, no. Again, these are not easy parts. Some of the pressures and the calibration and we're continuing to develop next generation technology. And one great example is the 500 bar. You know, it's taken a number of years to develop that technology and into production and a number of our competitors stopped developing that next generation product. It would be very difficult for them to then re-fire up their R&D resources to develop that product. And then if I'm an OEM, I would be very skeptical of how long are they going to stay committed to that market because these are suppliers that have already told the OEMs to please resource it to somebody else. And if I'm a customer and that supplier comes back to me, how long are they going to stay in the business before they exit again? And so that's why I think I say it a lot of my statements, customers want a reliable supplier for decades to come in this space. And that's one of the things that we provide them, which is why we've been successful. I think some of our competitors that have announced their exit and have stopped quoting, it's going to be very difficult for them to come back in with a product and to be able to gain confidence from the OEMs again.

That's great. Thank

you.

Your next question comes from Joe Spack with UBS. Please go ahead.

Thanks so much, Brittany. I actually just wanted to pick up right there on sort of, you know, the competition because I think you've clearly stated right OEMs are not willing to have not basically backed away, which is leading to your market share gains. But from your perspective, I guess I'm wondering about your capacity to sort of support, you know, maybe GDI stronger for longer, because it does seem like maybe industry capacity has sort of come down or is coming down. And I'm wondering if you could sort of help us understand, you know, your utilization or need to sort of invest further for that product.

Yeah, I mean, kind of, I guess I'll give you the bad that turned into a good. In the kind of prior Delphi data, I think they kind of overcapacitized in GDI. And so we actually have some excess capacity on GDI. We had. And we've actually taken some of that out of some plants and moved it into regions where we see stronger demand, primarily in North America and in Asia, where we've seen a significant uptick in our wins and the new business. And so I think we're able to use that excess GDI capacity, both to support hybrids, but we've also been using some of that same capacity and converting it over to commercial applications as well as, you know, for hydrogen, as well as one of the technologies that I mentioned of a kind of a low pressure diesel direct injection system. And so we're actually, you know, launching in that 300 to 500 bar range of direct diesel injection for off-highway applications that's helping them meet their stringent emissions. And so I think in general, we've got even with some of this uptick in demand, I think we've got necessary capacity to support it. And we have probably still enough capacity that we're also reallocating it to, you know, hydrogen and off-highway applications.

We do have to add some small incremental bits onto this capacity that some of the customers are asking for, which is normal. But again, we've gone to a view that if they want a program and whatever they're giving us, if it's a four-year program, we'll buy the assets, but it has to return and depreciate over that period of time. So, you know, we're still being very careful because obviously a short-term trend does not make a long-term trend. So we're

waiting

carefully. But yeah, with

our, at least our new business wins and market share gains, we don't see a significant, I guess, capital outlay to support these programs. I think the bulk of our capital is still on the CV and off-highway applications.

Right. Yeah. And I know this is more difficult to sort of calculate, I guess, but based on your comments on competition, would you say industry capacity has come down industry-wide?

I think it's starting to come down. I mean, again, I think what we peak at, what, 95, 96 million light vehicles at one point that were predominantly combustion. And so there's still some capacity, but I think capacity has been coming out of the market as some have exited and or, you know, coding next generation programs. And so, yeah, I think capacity has come down in the marketplace and I think that's good as well.

Okay. And then just back on slide 17 with the outlook, you know, pretty flat sales year over year, pretty flat EBITDA at the midpoint, although I think you said maybe 490 is not the right base you would sort of stress for comparison, but I guess just sort of, you know, wondering within that sort of EBITDA 23 to 24 for bridge, are there any sort of, you know, larger puts and takes we should be considering?

No, I think, again, we think the base comparison is the 474, you know, once we have a full run rate, because you can see in our corporate costs in the first half of the year was more allocation. They were pretty light. And so if we normalize that to the 80 number, you know, we're seeing about 16 million improvement in EBITDA and to a midpoint, you know, of only 25 million more in revenue. So obviously, that's really strong conversion and that's driven by, you know, one conversion on that additional revenue, as well as improving operational performance in dealing with some supplier challenges. And that's probably driving 10 million of the improvement and then another 5 to 6 on the conversion on incremental revenue.

Okay, thank

you very much.

There are no further questions at this time.

Okay, thanks everybody for joining our call. We're really proud of what the team has delivered this year in 2023 and really looking forward to another good year in 2024 and beyond. So thank you very much for your interest and investment. Have a good day.

This concludes today's conference. You may now disconnect.