And that’s a good balance, I think, for overall business is — 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 low to mid-single digits.
Winnie Dong: Thank you. That’s very helpful. And then maybe a longer-term question. Just like the earlier questions on EV sort of adoption slowing down and also the administration potentially relaxing limits on some tailpipe emissions and potentially adoption of the EV getting slower in out years and requirements getting lower in the out years. I’m just curious as it relates to your $5 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?
Brady Ericson: 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 $5 billion, it’s roughly our assumption is a 2% to 4% average organic growth, as well as some bolt-on acquisitions that’s going to help us 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 free 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 with significant EV penetration rates. And the question is going to be what — 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 for us. And again, we are in a market that competition is declining, not increasing. So there’s definitely opportunities for us to continue to gain share. 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.
Winnie Dong: Very helpful. Thank you so much.
Operator: Your next question comes from Dan Levy with Barclays. Please go ahead.
Trevor Young: Hi, Trevor Young on for Dan Levy today. Thanks for taking the questions. 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 called out the first internally designed and developed ECU being launched this year and you highlighted electronic systems as a growth area. And I was just curious if you could give a little bit more color on what all you’re doing within that area. The team, did you bring in new hires to do this yourself versus buying from your former parent things like that? And then also just metrics of progress?
Brady Ericson: 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 PHINIA-designed ECU as part of our system later on this year.
It’s actually in a hydrogen application and we won our first PHINIA-designed and PHINIA-sourced 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 supplier, but it’ll be based on our designs and our programs 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.
Trevor Young: Yes. [Multiple Speakers]
Brady Ericson: Sorry. On the metrics and progress, I think I gave a number of examples that we started from PHINIA design this year to being awarded PHINIA designed and developed and sourced. And we’ll continue to see that grow with our customers through the decade as. I think if you go back to our old Investor Day deck back in June, you’ll see on there where we add 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 GDI and CV diesel fuel injection penetration rates.
Trevor Young: That’s very helpful color. 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 in your Investor Day, you kind of laid out people — suppliers exiting that space a bit and you gaining from that. Have you seen any indications of more suppliers either wanting to stay in the space longer or even maybe entering it?
Brady Ericson: 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. It’s taken a number of years to develop that technology and bring it to production. And a number of our competitors stop developing that next-generation product. It would be very difficult for them to then refire 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 their 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 in 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 our — 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 competitive product and to be able to gain confidence from the OEMs again.
Trevor Young: That’s great. Thank you.
Operator: Your next question comes from Joe Spak with UBS. Please go ahead.
Joseph Spak: Thanks so much. I actually just wanted to pick up right there on sort of the competition, because I think you’ve clearly stated, right, OEMs are not willing to commit resources. Other sort of suppliers have not — have 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 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 your utilization or need to sort of invest further for that product?
Brady Ericson: Yeah, I mean kind of — I guess I’ll give you the bad that turned into a good in the kind of the prior DELPHI days. 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 for hydrogen, as well as one of the technologies that I mentioned of kind of a low-pressure diesel direct injection system.
And so, we’re actually launching in that 300 to 500 bar range, a direct diesel injection for off-highway applications. That’s helping them meet their more 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 hydrogen and off-highway applications.
Chris Gropp: 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 we’re still being very careful because obviously a short-term trend does not make a long-term trend. So we’re stating carefully, but.
Brady Ericson: Yes, without — 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.
Chris Gropp: Correct.
Joseph Spak: Yes, 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?
Brady Ericson: I think it’s starting to come down. I mean, again, I think what we peak at, what, $95 million, $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 stopped quoting next-generation programs. And so, yeah, I think capacity has come down in the marketplace, and I think that’s good as well.
Joseph Spak: Okay. And then just back on Slide 17 with the outlook, 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 suggest for comparison. But I guess just sort of wondering within that sort of EBITDA 2023 to 2024 bridge, are there any sort of larger puts and takes we should be considering?
Brady Ericson: No, I think, again, we think the — a base comparison is the 474 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, we’re seeing about $16 million improvement in EBITDA and to a midpoint of only $25 million more in revenue. So obviously, that’s really strong conversion, and that’s driven by one conversion on that additional revenue, as well as improving operational performance and dealing with some supplier challenges. And that’s probably driving $10 million of the improvement and then another $5 million to $6 million on the conversion on incremental revenue.
Joseph Spak: Okay, thank you very much.
Operator: There are no further questions at this time.
Brady Ericson: Great. 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.
Operator: This concludes today’s conference. You may now disconnect.
