Jake Scholl

Jake Scholl asked about rapidly growing businesses within PHINIA's 6% industrial mix that are expected to drive future growth. He also inquired about the company's capital allocation priorities, balancing M&A with share buybacks, and sought clarification on transaction costs in the adjusted free cash bridge.

Answer

CEO Brady Ericson highlighted strong growth in marine applications, off-highway, gensets, agriculture and construction, and aerospace and defense, promising more details at the Investor Day. On capital allocation, Brady Ericson reiterated a quarterly evaluation to maximize shareholder value, confirming share repurchases remain a key policy, supported by an increased program and an 11% dividend hike. CFO Chris Gropp explained that separation-related transaction costs relate to the original spin transaction and are expected to decrease over time.

Jake Scholl asked for insights into the 6% industrial mix, specifically identifying any rapidly growing businesses or segments expected to be key growth drivers in the coming years. He also inquired about PHINIA's capital allocation priorities, given its comfortable leverage and strong free cash generation, asking whether the focus would lean towards M&A or continued share buybacks. Finally, Scholl requested quantification of the separation-related transaction costs within the adjusted free cash bridge.

Answer

CEO Brady Ericson highlighted marine applications, off-highway, gensets, ag and construction, and aerospace and defense as rapidly growing areas within the industrial mix, promising more detail at the upcoming Investor Day. On capital allocation, Ericson stated that decisions are made quarterly to maximize shareholder value, considering M&A opportunities and share price. He noted that share repurchases would remain part of the strategy, evidenced by the increased share repurchase program and dividend. CFO Chris Gropp clarified that separation-related transaction costs relate to the original spin transaction and settlements, which are expected to continue decreasing.

Jake Scholl asked for an update on the impact of the Ford fuel pump recall, particularly concerning any cash implications for the business. He also sought clarification on the timing of the recently announced restructuring program and when the company expects to fully realize the estimated $25 million in annual savings.

Answer

CEO Brady Ericson stated there were no cash impacts or updates regarding the Ford fuel pump recall, and no adjustments to warranty accruals. Regarding the restructuring program, Ericson explained that it is a multi-year initiative, starting to roll out now with initial go-lives in 2026 and full completion expected by 2028. He highlighted that the program aims to drive efficiency by consolidating systems, reducing redundant software, and establishing a core standard for future operations and acquisitions.

Jake Scholl from BNP Paribas asked about the potential financial impact from the recently announced Ford fuel pump recall and questioned the company's capital allocation strategy for the remainder of the year, particularly balancing share repurchases with the pending SEM acquisition.

Answer

President & CEO Brady Ericson stated there was nothing to update regarding the Ford recall, referring to it as a Ford issue and confirming PHINIA is comfortable with its current financial position and disclosures. On capital allocation, Ericson emphasized the company's strong balance sheet and cash flow outlook, noting the SEM acquisition is manageable and will not preclude further share repurchases. He affirmed that the company will continue to evaluate buybacks on a quarterly basis, viewing the stock as a good investment.

Jake Scholl inquired about the sustainability of Gentex's gross margins into next year, considering current headwinds, and asked if there are any other puts and takes to keep in mind. He also asked about the potential for further improvement in the China market should the trade situation stabilize, and the company's outlook given the trend towards domestic suppliers.

Answer

President and CEO Steve Downing expressed confidence in maintaining the current gross margin profile into next year, assuming tariff stabilization and successful offsetting of pricing and supply chain costs. He noted that internal cost control and efficiency improvements are recurring benefits. For China, he acknowledged that while stabilization could help, there's a definite trend towards domestic suppliers, leading to anticipated headwinds over the next 18 months, prompting the company to focus on competitive product offerings.

Jake Scholl, on behalf of James Picariello from BNP Paribas, asked about the sustainability of Gentex's gross margins heading into next year, inquiring about any potential puts and takes. He also questioned whether there is more room for improvement in the China market if the trade situation stabilizes.

Answer

President and CEO Steve Downing expressed hope for tariff stabilization, noting that other factors like pricing and supply chain dynamics are normal considerations. He believes that if gross margins reach the high 34%-35% range this year, they are sustainable into next year due to recurring benefits from cost control and efficiencies. Regarding China, Mr. Downing indicated a trend towards domestic suppliers, suggesting more headwinds in the next 18 months, despite continuous efforts to offer competitive products.

Jake Scholl, on behalf of James Picariello at BNP Paribas, asked for an assessment of the VOXX portfolio to identify non-core assets for potential divestiture and for clarity on the expected revenue trajectory for the China market in the second half of 2025 and beyond.

Answer

President & CEO Steve Downing and CFO Kevin Nash indicated that all parts of the VOXX business have a strategic fit, from Premium Audio supporting home automation to biometrics being a long-term technology play. Downing projected China revenue to be around $25 million per quarter in the second half of 2025 and estimated a future annual run rate of $75 million to $110 million if tariffs remain below 50%.

Jake Scholl inquired about the potential future scale of Garrett Motion's stationary power and industrial eco-link centrifugal compressor business by 2030 or 2035. He also asked if the current rate of capital returns, totaling nearly $100 million per quarter, is sustainable going forward.

Answer

Olivier Rabiller (President and CEO, Garrett Motion) stated that while it's premature to provide specific numbers for the eco-link centrifugal compressor, the stationary power business is experiencing rapid growth, with the $100 million projected for 2025 already representing a double-digit increase. Sean Deason (CFO, Garrett Motion) reaffirmed the company's commitment to returning 75% or more of adjusted free cash flow to shareholders over time, noting that share buybacks will fluctuate quarter-to-quarter based on market conditions, but the overall capital return objective remains consistent.

Jake Scholl inquired about the long-term growth potential of Garrett Motion's stationary power and industrial eco-link centrifugal compressor business, looking towards 2030 or 2035, and asked about the expected consistency of capital returns to shareholders.

Answer

Olivier Rabiller (President and CEO, Garrett Motion) indicated that while it's premature to provide specific long-term numbers for eco-link compressors, the stationary power business is growing rapidly (double-digit increase from last year). Sean Deason (CFO, Garrett Motion) reaffirmed the company's commitment to returning 75% or more of adjusted free cash flow to shareholders over time, noting that share buybacks will vary quarter-to-quarter based on market conditions.

Jake Scholl from BNP Paribas inquired about the key drivers for the stronger operating performance expected in the second half of the year and requested an update on the tariff recovery situation.

Answer

CFO Sean Deason stated that second-half performance will benefit from continued cost controls and noted that if industry volumes stabilize, the company could trend toward the upper end of its guidance. CEO Olivier Rabiller confirmed that Garrett Motion absolutely expects to fully recover all tariff costs this year, as it has the necessary tools and a successful track record of doing so.

Inquired about the drivers for the stronger operating performance expected in the second half of the year, particularly with volume assumptions remaining unchanged, and asked for an update on the tariff recovery situation.

Answer

The stronger second-half performance is expected to be driven by continued cost control. The company's volume outlook is conservative, and if industry volumes are better than projected, there is potential to trend toward the upper end of the guidance range. The company confirmed it still expects to fully recover all tariff costs for the year.

Jake Scholl from BNP Paribas, on for James Picariello, asked about any direct impact from steel and aluminum tariffs and the portion of steel exposure covered by contractual recoveries. He also inquired if the Scout Motors award leverages AAM's proprietary eDrive technology.

Answer

EVP & CFO Christopher May stated that AAM has minimal exposure to steel and aluminum tariffs as nearly all of its North American consumption is from U.S. sources, and that 85-90% of commodity input costs are passed through to customers via contracts. Chairman & CEO David Dauch confirmed that the Scout win leverages AAM's own IP and proprietary capability for both the e-beam and EDU systems, validating their technology.

Jake Scholl, on behalf of James Picariello at BNP Paribas, asked about the direct impact of steel and aluminum tariffs, the extent of contractual cost recovery, and whether the new Scout award leverages AAM's proprietary eDrive technology.

Answer

CFO Christopher May explained that the direct tariff impact is minimal as AAM sources most of its steel and aluminum in the U.S., with 85-90% of commodity costs covered by contractual pass-throughs. CEO David Dauch confirmed the Scout win utilizes AAM's proprietary IP and technology, validating their in-house capabilities.

Jake Scholl of BNP Paribas inquired about Goodyear's mitigation efforts for worsening tariff impacts and sought confirmation on the implied full-year SOI outlook, which appeared significantly reset. He also asked about the potential volume disruption from the wind-down of the Cooper brand's relationship with distributor ATD and the expected timeline for resolution.

Answer

EVP & CFO Christina Zamarro confirmed that tariff costs are rising but stated the company has sourcing and cost-saving actions to mitigate the impact, which will be detailed later. She acknowledged the uncertain environment makes a Q4 volume forecast difficult. CEO Mark Stewart explained the strategic decision to exit ATD was to partner with more aligned distributors like TireHub, noting ATD was less than 5% of consumer replacement volume. Zamarro added that 95% of the retail base had voluntarily transitioned to new distributors by July.

Jake Scholl, on behalf of James Picariello at BNP Paribas, requested quantification of Lucid Gravity deliveries in Q2, questioned a potential delivery ramp issue based on third-party data, and asked for the rationale behind the implied doubling of CapEx spending in the second half of the year.

Answer

Interim CEO Marc Winterhoff refuted the third-party data for July as 'totally false' and stated that while specific numbers are not disclosed, the Gravity ramp is proceeding and will constitute the majority of H2 deliveries. CFO Taoufiq Boussaid explained that CapEx is back-loaded, with most of the H2 spend allocated to the AMP-2 facility in Saudi Arabia, reflecting a focused investment strategy.