Good afternoon, everybody. Today here with us, we have PHINIA, and we have the CEO, Brady Ericson, and CFO, Chris Gropp. PHINIA is a global supplier of automotive parts, commercial vehicle parts—I mean, fuel system, not parts, sorry—and aftermarket parts. The question that everybody's asking is, what about tariffs? I have to ask you the same question. Could you break it down for us and how you think about tariffs, both for your fuel system and aftermarket?
Sure. I think when everybody heard the tariffs come out and you take a look at our Americas revenue of about $1.3 billion, the initial shock, you take the $1.3 billion and you multiply by 10% or 25%, and I think people's hair kind of catch on fire, and it's the end of the world. You start breaking it down into its pieces. A couple hundred million of our Americas revenue is in Brazil, so you knock off that couple hundred million, another hundred million of reman in the United States. You knock that off, and that gets us down to about $1 billion of revenue that we produce in Mexico. You got to start breaking it down from there and say, you know, half of that revenue actually stays in Mexico.
We're not going to be the one subject to the tariff that goes directly to our customers. We've done the virtual pedimento, which allows us to do it virtually and not have to do the tariffs. That knocks it down by half. About 70% of our total in Mexico is USMCA compliant, so that knocks it down even more. We also have the commercial vehicle is actually exempted. Although the HTS codes are the same between commercial vehicle and light vehicle, there's a, I think, Section 99, Subsection B, whatever, that says, hey, if it's for gross vehicle weight over 6,000 lbs or commercial vehicle, you can then go back to the normal 10% tariff rather than the 25% tariff. That knocks it down.
Oh, by the way, it's not on revenue, it's on cost of goods sold, so that knocks it down even more. Now we're down into the tens of millions, which is a lot more manageable than the hundreds of millions. We're working with customers. I think we have a good process in place. They're already starting the audit process to go through the numbers to understand it. I think we're in a very strong financial position that we don't have to be overly aggressive in order to get the money quickly, but we are going to make sure that we get our recoveries. We're working with them on options to further reduce it. It's no worse than COVID and the inflationary costs that we went through a few years ago, and we'll continue to work with our customers to manage it.
The fact that you said it was a 10% normal, you go to the 10% normal tariff, tells you where we've come and we're living.
We're not super normal right now. That's a good walkthrough because I think people are overestimating the amount of impact.
I think it's, as we mentioned, the 10%-20%. We were joking about it. Now we're talking about 70% and 140%. Now if you tell people that we're going to settle at 10%-20%, they're like, "Wow, what a great solution." It's only 10%-20%. It's something we can manage. I think we're going through that. I think also to kind of remind folks, as far as our light vehicle OE business in the North American market, it's only 15% of our revenues. If that market is down 20% because of tariffs and volume and everything else, that's only a 3% global hit. We're seeing Europe remain strong for us. We're seeing some positive numbers out of there. China's looking good. Southeast Asia's looking good. South America, our aftermarket, continues to remain consistently strong.
From a translational standpoint, the weakening dollar, from a translational standpoint, is going to be a big tailwind for us because two-thirds of our sales are outside the U.S. market.
We are having the discussions with our customers to pass through. I mean, that's the expectation, is 100% of the tariff goes through because it's not something that we can bear for sure.
Yeah. So basically, the impact from tariff is small, but as you said, there might be market disruption on the volumes, but you have a very large aftermarket component. I would assume that people, if they cannot buy in the immediate term a new vehicle, they will fix it, so they will buy more aftermarket. How should we think about that business of yours? I mean, how do you sell also these aftermarket products? What's the channel?
Yeah. I mean, we sell through all different channels. Whether in the U.S. market, are we working with the NAPA , the O'Reilly, the AutoZone? Yes, we are. We also work through the large distributors. We also have some direct-to-consumer as well, depending on the product. That is kind of the U.S. market. In Europe, it is probably more the large master distributors or buying groups, the LKQs of the world. We are not restricted on anyone. We actually, probably a third of our aftermarket revenues are going through the OEs, through the OES channel. It is about 10% of our revenue. We are going through them as well as a lot of different distribution channels, not only with our OE product, but also with all makes and services and support and test equipment and the such as well.
If I remember correctly, you expanded the amount of SKUs that you're selling, and you're diversifying into propulsion agnostic components, I mean, parts. What is the plan? I mean, how do you see aftermarket evolving in the next three to five years?
Yeah. I mean, we see an aftermarket as probably the largest portion of our business going forward. It's already 34%. We see that continuing to grow kind of in all markets. We see any acquisitions that we're going to do, it needs to be a product line that has a good aftermarket, that's going to have two to four parts over its lifetime after the OE part. It is going to provide a good aftermarket. We are looking at 100% pure aftermarket companies as well. As we've highlighted, we wanted to see our aftermarket by 2030 at over 40%. I see a pathway of us getting closer to 50%. I think that would be a nice balance for our organization because, as we've seen last year, when fuel systems was down 3%, aftermarket was up 3%.
Because aftermarket was a smaller percentage, we had a little bit of headwind there. Getting at 50% or more, I think, would be a nice position to be at. The combustion engines vehicles in operation continue to increase and average age increases. We do not see any headwinds from that. With that being said, our propulsion agnostic aftermarket is now at 25%. It was close to 20% a year or two ago. We are still seeing a lot of growth and adding a lot of those new SKUs is adding a lot of propulsion agnostic aftermarket for us that we do not care where the market is going, whether it is going better, electric, plug-in hybrid, range extending, or just pure combustion. That is adding a lot more resiliency to our aftermarket as well.
Kind of the segment level aftermarket's more profitable. Even if it is a smaller piece, it is balancing out everything if fuel systems goes down.
Is it possible to see some opportunities within that from an organic standpoint, but also from inorganic? Are there assets you could take a look at and buy?
Oh, absolutely. We've got a long pipeline of things that we've been looking at, but we're being financially disciplined in what we're willing to pay.
Looking for the right multiple.
Right. Making sure it's a right fit to our portfolio. Adding, when people ask, we want it to have CV and industrial and aerospace exposure, large aftermarket exposure, but it also wants to be somewhat synergistic with our existing portfolio. Doing instrument clusters doesn't make a whole lot of sense because it doesn't have a good aftermarket that goes with it, and there's not a lot of operational synergy. Products that are part of the overall combustion system, that have precision machining, fluid management systems, calibration influences, low-voltage electronics, those are areas that I think we can leverage. There's a lot of different assets out there. I think there's going to be more interesting assets out there as the year goes on. We think there's some interesting opportunities out there.
You said that light vehicle is still a fairly large component of your sales and revenue, but you're diversifying away from that, and you're expanding your footprint in commercial, and you're considering off-highway and even aerospace. What allows you to do that? I mean, can you talk more about your expertise and your capabilities in fuel system? What allows you to do this versus the competitive landscape?
I mean, first is we're not exiting light vehicle fuel systems. We like the business. We think we can keep the revenue at $800 million-$1 billion, and keep those plants full and running. We are continuing to develop next-generation technology, 500-bar alternative fuels for that light vehicle. We just see it as a relatively flat revenue over the decade. As the market goes down a little bit, we'll pick up some share. We like that portion of the business because it gives us some good volume that we can then leverage and use those capabilities to enter these new markets. The strategy that we have is really leveraging our existing human capital and our manufacturing capital to enter these new markets.
What's clear is the engineers that we have that we're developing light vehicle diesel and GDI are the same engineers that we're applying to aerospace and applying to off-highway and industrial applications. In many ways, it's not light vehicle GDI capability. It's precision fluid management and system control capabilities.
Including alternative fuels.
Right. Whether it's using sustainable aviation fuel that we're managing or ethanol or methanol or ammonia or diesel or natural gas, we've got that core competencies. We understand how to do coatings, precision machining, and we're leveraging a lot of those core competencies that go in those new markets. That's why we've communicated to folks that as we enter these new markets, we don't need to increase our R&D as a percent of sales. We don't need to increase our CapEx as a percent of sales because we're able to move our existing human capital and manufacturing capital. We've converted a lot of our manufacturing capital that was doing light vehicle. It's now doing off-highway in aerospace. A lot of the same lines. We can just kind of convert them over and be very efficient in how we're using our capital.
How would you say that your competitors are operating in this environment? Because one of the concerns, at least when you went public, was like, "Yeah, light vehicles are going to be under heavy pressure from BEV." But because you're a pure player in this space, you're laser-focused on executing. Can you talk more about how you're approaching these markets versus your competition?
Yeah. I mean, customers want, both on the OE side and on the aftermarket side, they want a supplier they can count on for decades to come because they have to be able to service these vehicles. Light vehicle, maybe another 10 years-15 years after production. Commercial vehicle, they want someone committed for 30 years-40 years after OE production. If you look at some of our competitors' websites, you can't find fuel systems on their website. They're even communicating that they're trying to exit and reduce their exposure. Do you want to pick them as your long-term supplier or someone who's really focused on continuing to invest in next-generation technology for the combustion side of things?
That's where I think we've seen a lot of shift towards us, people knocking on our doors, asking us to quote on new business that maybe others are walking away from because their capital allocation strategy is putting it into infotainment or semiconductors or other things, and therefore they're starving maybe some of the combustion side. We see ourselves as a very reliable and trustworthy partner, both on the aftermarket side as well as on the OE side.
The trend is actually your friend right now because EV is, I mean, in the future, it'll certainly be here, but it's absolutely a lot slower than people predicted. Each year, it just gets pushed out.
Yeah. That was after probably eight years of people increasing their estimates of what EVs were going to be, and now they're consistently decreasing. When we were spun off, we were trying to convince folks that, "Hey, EV is not going to 100%." We were laughed at, and we couldn't get debt, and we were wrong type of thing. EVs are going to continue to grow in share. They're just, in my opinion, they're not going to 100%. I think we're already starting to see that plateau a little bit in China. We have to always remind people, "Don't say electric vehicle. Say battery electric vehicle to make sure that people are clear because they mix those two terms up." Their battery electric vehicle in China is kind of starting to plateau a little bit around that 25%-30% level.
Is that going to be the global average moving forward? Maybe. I don't see it going over 50 anytime in the next couple of decades.
I think the U.S. is like at 8% or 9%, I think.
Currently, yeah.
Even when we were spinning two and a half years ago or two years ago.
I think 15.
Two years ago, we were starting to see we were having some of the Chinese big OEs that are considered pure EV coming to us and asking us for injectors because they needed a hybrid, a plug-in hybrid to put into their portfolio. That was two years ago. We're finally starting to see that in the U.S. OEs where they're starting to add more hybrids back into theirs because they realized, "Okay. We hopped too quickly." We also had a quote that we wouldn't go down on price. We lost the quote about a year 18 months ago. They've come back because the supplier that they went with said, "Well, I'm not going to commit to you beyond 2030." And they said, "We can't do this. We need to.
Our plans are longer than that.
Now that's coming back to us. It's interesting.
If I could inject on the hybrid side, how does your portfolio play with not being EV, but a hybrid vehicle?
That's a combustion engine, whether it's hybrid, plug-in hybrid, or just a pure combustion. Generally, it's a GDI type system, and we support it. In some cases, there's applications that the same part goes into their combustion that goes into a hybrid that goes into a plug-in hybrid. Our parts may not change because, again, a lot of those applications, they still need the engine to provide full power at times. The power requirements and the performance is still there. The biggest change for some of the hybrids and plug-in hybrids is some of the transient response. They can use the electric motor to help on the stop-start. They can help it for launching some of the transient response. That's really not going to have an effect on our fuel injection system. It may have an effect on other components.
It's a good attribute. That's on the light vehicle side. I would assume that on the commercial side, it's even harder to go electric. It seems like you have a much longer tailwind there also in terms of aftermarket.
Yeah, absolutely. Again, as I mentioned, the commercial vehicle, you have the aftermarket for 30 years after production that they want to keep that fleet up and running. Even before we spun, we were being selected for a fuel injection system for a large CV customer. Their point to us was that, "Hey, we're looking for a supplier for 2040 and beyond to supply them fuel injection systems." They fully believe that combustion engines and even diesel engines are going to be a large portion of the commercial vehicle fleet for decades to come.
We discussed earlier that some of the OEMs are also pushing the existing programs for longer. How does that play for PHINIA? I mean, do you get more pricing? Are you able to basically lever the depreciation on those programs better?
Yeah. I mean, even if they're extending them, there's always going to be some little amount of renewal or upgrade as far as a performance standpoint. I think now with tariffs and supply chain challenges and everything else, there's always going to be new supplier launches and revalidation to kind of drive productivity. I do think we've gone from a state of customers expecting 2%, 3%, 4% annual AIS to now, "Hey, we're kind of okay, just keep it flat over the life of the contract." We are seeing some changes there. I think that's primarily due to because we don't see this increasing volume. They could push the volume when we had 3%, 4% light vehicle combustion volume increases. They could drive more productivity and get more AIS.
I think on some of these programs, now the AIS are being pretty much eliminated. We are not giving AIS because we are offsetting inflation because there may be less productivity that we can drive and additional AIS from our supply base. I think it is becoming in many ways closer to commercial vehicle partnerships. I think with light vehicle OEMs, they know that we both need to be successful and profitable. In our space, overall competition is declining. It is not as if they have 10 to choose from. There may be one or two to choose from. I think it is causing the relationships to be a lot closer and more collaborative.
I would like to touch upon the off-highway and the aerospace. For aerospace, you just won two new awards, and you should be certified by the end of the year, if I remember correctly. How are you tackling that market for the off-highway? I mean, why didn't you enter into that market years ago, for example?
I think, again, our prior parents, they were light vehicle focused. Maybe they worked on some commercial vehicle and some off-highway, but everything was really driven and focused on light vehicle. I think when we looked at our portfolio of products when we spun, it was a much different portfolio than our prior parents. I think you see that with a third of our revenue at aftermarket. CV is significantly higher as a portion of our sales. Just to clarify, we do have a lot of off-highway and industrial companies now, whether it's Polaris, JCB, Caterpillar, John Deere. We've been with those players, but they just haven't been highlighted or talked about. It hasn't been an area where people are saying, "Hey, let's try to grow that business." We got the business or took it because it was just available.
I think it's really one of our focuses to grow it and ensure that we have the right product portfolio to support those customers. That's one of the good examples where we converted one of our light vehicle GDI lines to kind of a poor man's direct injection low-pressure diesel application. It's a GDI for diesel. It's a 350 bar system that we're using the same basic design, but we've converted it from gasoline to diesel. It's for off-highway applications. As they start going to tier four and tier five emissions, they need to upgrade from their legacy injection systems that are 30 years, 40 years old. Now they're going direct injection common rail.
They are getting a significant amount of fuel efficiency, which is not as important to them, but a significant reduction in emissions and improved performance that is really advantageous for them.
For commercial and also light vehicles, it's important the regulation on emissions. Given the latest developments, especially in the U.S., what should we think about in terms of replacement cycles for commercial vehicles? Do you think that the pool for demand is going to be delayed because some of these regulatory requirements are changing?
Yeah. I think kind of going into the end of last year, there was still an assumption that we're going to have a pre-buy of some sort in the U.S. latter half of this year. I think our expectations are probably tempering quite a bit. I think the hockey stick, we still think the revenues are going to, or the volumes are going to go up from where we are in Q1 and Q4 of last year, but it's maybe not going to go up as much. I think that's for a couple of reasons. Obviously, the fleets are a little bit concerned on demand. Are we going into a recession? Do they want to finance a bunch of new trucks? I think people are moderating the impact of the next generation of emissions. I still think it's going to go into place.
I think the cost impact and the potential impact on fuel economy, they're coming to a realization that it's not that different. Therefore, if the new vehicles may even be more fuel efficient, you don't need to pre-buy because there's not a detriment for going to the next generation, which is very different than the consent decree that came out, what, 2001, 2002, where the next generation, because they had to rush through EGR and a bunch of other emissions devices, they were seeing a 5%-7% fuel economy hit. Of course, they did a lot of pre-buy because they didn't want those less efficient applications that also had lower reliability.
Any kind of pause in the OE buy is obviously going to help our service and aftermarket because they are going to have to replace those. It all depends on how much they're on the road. As long as they're driving and they're putting miles on those injectors, at a certain point, you do have to do a replace.
Right. Whether it's a new vehicle driving miles or a used vehicle driving miles is the key for us.
What's the typical replacement for a truck, like a commercial truck? During the lifetime, I don't know, two, three times?
Yeah, at least. Because, again, they're doing, say, a heavy-duty truck is doing upwards of 100,000 mi a year. If these things are going anywhere from 400,000 mi-500,000 mi before they'll do a full engine rebuild, which will include the injectors. What's kind of interesting is we actually sell our injectors in six-packs. Rather than getting the beer, they can get their six-pack of injectors and they'll do.
They have a beer too. Just do not recommend doing that while they're drinking.
It's the same thing with a lot of the aftermarket. The bulk of the cost of that repair is not necessarily the injectors. It's the labor and the downtime of that vehicle. That is why they generally replace all six rather than trying to replace one or two. They'll just replace them all to make sure that everything's right and continue to go forward. The same thing is true in the aftermarket on the light vehicle side. If you look at your repair bill for your vehicle, if you need to replace some injectors, the largest portion is going to be labor. If the injectors, if the parts are $200 and it's $1,000 in labor, and now the parts are $250, it's not going to change the consumer's question of whether they change the injectors or not.
They're going to be shocked by the labor. They're not going to be shocked by the parts. In our case, again, when you're tearing apart the engine, you don't want to replace one or two injectors. If we got that much in back, they're going to change the whole set. Our parts are non-discretionary in the fact that if the injectors aren't working, your vehicle's not running. It's not as if they can say, "I'm going to delay later." That means you're not driving.
One of the strengths that PHINIA has is the brand in the aftermarket part. How do you leverage your brand, the Delphi brand, specifically across the geographies?
Yeah. I mean, it's a global brand. I mean, you put Delphi in about any component, and people are going to think it's OE quality because probably at one point in their career or lifetime, Delphi made that part. Right? Whether we add it to steering and suspension, we don't make it, but we buy it. We still qualify it to our OE specifications. We put a Delphi label on it, and we can get a premium for that product. A lot of our customers are asking us to, "Hey, even raise the price because you have a premium brand." The way that we also draw it from the mechanics and the workshops is we have a lot of YouTube videos and training. We have a lot of, if you look at some of our LinkedIn links as well, we've got training centers that we're certifying.
A lot of these technicians are flying people in from all over Europe to come in and get certified at our locations, not just on our products, but how to properly and safely disconnect a battery, how to disconnect a plug-in hybrid, how do you service it. We do a lot of work that's continuing to build on that brand and that reputation. They know that we've kept our first-time fill rates at north of 95%. They're saying, "Hey, we know we can get it. We know it's good quality. It's OE. I know when I fix it, it's going to get fixed right." These guys are helping me ensure that when I do a repair for the mechanics, they know they have the right tools and support in order to do it correctly.
From what I remember, most of your sales in aftermarket are North America and Europe. In Asia, you have a small footprint. What's your plan? Are you planning also to have a similar growth in Asia and have, I don't know, and how would you do that? Do you want to increase the parts that you offer, or you try to leverage the brand also in that region?
I think it's all of the above, whether it's continuing to add SKUs. I think it's a different market because the average age of the vehicle in China and Asia is much younger. I think the competition, the technology there is still a lot older. I mean, there's still a lot of PFI where there's a lot of competitors. The market isn't nearly as robust. I think once it starts going to more direct injection, then I think we start to have a lot more advantage to where they're going to really don't have a choice other than going with one of the big three that provide that product. I think it's going to take some time for that car park to kind of further age in the amount of miles. There is a lot more competition in China locally.
Obviously, IP regulations are a little bit different, a little bit more lax. You can get competitors coming in maybe a little bit faster using your IP. We still have a dedicated team there. Still see a lot of growth outside of China as well. We think it's just a less mature market.
To be clear, right now, there's no OE, no one that we've found in China that can do injectors because it's a very complex part to do. Also, it's a fragmented market. They don't have in China, surprisingly yet, an AutoZone, an LKQ, or any kind of buying group. That market has not matured to the point that they actually have that kind of.
Do it yourself. Again, I think Delphi was a little bit late on the fuel injection business getting into China. I think our main competitors were there a lot sooner. We are still probably in the last 10 years and still kind of ramping up. The age of our products is still probably much younger than most others. As Chris mentioned, if you have the direct injection business, you are going to get the service business because it is difficult to do a drop-in replacement. With that said, the average cost of vehicles in China is a lot less. Whether to repair or not repair and how much they are willing to spend to repair changes quite a bit too.
In the aftermarket, I would assume that at least for the fuel system part, you're the manufacturer. For the propulsion agnostic, like suspension, steering, you blend your sourcing, maybe part of any source, then the other one is made by you. Going forward, if you want to push the expansion of the aftermarket business, what would you focus your attention on? Would you rather buy or build facilities to manufacture these parts, or would you rely more on third parties?
I think from an acquisition standpoint, if we do an acquisition in the aftermarket, they need to have manufacturing. Buying a distributor, I don't think makes a lot of sense for us. We can do it on our own. If I say, "Hey, I'm going to hire 10 more engineers that I want you to launch another rather than 3,000 SKUs. I want you to launch 5,000 SKUs." We can just do that. Buying someone who's just a distributor doesn't make a whole lot of sense for us. We can do that more organically. I think if we do an acquisition and/or vertically integrate, adding some manufacturing capability makes sense. Right now, about 50% of our aftermarket revenues comes from our OE plants. We produce it, and that generates about half the revenue. The other half we'll buy from third parties, steering, suspension, braking.
We will use third parties to ensure that we have 95% coverage of a particular product line. It is our injectors and some others' injectors to make sure we can offer full coverage for them as well.
I remember that the last time you reported earnings, you had a fairly high tax rate.
Still have a fairly high tax.
I guess that the plan is to try to optimize that, right?
Yes.
From what you said in the past is that there is a problem of a tax structure, I think it was specifically in Europe. What is the plan there? What should we think in terms of timeline for a reduction of the tax rate and how low can it go?
It's going to take a couple of years, and it's just doing very boring stuff structurally that we have to do. We got one hurdle completed in Q1. There's another hurdle that we have to get through at the end of Q2, early Q3. It's just literally the team just chunking away and going after that. It's going to take a couple of years. We have all the experts out there. They're all starting to come together and coalesce. We know the path, but it's going to take a couple of years to get all that undone. It's not due to lack of trying. As we try to exit some of these plans and get out of some of these holding companies in these jurisdictions, you have to wait for the government as you start to exit or shrink down something in a jurisdiction.
They're obviously going to stand back and take a look at it. You have to go through all the steps, get through that, and then move to the next thing. It is just a slow, very boring process to get through. We'll get there. It'll be sub-30 in a couple of years, slowly over time.
Slowly going over time. It'll be a tailwind from a cash perspective for the next few years.
Yeah. So tailwind.
may be high now, but it's going to be coming down, and it'll be a tailwind for us going forward.
Yeah. Going to cash flow, indeed, you generate a significant amount of cash. How do you plan to allocate that cash, like organic growth, M&A, or just returning it to shareholders? As a follow-up on that, what's your cash balance that you need to operate the business properly?
On capital allocation, I think first and foremost, we want to continue to support our base business, capital investments to support our organic growth. That is kind of number one. Number two is we want to make sure we keep a strong balance sheet. We have a target of 1.5. I think we are at 1.1 right now. We have got a strong balance sheet.
Which is net leverage, right?
Net leverage, yeah. 1.2.
Which is very, very good.
Yep. We are then looking at liquidity as well. We want to make sure that we have, between our undrawn revolver and cash, $700 million+ is what we would like to see. We start going farther down. We want to maintain a good dividend for shareholders. I think we have targeted right around that $40 million-$50 million of our free cash flow for dividends, which is why we bumped up our dividend in order to kind of stay in that range as we continue to buy back shares. We need to bump up the dividend to kind of stay in that range. The final is going to be the M&A and share repurchases.
We will sit down with the board every quarter, take a look at our cash balance, take a look at our cash needs going forward, see what the M&A opportunities are, see where our stock price is, and then make a decision there on what we want to do for the next quarter. The good challenge we have is we have a very large amount of cash on the balance sheet. We have low leverage, and we have a cash-generating business on a quarterly basis. Every quarter, it is going to increase cash balances unless we do something from a capital allocation standpoint.
We have built that into our overall bonus structure because I have never cared for bonus structures that were based on EBIT or EBITDA returns. If you get into a market condition where everything dies, you can get to a point where the business does not care because you are down, so everything is out. We are out of the money, so nobody cares. If you are on an EV, which is what we are on, the business has to drive the balance sheet too. They have a vested interest in if the market goes down, I have to get my inventory down. I have to get my receivables down. I have to drive my working capital to a good level that keeps in line with whatever is happening in the market. They are incentivized, and they know that.
EV has always been a really good way to drive the entire business and to get all the employees going in the same direction and making sure that their focus is making sure the balance sheet's good and clean and that we're driving as much cash as possible in the business.
What was your last portion of the question?
The minimum levels. I mean, if you went into a really, really bad downturn over three years, we'd want to keep $200 million-$250 million range, but that's still pretty healthy.
That's just the way that we're currently operating right now. I mean, there's a lot of our peers that take it down to $10 million, but they may have a larger revolver, and they tap into the revolver kind of in and out, and they try to maintain as little cash as possible and just go in and out of the revolver. That is something we could do. Obviously, we're global, but right now, we're kind of saying, "Hey, without having to tap into the revolver on a regular basis, if we're around $200 million of cash, that's pretty comfortable for us.
One last is on the M&A. Given the current environment, what would you do in terms of what would be a good target for you? Would you go for a bolt-on small target just to increase your marginal capabilities in some specific area, or would you also consider something a little bit larger that can help you to achieve your targets faster?
Yeah. I mean, I think where we've been focused for the last since spin is really on smaller bolt-on acquisitions, smaller in nature that we can fund just from cash on our balance sheet. I think we have to first both prove internally that we have the processes of doing M&A, that we have a good due diligence, that we can integrate them well, and then prove to investors that we can do a good job before doing something transformational or something larger. If we go out 12 months after spinning with an unproven track record and do something transformational, we thought we were just going to get crushed at that point. We want to focus on proving to folks that we can do a smaller, whether it's a couple hundred million in revenue or less, get that done, and then that may kind of open up.
Obviously, as the quarters go on, we continue to get, I guess, more of a track record of being good operators and good capital allocators that as time goes on, that also then kind of opens things up. I think over time, we'll be able to do larger deals. I'd like to see the stock price up a lot more before doing a larger deal because we more than likely do use some equity because we don't want to lever up. That's kind of a key focus for us. We lever up a little bit above 1.5, maybe a little bit, but we're not going to be ones that are going to lever to 2-2.5 because that can quickly become 3.5-4 and cause a lot of challenges.
Could you remind us of your long-term targets?
As far as split of the business or revenue?
Your financial targets, like the long-term 2030, something.
Yeah. I think we updated that, I think, last summer where we think comfortably we can get to about $5 billion by 2030 with our existing cash flows. That's going to be averaging around 2%-4% organic with maybe about $700 million-$800 million of revenue being acquired. We think we can support that with our strong cash flow because, again, if we average $200 million plus a year in free cash flow the next five years is $1 billion plus, that's going to generally buy at an EBITDA in our similar range of five to six times. We can pick up $700 million and continue to give dividends and buy back shares in that time period.
Thank you very much.
Great. Thank you.
Thank you.
That's great.