Earnings Transcript for PHIN - Q4 Fiscal Year 2024

Operator: Thank you for standing-by. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Phinia Fourth Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would like to turn the call over to Kellen Ferris. Kellen, the floor is now yours.

Kellen Ferris: Thank you. Good morning, everyone. We appreciate you joining us. Our conference call materials were issued this morning and are available on Phinia's Investor Relations website, including a slide deck we'll be referencing in our remarks. We are also broadcasting this call via webcast. Joining us today are Brady Ericson, CEO; and Chris Gropp, CFO. During this call, we will make 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.

Brady Ericson: Thank you, Kellen, and thank you to everyone for joining us this morning. I will start with some overall comments on the fourth quarter and the full year 2024 highlights and then provide some thoughts on 2025 and beyond. Chris will then provide additional detail on our financials and discuss our 2025 guidance. We'll then open up the call for questions. Starting on Slide 4 of the deck. During the fourth quarter, the macro environment and industry environment were similar to what we experienced in Q3, as the results reflect a soft top line but with good operating margin performance by the segments. Strong aftermarket segment sales were offset by lower fuel system sales. As a result, net sales in the quarter were $833 million, down 5.6% from the same period of the prior year, which included some contract manufacturing revenues. Encouragingly, we are winning significant new business, and I'm particularly pleased with our second product win in the aerospace and defense industry. We reported adjusted EBITDA of $110 million with a margin of 13.2%, a 160 basis point year-over-year decrease. The positive benefits of supplier savings were more than offset by sales decreases, higher annual incentive compensation and added infrastructure to support the business as a standalone entity. Total segment adjusted operating margins were 12.8%, a 20 basis point improvement when compared with the fourth quarter 2023. Our adjusted free cash flow was healthy at $72 million, while the balance sheet remains strong with cash and cash equivalents of $484 million, up from $365 million at year-end 2023. Our total liquidity is approximately $1 billion when considering our undrawn revolver. This performance enabled us to return $35 million to shareholders via share buybacks and dividends during the fourth quarter. Let us now move to Slide 5 and 6 for a discussion of new business wins. Our ongoing focus on providing market-leading technology and the continued expansion of our product offering into new verticals is being reflected in significant new business wins across product lines as well as new markets. Let me call out a few. Our second product win in the aerospace and defense industry with a post-combustion injector system, a key contract extension with a medium-duty engine manufacturer, a Light Vehicle GDi program extension for the South American market. Our aftermarket segment won new business in Europe, with subsidiaries of a major customer, won incremental business at a major customer in Europe, signed a multiyear contract to supply remanufactured products to a major CV OEM in South America and developed new distributor to support business growth in Southeast Asia. Finally, building on our core, we introduced, over 3,600 SKUs for our after-market customers this year to expand our offering, improve our coverage and ultimately better serve more of our customers' needs. Winning business across product lines and in all geographic regions underscores the benefits of the diversity of our end markets, customers and global footprint. Now moving to Slide 7, we've added some more clarity by separating the light vehicle OE end market, into Light Commercial Vehicle OE or LCV OE, which includes trucks and vans and then also into Light Passenger Vehicle OE or LPV OE, which includes passenger cars, mini vans, crossovers and SUVs. Although LCV may have some product overlap with LPV, the usage, buying decisions and market dynamics are different and closer to commercial vehicle. Our combined commercial vehicle markets totaled 39% of our revenues. OES and independent aftermarket was 34% and LPV OE was 27%. We also continue to maintain strong regional diversity and limited customer concentration levels. From a footprint perspective, we've reduced site in 2024, as we exited one of our former parent sites in Europe. Moving next to Slide 8, for a summary of our 2024 performance and 2025 objectives, on the operations front, we successfully exited all CMAs and TSAs with our former parent, launched innovative new products, entered new markets won a significant amount of new business, gained efficiencies and drove supply chain improvements. With respect to our financial position, we've achieved working capital efficiencies and strengthened our balance sheet with two re-financings that lowered our rates, extended maturities and removed restrictive covenants. Adjusted EBITDA margin closed the year at 14.1%. Adjusted free cash flow was $253 million. And lastly, we returned $256 million, to our shareholders via dividends and share buybacks in the year. For 2025, we're focused on continuing our journey, being financially disciplined, focused on growing our aftermarket, commercial and industrial OE business and efficiently leveraging our Human and Manufacturing capital. Now moving on to Slide 9, really no change in direction here, continue to be financially disciplined and focused on maximizing long-term shareholder value. As evidenced, we exit 2024 with a net leverage of 1.2 times, and plenty of liquidity after having returned $303 million to shareholders through the end of 2024. We are entering 2025 from a position of strength, a position that we've earned through operational and commercial excellence, financial discipline and with a strong free cash flow generating business. As such, we started 2025 by purchasing over 800,000 shares and announcing today that our Board of Directors approved an increase in our share repurchase program, by another $200 million and declared a quarterly dividend of $0.27 per share, an increase of 8%, compared to the dividend paid in the same quarter last year. These actions reflect the Board's confidence in the strong cash flow generation of our business, and execution of our strategy. We believe successful execution of our strategy, coupled with our disciplined capital allocation, delivers a compelling proposition; a proposition that balances financial strength, disciplined investments to drive profitable growth and distributing capital to shareholders. In closing, I would like to note how very proud I am of all of our associates across the company who have worked together this past year to deliver the solid results we reported today. And with that, I'll hand it over to Chris, who will walk us through our Q4 results and discuss our outlook for the year. Chris?

Chris Gropp: Thanks, Brady, and thank you all for joining us this morning. I am pleased to report that during the fourth quarter, we continued to successfully execute and drive our business forward. I also want to thank our employees across the globe for their efforts in responding quickly and methodically to rapid changes in market conditions, ensuring we were able to report out the solid results we are discussing today. As a reminder, reconciliations of all non-GAAP financial measures that I will discuss can be found in today's press release and in the presentation, both of which are on our website. Moving to page 11 of the deck. Revenue in the fourth quarter reflects similar market trends to earlier quarters in 2024 as we generated $833 million in sales, down 5.6% versus a year ago. Excluding contract manufacturing sales that ended earlier this year, the reduction in sales for Q4 was 2.9% year-over-year. Our aftermarket segment benefited from higher volume and pricing for a year-over-year increase of 4.9% as volumes across all regions expanded. Fuel Systems segment sales by contrast were down 11.7%, including prior year contract manufacturing sales or 7.7%, excluding the effect of contract manufacturing. The decline in Fuel Systems is attributable to lower commercial vehicle or CV revenue in Europe and China, partially offset by growth in the Americas. Adjusted operating income was $78 million with a 9.4% adjusted operating margin, which represents a year-over-year decrease of $11 million and 100 basis points. Moving to page 13. Adjusted EBITDA was $110 million and a margin of 13.2%, representing a year-over-year decrease of $17 million and 160 basis points. Margins benefited from favorable conditions in Fuel Systems. However, this was offset by higher corporate costs as we were still reliant upon TSAs through the first half of 2024 and full corporate staffing had not been completed by the end of 2023. We ended 2024 with a disappointing adjusted effective tax rate or ETR of 41.5%, above the high end of our guide of 33% to 37%. We have and will continue to pour substantial time and effort into adjusting our legacy structure, which should translate into market level ETR. Our adjusted net earnings per diluted share in the fourth quarter was $0.71, which excludes non-comparable items, which are described in the appendix of our presentation and affected by our high ETR as noted. From a core business performance standpoint, our segments reported solid overall margins. Q4 segment adjusted operating margin was healthy at 12.8%, an increase of 20 basis points year-over-year, primarily due to higher margins in Fuel Systems, partially offset by lower aftermarket margins. Aftermarket segment margin decreased 140 basis points, ending the quarter at 14.9% due to increased freight and other charges, partially offset by volume increases. Q4 Fuel Systems segment margins were strong at 11.4%, up 110 basis points year-over-year due to favorable price, supplier savings and customer cost recoveries offset by lower volumes. Let me now bridge our adjusted revenue and adjusted EBITDA for the full year, which you can find on Pages 15 and 16 in the presentation. Our sales performance for the year was impacted by softness in volume, which was a headwind of $104 million on lower CV sales in Europe and lower sales in China, partially offset by growth in the Americas and higher aftermarket sales. We ended the year with adjusted sales of $3.38 billion, down 2%, with a decrease in Fuel Systems of 6.1%, partially offset by an increase in aftermarket sales of 4.5%. Adjusted EBITDA for the year was $478 million or 14.1%, with no degradation in margin despite the reduction in sales. Volume and mix on the change in sales was a normal 25% contribution margin. Pricing, along with continued strong supplier savings and recoveries totaled $91 million, which offset increases in employee and other manufacturing costs of $48 million. Corporate costs as the function was fully built out in 2024 increased by $28 million, along with increased R&D and other spending. Now for a quick recap of our balance sheet and cash flow. Strengthening our balance sheet was an important initiative for us throughout the year. We completed two refinancings, resulting in lower interest rates and extending out our debt maturities and amending our credit facility. As a result, we ended the year with substantial current liquidity with cash and cash equivalents and available capacity under our credit facilities of approximately $1 billion. Net cash from operations in Q4 was $73 million and $308 million for the full year. During the quarter, we generated adjusted free cash flow of $72 million, up from $55 million in the same period of the prior year as we continue to be disciplined in management of our working capital and drive optimization of resources and daily processes. Adjusted free cash flow for the full year was $253 million. On the capital allocation front, we paid dividends of $11 million in the quarter and completed share repurchases totaling $24 million. Capital spend of $20 million was 2.4% of sales in the quarter and was 3.1% for the full year. Funds were primarily used for investments in new machinery and equipment and for new program launches. Now moving to Slide 17 for a discussion of overall industry performance. We expect the industry to experience trends in 2025 that are similar to those in 2024. Light vehicle ICE sales are expected to be down in the low single-digit range globally. By contrast, we expect the industry to experience increased CV sales in the low to mid-single-digit range, varying by region. On a consolidated basis, we would, therefore, expect a flat to a modest increase in sales, excluding the effects of year-over-year exchange rates. We expect the same level of sales in the first half of the year as the last half of 2024, with a modest increase in the last half as CV sales begin to rebound. Going into 2025, we also anticipate headwinds related to exchange rates with the backdrop of a stronger US dollar. As a reminder, more than 60% of our sales are generated outside of the US. Based upon our expectations for overall industry performance and adjusted for a stronger US dollar, the 2025 net sales range is expected to be between $3.23 billion and $3.43 billion, which includes a negative approximately $80 million impact from foreign exchange. Adjusted EBITDA is projected to be $450 million to $490 million with an EBITDA margin of 13.7% to 14.5%. Overall, we expect solid earnings and cash generation in 2025 as we continue to drive operational efficiencies and search for new areas of growth for both segments. Note that, none of the projections in our outlook include any possible ramifications related to policy changes by the new US administration. This includes tariffs, tax reform or any other policy that could inflate or duplicate revenue, or affect our cost base, although, we will continue to monitor and have and will continue to develop plans as appropriate with no additional costs expected to be borne by PHINIA. In closing, the strategic actions that we have undertaken are expected to continue and drive meaningful cash flow generation and solid sustainable growth. Our strong balance sheet provides us with financial flexibility to support our current and future growth initiatives, and we are very focused on creating value for our shareholders, customers and employees. I want to thank you all for your attention today, and we will now move to the Q&A portion of our call. Operator, could you please open the lines for questions?

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Bobby Brooks from Northland Capital Markets. Your line is open.

Bobby Brooks: Hey, good morning, guys. Thank you for taking my question. So first thing, I wanted to ask, you guys did $105 million of CapEx in the quarter. You mentioned, it was mostly for investments in new machinery for new program launches. Could you just give us a bit more color on that? What programs are they associated with? And could we expect these new machines maybe help lift margins going forward?

Brady Ericson: Yeah. I think, one, just to clarify, the $105 million was for the year, not for the quarter. I think the quarter was about $20 million. Yes, full year came in at just over 3%. And again, it's really spread out around the world. There's really not one major program. I think the team did a nice job cutting back on some of the CapEx and being as efficient as possible. But these are all going to primarily be supporting new launches that are coming in the coming year as well. So most of it is going to be for new product launches and expansion.

Chris Gropp: There's a material amount of expansion going on related to CV for the upcoming pre-buys. So it's also for existing programs that are being improved. It's like the next generation, and it's also expansion of that capacity over the next couple of years. So...

Bobby Brooks: Got it. Yes. My mistake on that. So then kind of transitioning to -- you guys had -- you guys mentioned the second win within the aerospace and defense market. So I was just wondering, is this a completely new customer from the first one? Also, I was just wondering, are these products going to come off that same line that you've previously mentioned was upfitted to serve the aerospace and defense markets?

Brady Ericson: Yes. Right now, it's the same customer, and it will be kind of in that same facility using those same type of equipment. I think the one thing of note, just to remind folks, we're actually on pace to getting our quality certification, our aerospace quality certification here end of Q1, early Q2 in support of our first SOP in that aerospace in Q4 of this year.

Bobby Brooks: That's great. And then just kind of following up on this, I know you've talked about it previously, but I think it would be good just to give a reminder to the market, just stepping back a bit is like why do you guys -- why was like aerospace and defense kind of one of the end markets that you guys really kind of honed in on and like, hey, let's diversify our revenues to getting into that. And maybe just discuss like why you've won these first 2 projects or programs and why you think you can continue to win new programs in aerospace and defense going forward?

Brady Ericson: Again, we were looking for opportunities that could leverage our existing core competencies in our -- both our human capital and our manufacturing capital. And so, these are opportunities that's leveraging precision fuel management and controls in aerospace and off-highway and industrial and marine are all of those opportunities that's leveraging our core competencies and capabilities. So that's kind of one of the reasons why we're looking to expand into those new markets, and we see those as a long-term profitable steady opportunity for us. I think why we're winning, I think, as they came in and some of the aerospace companies came in and looked at some of our capabilities, they were absolutely kind of blown away that we're holding tolerances that are plus or minus 0.5 micron in high volume, the inspection capabilities that we have for some of our products. And it's been very, very positive. I'm expecting a lot more -- we have a lot more RFQs coming through now. I think getting our quality certification here end of Q1 and that is really going to open up a lot more doors for us. And again, similar, the aerospace side, they've got a fragmented supply base that has had challenges. They've had volume challenges and quality issues for a lot of years. And they see us, again, as a stable, reliable supplier that has great capabilities, a global footprint to support them. And in many ways, we have the manufacturing and design and validation capability they're looking for.

Chris Gropp: It allows us also to use existing capital. And because the volume profiles are very different, if you're talking about a pass car or even CV, the volumes are much higher, then you take that same capital and dedicate it to an aerospace, much smaller volume base. You're able to produce it on the same capital, but much higher revenue on the overall. So, it's sort of -- it's very complementary, and it helps us utilize that capital that's already sitting on the production floor.

Bobby Brooks: Fair enough, that's a great overview. I appreciate it. And I'll turn back to the queue and let some other guys jump on. Thank you guys and congrats on a good quarter.

Brady Ericson: Thank you.

Operator: Your next question comes from the line of Jake Scholl from BNP Paribas Asset Management. Your line is open.

Jake Scholl: Hi guys. Congrats on a strong finish to the year. So, I just wanted to dig in a little bit more on taxes. I want to if you can help me understand just why the tax rate remains so high in 2025? If my math is right, it looks like about a $35 million headwind versus the targeted long-term tax rate of 27%. And is there any impact from the global minimum tax in here? Thank you.

Chris Gropp: Jake, I'll take that one. Yes, it was pretty disappointing. I mean we've worked on it. You would think that we hadn't done anything, but actually, my team has worked quite hard on it. We finished Phase 1, and it is -- it was trying to eliminate some of the inefficiencies out there that exist in the overall structure. But it's going to take us longer, and we're now finishing Phase 1. We had a little bit of a carryover from the old structure that existed in 2023 as the local units settle overseas, their taxes locally, it ended up with a little bit more of a carryover than we expected. That cleans out. We're not showing a major reduction next year. I'm trying to be very conservative and give my guys some space. But now we start Phase 2 and sort of concurrently at Phase 3. This is going to be a long-term project because we have two particular regions and areas that are very difficult structurally, and it's taking a lot of heavy lifting. So, we're going to work through it. It's just not a short-term thing you can do overnight.

Jake Scholl: Thanks Chris. And could you guys also just give us a little bit of color on your expectations by segment? Thank you.

Brady Ericson: Yes, I mean I think from an overall segment standpoint, as you've seen from the overall market, we still see softness in light vehicle and maybe a little bit of global upside on CV, but primarily second half of the year. So, I think FS is going to -- our Fuel Systems segment is going to continue to have volume and revenue pressures, and we see that being more than offset with our Aftermarket segment. And so we see our Aftermarket continuing to kind of chunk away and progress. And I think this will be another year of a tough OE market with kind of -- as Chris mentioned, the second half of 2024 was soft. We expect that continuing to be soft on the OE side through at least the first half with some recovery in the second half, primarily driven from the commercial vehicle side. With that said, I mean, our Aftermarket folks are excited when the OE side is down because they know that gives them additional opportunity. And that's what we've kind of seen even last year, the OE is down, our Aftermarket kind of offsets a good chunk of that. So, -- and that's one of the things that we continue to highlight to folks is that that nice balance between and the large size of our Aftermarket business gives us a lot of cushion even when the OE market is down and volatile.

Chris Gropp: And from a quality of earnings perspective, if you look, FS, despite the reduction in sales actually held up higher quality earnings. And we also improved on the Aftermarket side for the full year, if you look at the quality of earnings for each. So all-in-all, even with the soft top line, the bottom line held up quite well and the units did a really good job managing.

Jake Scholl: All right. Thanks. Very helpful. And congrats again on a great first full year and update.

Brady Ericson: Okay. Thank you.

Operator: Your next question comes from the line of Joseph Spak from UBS. Your line is open.

Unidentified Analyst: Hi. This is Gabe on for Joe. Thanks for taking my questions. So I saw that you raised the dividend this quarter alongside an increase in the buyback program. So that's encouraging. But there's still some excess cash on the balance sheet. I know you'll probably remain balanced in how you allocate capital going forward, but you've talked about wanting to grow CV and aftermarket inorganically. So as you look at potential M&A, how should we think about the potential opportunities you're sizing up the market?

Brady Ericson: Sure. Yes. Cash it's always -- it's hard to say cash coming in higher is a bad thing. But yes, it's probably higher than our target level, which is why we've primarily increased some of the buybacks. From an acquisition standpoint, as we've communicated, we're going to continue to be financially disciplined. We're looking for specific assets that are going to expand our commercial vehicle, industrial and aftermarket exposures. But we're also going to be disciplined in ensuring that there are companies that are profitable, making money, going to add EPS to our bottom-line and have valuations that are at or below our current valuation that we have as a company. We feel that we're still undervalued, but -- and that's why we continue to buy back our shares. As we find assets, and I think we're getting more confidence that I think there may be some good opportunities that meet that criteria that hopefully we'll be able to close on those deals and announce some deals in the next few quarters.

Unidentified Analyst: Got it. That's some helpful color. And then my follow-up is just on offsetting the tougher industry outlook with GDI. I think you mentioned in the past about half of the combustion market is GDI you have mid-teens share in that market. What's the current level of penetration in the market today? How is your position strengthened over the past year? And as we move from 350 bar to more efficient 500 bar, what sort of content uplift comes with that? Thanks, guys.

Brady Ericson: Yes. I mean GDI global penetration rates, we're still in the 60%-65% range. We think that's -- it's kind of a steady number right now, may increase a bit, but not a whole lot. From a market share perspective on GDI, we're still in the mid-teens and have continued to kind of gain market share. I think we'll see some more launches, especially on the 500 bar. We've won a number of new programs that will be launching in the coming year and then next year. And we think that will allow us to support our continued market share gains because it adds a lot of value to our customers. Now from a content increase, there's not a whole lot, and that's one of the advantages of why we're winning market share is because the product itself, it's a drop-in replacement to the 350 bar. Just a few changes are needed in order to get that additional performance. And so there's a little bit of a content increase for us, but the value it's providing for the customer is really good, which is why we're picking up some of the market share.

Unidentified Analyst: Appreciate it Brady. Congrats.

Brady Ericson: Okay. Thank you.

Operator: [Operator Instructions] Your next question comes from the line of David Silver from CL King & Associates. Your line is open.

David Silver: Yes. Hi. Thank you. I just had a question maybe about your overall guidance for the coming year. And I know there's a number of assumptions and judgments you have to make. Maybe if you wouldn't mind, where do you think -- if you were to fall a little short, where might the most likely source of that weakness be? And alternatively, if you were to exceed, let's say, on the top line, is it greater GDI adoption, which you just discussed, but where do you think there might be upside to your overall forecast? Thanks.

Brady Ericson: Yes. I mean from a guide standpoint, one of the big assumptions is commercial vehicle rebounding and coming in stronger in the second half. If that doesn't occur, that's probably the biggest concern that we have as far as on the downside. On the upside, it's kind of -- if it comes in even stronger and if the global markets on the light vehicle side continue to kind of solidify and aren't affected by a lot of the trade wars that are going on. So I think if interest rates kind of come down a little bit, inflation stays down and some of the overall global markets start picking up, I think that's going to be some of the upside, because the current forecast still has light vehicle OE down on a year-over-year basis in total, which means light vehicle OE combustion volume is down even more. And so, if people continue to buy more hybrids and combustion and there's weakness on the EV adoption in the year, that's a little bit of upside as well. And I still think there's always potential upside in our aftermarket business. They always seem to be chasing new opportunities that can materialize relatively quickly in our numbers this year. I think on the OE side, it's not going to be adoption or anything else. It's going to be the markets coming in stronger than we expected. And then, as Chris kind of highlighted, because of the translational effect of all of our business that we have abroad, a weakening of the U.S. dollar is going to translate over to our numbers in a very positive way. Right now, the current forecast has that as a headwind of $80 million, basically at the exchange rates that we've noted in the deck. That's kind of where they are right now. If the dollar gets weaker versus global currencies, that will give us some upside as well.

Chris Gropp: The other item, I mean, chaos in the market is never good for the end consumer. They get squirrelly and don't necessarily want to go out and buy. Now the flip side to that is, if they drop the incentives for EVs, I don't think that's built into outlook numbers. Could that help GDI and PassCAR? Possibly. The big CV players are signaling -- they're doing mixed signals in terms of do they think the pre-buy is coming. The numbers out -- the pre-numbers out, there are looking pretty good, but I think they're still being a little careful on this. Most of them don't see any changes in regulations as a negative, because they've built in this next generation, which is actually -- it has efficiency. So they think that, that's going to actually help sales pushing those out there, and it's going to be more attractive to the end users. I mean all of this is predicated on the market is in a little bit of worry. So that's never helpful at all.

David Silver: That's a great answer. A lot of color there. Thank you. And I think I may be overlapping with this, but I did want to ask you a tariff-related question, and you could probably talk about it for a couple of hours. But I guess I would just say -- ask you amongst some of your key customers, what is their thinking about this current phase where they're in? Could this -- I mean, I view the last year or two as a period of slowdown in time lines and slowdown in decision-making on moving forward with different programs. Does the tariff overhang push out that decision-making or stretch out the time lines further? Just what do you hear from your major customers in the current environment there?

Brady Ericson : I mean I think a lot of them were already in the in the plan of regionalizing more and more of the supply base, becoming less reliant on China for the North American production numbers. And I think that's still there. I think, obviously, the blowup potentially of the USMCA and the tariffs with Canada and Mexico, I think, is a bit of a shock. I think for a lot of folks and the hope is that we'll work through that in a rational way and kind of move forward. Biggest risk there, obviously, is it's going to -- it can't be absorbed by the suppliers, and it's probably going to be difficult to be 100% absorbed by the OEMs -- so it's going to have an effect on the consumers, which then obviously is going to have an effect on volumes. And so that's probably the best thing that we can prepare for. I know there's a couple of public announcements out there. Can you move -- shift some production if you have plants in both Mexico and North America? Can you move a little bit? Maybe a little bit, but it's not going to be, in my view, substantial enough to offset the tremendous amount of cost increases that would come from the currently proposed 25% tariffs.

Chris Gropp : Plus it's not a short-term thing that you can do.

Brady Ericson : It's going to take a while.

Chris Gropp : No, from a China point of view, we have very little exposure on the China tariffs at all. And what we do, it's only a couple of million dollars in revenue total. And 80% of that is aftermarket, which means that we can immediately push through a price increase. Of course, again, that hurts the end customer or we can try to resource, which again would have cost involved in it that we would push through. But it's a minimal exposure from the China side for sure.

David Silver: Thanks for all the detail. I appreciate it.

Operator: Your next question comes from the line of Bobby Brooks from Northland Capital Markets. Your line is open.

Bobby Brooks : Hey, guys, just wanted to jump back on and ask one more question. So the PR mentioned some nice wins for the commercial vehicle market. And I was just hoping if we could get a bit more granular on that. But specifically, I was wondering, were any of these commercial vehicle wins for -- were they really more on-highway stuff? Or was any of it like off-highway? Because I know expanding the off-highway is kind of the key for you guys going forward.

Brady Ericson : Yes. I mean a lot of those were on-highway, both medium-duty and some off-highway as well. So I mean the one that we highlighted there, I think, was off-highway application for the contract extension.

Bobby Brooks : Got it. That's all for me. I'll turn it back to the queue. Thanks.

Brady Ericson : Okay. Thank you.

Operator: Your next question comes from the line of Drew Estes from Banyan Capital Management. Your line is open.

Drew Estes : Hi, Brady and Chris. Thanks for taking the question. Just a follow-up on taxes. You said that you called out two regions that are structurally difficult to fix. Can you elaborate, does that mean that you need to adjust the manufacturing footprint? Or what exactly is required?

Chris Gropp: It's holding company structures that are difficult. So really, it's not a whole lot of manufacturing. The issue is that once you start getting into it, it can be quite expensive to back out of them. But we're going back -- I mean, we've got highly paid, very expensive people looking at trying to break it down, and we're literally examining -- now trying to get my tax people into a payback on if I break this down and pull it out, what are the short-term implications compared to the longer-term implications.

Brady Ericson: Yes, primary legal structure, I mean, again, when we got spun, we got spun with a structure that made sense for the total, but it didn't make sense for us. And so that's what we're having to try to look to unwind and were areas that made sense for kind of primarily the prior Delphi organization doesn't make sense for the makeup of our operational footprint. And so to highlight Chris', it's not moving plants. It's more just moving some of the legal entities, shutting them down, removing IP to more appropriate locations that makes sense for us. And so right now, a lot of what we're doing is we're continuing to generate NOLs in countries that we can't take advantage while we continue to pay taxes and other areas that we're making money. And so we've got to get to a point that it starts balancing out, and that's going to require some kind of heavy lifting to shut down some of those entities and kind of move some of the IP and kind of the flow of financials.

Drew Estes : Okay. That's very helpful. Thank you. And just second, you spoke about CapEx and how most of it was attributable to the new programs. Just curious if you didn't have the new programs and it was just the legacy business and we assume kind of steady-state unit volume, what do you think CapEx would be roughly? And that's it. Thank you.

Brady Ericson: Yes. I mean, in general, we expect that to be right around, I guess, our current plan with some of those new program launches is at 4%. If we're not launching any new programs, it's probably going to be in the 1% range as far as maintaining the equipment and maintenance and facilities. Now just to kind of remember and highlight, most of our programs are always kind of refreshing every two to four years. They're going to need some type of upgrade. They want some improvement. It requires some new supplier tooling, some adjustment to our capital equipment. And so if you're not spending some of that money, you're going to see revenues declining. So I don't think it's possible for you not to spend CapEx and maintain revenues because they're always going to need some type of improvement and/or upgrade on those vehicle programs.

Drew Estes : Okay. That's very helpful. Thanks.

Operator: [Operator Instructions] Thank you. And with no further questions, I'd like to turn the call back over to Brady Ericson.

Brady Ericson: Great. Thank you very much. Again, really proud of all of our employees on a great full calendar year as a stand-alone company. We'll continue to stay focused on adapting to this dynamic market as well as continuing to make good financially disciplined decisions to maximize shareholder value. Appreciate all your support and all your questions. Have a great day.

Operator: Thank you. And this does conclude today's conference call. You may now disconnect. Have a great day.