GTES - Earnings call transcript Q1 2018 | Gates Industrial Corporation plc

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Operator

Good afternoon. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the Gates Industrial Corporation Q1 2018 Earnings Release Call. All lines have been placed on mute to prevent any background noise. After speakers’ remarks, there will be a question-and-answer session. now call will to I Instructions] turn over the Mr. [Operator Head of Waelke, Investor Bill Relations. sir. ahead go Please

Bill Waelke

non-GAAP now Securities forward-looking SEC. other these statements. that we forward-looking actual those in the include, call, filed of described Reform if materially filings obligation any our different Thank forward-looking implied which on is Private us Ivo the statements and financial that, earnings at our expressed risks to for the by reminder today, copy matters our our others, me among a quarterly of to risks slide being may all. David over now until a and and have you our SEC subject of turn from of or joining is use is call These next Slide the After by which statements within could investors.gates.com. refer we to today to Annual are include Report on call. XXXX Naemura. GAAP be call such with is quarter Litigation webcast presentation that this not are Today's the includes With remarks at Act. Form published that earnings will the our These accompanied which call available we our results results. meaning that market website. and measures Please release with cause statements provides update the will We forward-looking presentation, website X CEO, the Jurek; we reconciliation XX-K to and a will I disclaim during make to first Ivo. CFO, on and also closed our A be With answers QX on available updated

Ivo Jurek

million, report strong Thanks, number we review this Slide results on first to Good quarterly our are We of XXXX which X $XXX XXXX. presentation, of represents for to for joining today generated first our a quarter Thank us results. pleased afternoon. you record of Gates. Bill. quarter Beginning for revenues revenue

was prior well year quarter growth our benefit of the Our driven year X.X% total from of over by a core acquisitions of and X.X% foreign contribution currency as revenue growth strong as X.X%. translation prior XX.X%

We continue strong see growth markets that the environment serve. end on execute to our initiatives a and many demand we across

note have from core we present. Let also revenue in market a that me growth we benefited emerging economy terrific double-digit where

of also of expansion quarterly prior as reflects EBITDA adjusted At XX margin QX million XX.X% basis EBITDA sales, our stands points adjusted $XXX.X year a Our for of QX. Gates. record the over

a XXX on basis margin our XX%, acquisitions, an environment. reflecting incremental solid EBITDA of this over year-over-year was Excluding expansion margin adjusted over in with points basis, performance comparable

our including to during capacity. continue advance the invest QX investments We development in business commercial organic to initiatives capabilities, in incremental new manufacturing product growth large and

As previously, we this power capacity segment, are will in our of coming discussed we be half year. during online which additional the second have adding fluid

further will last in and organic light Rapro molded engine focused which in manufactures applications. commercial and Rapro hoses primarily In power Europe. week addition replacement is acquisition we the the in our branched for advance our other of vehicle investments, and announced Turkey, products designs it market fluid used and which to business on heavy-duty,

time runway provide fits growth and and we’ll will products further European that continent. now manufactured will through successfully capability the this North into our acquisition on have products America the these industrial for have markets. also in We distribution in transportation some for seamlessly network Rapro’s

results This our another from and upon good core XXXX. without We in are off completed. in markets momentum our to XXXX a further QX start builds exceptional acquisition solid

now let me that to some segment with details. turn So

transmission business applications power with beginning X, other where transfer reminder power. chain and belt, power as focuses Turning devices Slide on to transmission, our mechanical a

drive In to market belt-based name We with applications traditional maintenance just advantages. our of are of penetration due momentum performance, energy the most a their part across few requirements lighter to and these systems. efficient gaining weight, lower

growth and segment performance Our organic On basis, of growth prior in XX.X% for X.X% emerging grew transmission transmission initiatives. we XXXX. delivered particular to end of result power total where the quarter our markets of the over growth markets continue strength revenue This drive power core a our first the quarter. year with invest revenue a balanced was across

primarily This In delivered actions factories terms points efficient revenue, result we of in also a expansion productivity and of adjusted was the higher XX basis core our more of R&D margin basis. EBITDA expansion continued on year-over-year spending. margin, QX in

early with previously broader in markets have in customers the our our application opportunities number to mobility initiatives, we revenue and long-term pursue the rolling number target chain-to-belt stages optimistic a of our applications and verticals. stated, personal this offers we we validating conversion out to are remain initiative a process generation of are the From and to of applications, manufacturing in continue conversion industrial As opportunity proposition Gates. about value we

fit Our a and array for fluid solutions. industrial our industrial wide purpose power Slide power fluid of X, applications other in hydraulics, hose business for offers customers premium products

up was quarter power the X.X%. another core a revenue growth power to year strong up of fluid On compared with prior revenue Our XX.X% segment quarter. fluid basis, achieved total

well initiatives, We our fluid our to are growth. contributing end growth our industrial and market demand remains are acquisitions organic on all executing power healthy

in hydraulics helped This we've hydraulic segment, quarter. and built applications. these which revenue hydraulics power in is end result the premium demand largest in driven in the strong fluid backlog our for a robust as growth Our within the line, quarter markets a us significant products capacity solid available and our product industrial by of experienced particularly amount mobile basically maximizing demand in

double-digits. rate, high the Our fulfill grown would normalized able at if And were teens. we have grew in hydraulics low products demand we to the

our normal return ship by booked Our upcoming us end. year to all incremental hydraulics capacity, help related, which is conditions will

late expected on investments to remainder core us initiatives that this in to are the market, QX online end capacity very well at hydraulics of increment addressable our and and of growth first our believe environment. to timely position the XXXX. of QX and The execute will into will with begin expand QX these capacity come in We constrained capacity

capabilities the to while our adjusted XX also power Our that In specifically. will year-over-year We With EBITDA help growth in now power fluid and to achieved over investments an this turn we market I commercial have in points. fluid very margin. remain product contributed earlier. encouraged was us large expansion general that over and that basis improved revenue the to David. it segment, continue hydraulics to deliver this the on margin core expansion presence development opportunities have referenced initiatives I underpenetrated to We to about strengthen making in

David Naemura

for Thanks, results the QX can delivered Ivo. that performance we cover in record Slide on and beginning Ivo with experienced demand our growth will X.X% demand now More see transportation broadly, financial additional X, in our quarterly where I adjusted a at earlier, and business you markets. and currency, growth continued X.X X.X mentioned total revenue revenue end of we demand growth mobile revenue growth adding points quarter points range Core saw acquisitions EBITDA. double-digit in construction, in growth increase across particular. and primarily foreign core were was the an from to that bringing applications agriculture the end hydraulics robust revenue customers. and significant categories saw of markets, first-fit in industrial in growth a reflects industrial our strong XX.X%. We to particularly for strong as The revenue

very typically exited with significant carry we little backlog we backlog whereas a mentioned, Ivo booked ship business. quarter the as a As

these and rates hydraulics demand we that factory historically address will over are current of Our utilization year running levels. high the additional coming we the to capacity at have is remainder online increased pleased

of will in increments the of our begin products build the the China around from deliver be of existing facility space capacity and QX. out to that first The hydraulics end will remaining

scheduled Our late to two plants are online fluid in new early QX. come and QX power

of adjusted $XX prior XX% million quarter. the $XXX an Our of over million EBITDA or year almost was increase

was adjusted improvement XX.X%, margin an the QX. basis over of Our XX prior year EBITDA points

basis quarter about an million the EBITDA were continued prior offsets our procurement over did some inflationary raw with across spend increase actions of of in increasing was XXX prior with We impacts the adjusted $X.X impacts QX. full acquisition, see Excluding over inflation basically continued the These our base. year. the XX.X%, materials points margin year

very price quarter We implemented we also dynamic was that in we on total basis material neutral had the believed in impact gross a about we we points. the and favorable contributed basis being performance in In pricing, about prior and quarter XXX the This was in net favorable this the basis We expansion end by that XXXX case. and be quarter. first discussed would the XX year expanded grew positive to excluding the material prior of quarter, which resulted stronger of of our income points diluted to quarter margin in the in year comparable gross the quarter, quarter. acquisitions pricing margin price a basis compared the on operating one the adjusted during per to fact of on to $X.XX the of $X.XX that was the in that leg result primarily which prior share that

expenses those as is Our to rate our effective effective for no deleveraging slightly and would rate we a higher was to the provides effective focus to QX in in This continued there bit on corresponding debt approximately related the Slide our tax be. full rate is QX tax cash XX%, year business. benefit which where due on was X such detail which anticipate flow items than non-operating higher key primarily reductions. of

as incremental points trade have we Excluding improved compared sales working working a of month basis percentage as the XX without over QX. to last trade hydraulics, capital the the our capital that our year acquired prior XX

our of the capital the working our typically with a seasonal first As year. point end tending working be year the in capital the a low built of has trend half whereby is reminder, to

cash net last a have income. provided and presented as reflected flow as operations months adjusted conversion flow of XX CapEx cash cash less by flow percentage free We free

tax our Also an inflow month the of prior $XX over had associated during one-time of we performance and period, twelve year current period, a the with improved months power fluid out. with spend for last associated we capacity last higher period, we last the XX While XX significantly EBITDA in in CapEx had year net build million prior month adjusted income refund. QX approximately the

Looking forward net in range approximately of CapEx our be sales. our expected to XXXX on of in line CapEx, with historic maintenance X.X% is underlying

elevated our that year due total will However, would our due CapEx capacity be investment was capacity. $XX QX in power we Total anticipate and this to was million. growth million QX approximately of investments full to $XXX on $XXX the the level timing to CapEx the fluid for CapEx additional million

times X.X along of on our proceeds cash Finally, ratio which repay reflecting QX ended net leverage, on we with a million, with outstanding used, debt. million $XXX net approximately we $XXX additional to IPO leverage of of hand

X. here at the of to full of Rapro, our for The outlook completed the with which consistent Moving acquisition exception is our with year XXXX the on we the presented previous Slide from guidance of impact end April. outlook

the the margins. level of remainder Rapro approximately million For contribute would expect we $XX EBITDA which to generating Gates' anticipate we average year, the about to sales, adjusted of in at

view points more As we of introducing plus previously despite remains growth environment or tax opportunity. basis I color range the communicated effective current that previously significant minus XXX given the we to in, are noted, on year. expand uncertain underway the XX% our the investment full the additional market CapEx rate for are Further tax

know we inflation very, topic. in tariff current Finally, are very a that

as we As environment we to note experienced positioned in favorable referenced have and would did again believe QX price we QX of that we well that in material XXXX. are this we earlier, in manage

full at It Section on actions Chinese our region, As we worth note our manufacturing would because I region and selected bringing be Section in already primarily our will plants. associated annual strategy. this new wrap well. not along there brand Ivo? XXX capacity Ivo up for aluminum sites, factored it beginning which believe guidance mentioning we that with of is on it With this to do additional with I QX are at appropriate these fluid again relates power guidance. significant up. factors two in of capacity that be over start-up which as the to also to into the that are also anticipate impacts offsetting imports, in bringing we XXX online contemplated will were already hand three at tariff tariffs back time, costs will Accordingly, imported steel year

Ivo Jurek

Dave. Thanks,

production We the are start end to as continues geographies. encouraged forward Global our by the us diversified markets which for look remainder our XXXX. strong and we industrial to of across drive confidence year, gives demand

With growth segments is stable is of differentiated applications commercial while manufacturing Q&A the Sarah? further back robust. year. XXXX in our on advance replacement over deliver and steps across on technologies remain the we We capabilities, our focused the call on necessary on Our of on focused a believe to our are organic will very our selective was a result up session. development to growth compelling into operator QX the or our products position business as our to where our capacity presence execution our growth. strategy team first-fit taking will We a recurring we the introduce believe start business opportunities. trajectory resulting global opportunities to appropriate as are strategies. first-fit the large long-term strategic move we channels new can and product on organic revenues on new now remain have to the we investments and executing turn in I good in providing open teams growth

Operator

Your from Please Instructions] Citi question Group. the line Kaplowitz Andrew ahead. comes go [Operator of first from

Andrew Kaplowitz

Good afternoon guys.

Ivo Jurek

Hello, Andrew.

David Naemura

Hi, Andy.

Andrew Kaplowitz

that can capacity high-teens, organic as be grow fluid regarding has Hydraulics segment have built you’ve your have tell much any hydraulics in concern as you how been of of given in really, limited said, And able you your backlog power you some Dave, the the any as your that how know increased power about in been hydraulics you slowing have markets the to or would the quarter. visibility there Ivo peaking, growth and segment? higher actually in evidence – fluid seen XX.X% markets, growth? were such mentioned you

Ivo Jurek

– to are away we the markets encouraged are from that is [indiscernible]. have similarly look we with. markets behaving this The I XXXX and will how Yeah, I a start and stay the are very question whether and great Look right exited XXXX. behaving very with

we very So behavior. are encouraged by the

are the you in quarter, doing if segment, core of all We increasing power north somewhere manufacture we we as X% well looking able of growth fluid we we have were put so said so another are core. XX% Our the that in really probably it or orders to the customers were received our backlog of Andy. have would at

and We as able to fulfill have levels we we any our into we were on the have those just running call reached the you elevated last of forecast have we been that where reduction don’t period. quarterly to told all pretty orders just see not as at levels looking incoming frankly in we are future

Andrew Kaplowitz

helpful. that And to talk XXXX, Okay, last bit which quarter the a in on really know depending auto auto had first but your you Ivo, industrial you replacement business quarter. relatively up could pick that’s lethargic thought then you’ve aftermarket mentioned American in we company was North

that you as and replacement, what your did a outlook part your maybe So see for business, auto pick up a in the company? about whole of

Ivo Jurek

sure. Yeah,

good I that’s question. really that a think

it so – about X.X. and slightly business America about X.X% grew X%, QX North the slightly in approximately under Our business was under total was was replacement X%,

the So a have last the that call, to as XXXX, better. business little are I on doing that the think starting XXXX from dissipate. we as on I saw true. we headwinds update, last It’s explained the said we bit see Again is

primarily are fleet. seven plus focused year We on the old

I going XX% to for as and expect give business to number AR or economies maybe a XXXX robust as emerging in we frankly that in example so. just an China is grew so fleet you move a growth behaving mean about And market on us forward really well. we into very China – car are provide there and our a that’s that’s that’s going you the replace, know And stability beyond.

Andrew Kaplowitz

Got it.

like and as in it you steady as sounds So the good growth business in first-fit go well.

Ivo Jurek

In grew first-fit X% our about auto business, globally. we

our So to business again it’s but with well. see products is not the really – we a hydraulics growth and differentiated of part big continue doing overall, growth in

Andrew Kaplowitz

Thanks, Ivo.

Ivo Jurek

you. Thank

Operator

Barclays. Julian Please comes from ahead. question from Your next Mitchell go

Julian Mitchell

seen just Hi, think afternoon. rate on is the overall general emerging color of sort in very the developed quarter. Maybe growth trend bit I little I buoyant you've markets market give of weaker. good developed one market mean a growth, in

So market was you’ve growth double-digits. said emerging I think

growth quarter? was prior it So, how market in Thank was in developed you. and what QX

Ivo Jurek

Good terrific for continue emerging perform well afternoon, the said, have you. we markets presence to there. Julian. Thank a us. we as really Yes, Again

We’re have anticipate we behaving the of spending grown to quite doing XXXX. They – for way to are they a bit continue of grow markets grow single-digits. I’d that low resources in the developed grow our those not this presence – that plant displeased markets. are than it reasonably the say well. We're kind those

Julian Mitchell

And…

Ivo Jurek

probably if capacity we we that maybe had And would I economies. power, in growth the if points can three in another of the developed seen fluid add, available probably Julian, maybe quarter would I have

digits. growing the of support available we be not Its probably coming demand an we’d all mid So is The kind single see orders issue. in. capacity that to

Julian Mitchell

year fairly QX? back becoming Understood. you. around versus of even then in months that think that of impact? gross in have out price gross terms first steady increase quarter. Or adjusted maybe the equation you’re circling remaining look about And margin the in when the terms good to with pointed you would at the as of delta, that cost it you be my price nine of cost the the more what had just back When up will follow is be saw Thank tailwinds you margin half you in thinking you

David Naemura

Dave. it’s Julian,

is way material neutral I so year. be materially or that will thinking price it for probably the we’re think about maintain the we will

compared they price little a along tougher we it year. added think I last

I in early the we’re impacts [indiscernible] year proactive that to our well some inflation made the didn’t we of served unique things like be which think against I were industry had to earlier we Accordingly, costs we price. will a little it to carry provide good compare bit us year the impact that. everyone, and we on price into think to begin but

So the gets very compare bit I year a price neutral, harder goes little than does little year. we’re as it’s anticipate better economics materially looking favorable right the now think for the the I we and think a not neutral on, full

Julian Mitchell

Great, thank you.

David Naemura

You bet.

Operator

question line Sachs. from next of Jerry Please ahead. from comes Revich Your go the Goldman

Corinne Jenkins

on Hi. Revich. Corinne for This Jenkins is Jerry

for global could the you’re for in you’re that hoping I understand business seeing you across about and transmission that your your what I was where utilizations So fluid power. utilization are talk power footprint? seeing

Ivo Jurek

Yeah, you as are on I the nicely. well. remains quarter economies It’s the us. constructive have economies. emerging think very last Again, know, good solid Look emerging We demand very afternoon. we that the updated – quite growing for a market particularly environment, in very,

utilization in economies. We are capacity those rates running higher emerging

We that of giving dramatically rectifying, we not exception any they lines couple with but in power constraint are really speak. us capacity so the are product headaches not transmission a of are to

capacity our So it’s I balanced think we support for well a very environment with to growth. the available constructive are and

Corinne Jenkins

Okay. to power have expect up we and on And to you talk like pretty should work about catch sales? of take the backlog if hydraulic sort demand expect that quarter then elevated. this think then the it you long you how sounds in you exiting remain Can any about

Ivo Jurek

very try that cycle you I Look, is on I what answer a we than of is see you business know company know – strong specific Look you be. give expectation the the to to think demand. a my going rather mean, me opine let

equipment forward after construction frankly very a equipment and to weak sales. demand expect ag years that mining carry several We equipment,

the is in how in we have are that of conveyance. technology The is ourselves going further investments about we tremendous is that market that So my new be positioning are very way thinking fluid to end expectation we growth. supportive

that are technology. that quite technology way. opportunity a We customers. believe demonstrate significant by are share to market have without starting OE we party to We third incremental excited take that They already

are this have the We of we capacity the putting new support and technology globe. that in opportunities across

are small player We reasonably North outside of America.

rate China the expectation extinguished with calendar XXXX the of our that should in maybe the Look, year the continue capacity to incremental growth future. backlog. by ship. backlog we North question Poland, capacity the we the of well our America, in so that And believe of and of go book to and pretty expect be in And last about mode capacity piece in incremental that to reasonable operating into see end is that, is into normal we where your back going – kind

big there. end ship the book a and not company, expect are more will business, that and a We backlog be year, are we we we of of

Corinne Jenkins

thank Great you.

Ivo Jurek

Corinne. Thanks

Operator

next ahead. Your from comes question from Cook Credit Suisse. Please Jamie go

Jamie Cook

good Hi evening. Two questions.

being impact chain then in my were demand supply issues? issues, from, to constrained whether own First, product, regards question And markets, have an external the demand, or in profitability? with to it’s any equipment where and first-fit, you there talked the impacting labor ship capacity factors is not does second ability or just your particular, about by strength mobile mix coming on but

Ivo Jurek

Jamie good afternoon.

external to frankly, and question, first when results. stand me the It's capacity just extremely OE, to started Power that's that assets two good those seen impacting experiencing mean, rates to slightly that's a shifted utilization, three an ability I supply to up company our shortfalls are a for of us a We have make not we factors all impact help asset coming the new towards high points, don't timing we’ve why is we So offset let been half It’s believe capacity. be in investments question the the presently. with start a about see we’re ago, second Fluid specific, will expect sorry maybe to really is year overall, products. our first. to and significant opportunity mix we running the and what we

Jamie Cook

Okay.

David Naemura

Jamie…

Jamie Cook

Sorry, go ahead.

David Naemura

of points gross was mix as course. basis under of see level, points mixed the shift impact we of of under some XX XX the negative that in quarter margin The basis

Jamie Cook

your for what’s and year, the expectation? Okay

David Naemura

at in the XX give the had the things. impact come a positive as out more year. offset see that. margin by gross revenues said, mix We'll year XX, or the for we which on obviously guidance of quarter, in first a But for number wouldn’t is basis Ivo point the and three level shift I how point saw, it two maybe

Jamie Cook

Thanks. great. Okay,

David Naemura

Jamie. Thanks

Operator

Please Your KeyBanc from next of Jeff Markets. line question Hammond comes the ahead. Capital go from

Jeff Hammond

afternoon good guys. Hey

David Naemura

Hi Jeff.

Jeff Hammond

of the on Clearly, supply your in people back pressure to show seem chain. kind feeling lot are of Just Fluid incrementals. a and Power didn't and ramp up

to redundant need and of As any and working forward you build or anticipating the try you any on are backlog forward? cost some kind you incrementals catch-up of impact for ramp new look you capital we these and the as go plans, negative

David Naemura

Good question.

that's on the the acquisition FX. the incrementals, incrementals, that's outlets on First, impacted XX%, but impacted at also of by QX negatively face reads apples-to-apples statement, XX.X% an basis, by see income if about we adjust for would negatively we

pretty And XX quarter on so a core if to us. be which closer at about a thought a you'd not if for basis, would be quite XX, bit good

I bill. capital are costs. working think some don't We there a see start-up huge

meaningfully. the to cost in we've standpoint, materials going we inventory to people And million how have there'll We kind year. contemplated impact be raw we've from a a to of but few bring think some are there's gotten in but that not some dollars and

got So we a I think large contemplated, and we've be impact there incrementals. to would it don't think

Jeff Hammond

theirs? some just Fluid at of competition an lead seeing even some what Okay, you you're great. from as are just what are about how you your the Maybe Is capture backlog? know can comps. Thanks. times your where And you – me building look you’re then in opportunity let thinking some you Power, though share versus

David Naemura

mean, a is And we capture to is I to competitive capacity are that investment us spending on. that Yes we also position. making NPI that the frankly, believe opportunity tremendous going incremental the give Jeff going you’re further for we market spot to our think accelerate in are share. that up I

business. in stand of really terms we well the where Fluid feel Power we So about presently our

Jeff Hammond

Thanks guys.

David Naemura

Thank you.

Operator

from Deane Markets. Capital Your RBC from next question comes Dray

Deane Dray

you. afternoon everyone. Thank Good

Ivo Jurek

Deane. Hi

Deane Dray

Just but question there want build empty last not in to maybe negative the fallout very glass-half backlog point this in any on is is Jeff's share being of the stay on view, ship away, and that regarding might that book picking competitor customers because your expecting? of go and is if your any this capacity able are constraint? up backlog any And usually to do that

Ivo Jurek

we So are of that think raised. thoughtful capacity competitors I support, dealing And simply constraint. question a terms that’s is you walk is no just can are have not offer everything are that There just ability simply Deane supply what doing qualifications, because you with overnight. lots that the a very frankly we're which dealing in amount available. incremental and frankly, global they with you the through grow really to just not to of we're also something significant business, of need we in OE that that do can to But

capacity we're very feel We is backlog frankly, inventories that constructive So diligently, a believe about an our are interesting kind not good that taking feel the situation, do of about And, it's there backlog. working of so we no we bringing right cancelable. in online channel now, very and advantage the economics.

Deane Dray

this, there up branding the you mind back questions is premium that acquisition, where of come the on any guys they'll of of you'll are is for good how all about Some side, but that there they them? operating better, deal? where brand? the to clarification. best and in practices are maybe better. of they good, either continuum in are manufacturing kind with on capacity color what a the or But kind then aftermarket, you all Rapro hear. thanks best, sort that of it's lastly, some are And they at? Gates little then share And the to And bit That’s with And share that Jo are merely

David Naemura

very North this actually, opportunity. we product something The high-margin manufacturer that looking is Rapro well question. we great a Deane, okay in here that America, very were at products it's Yes, do for as us

this a them. is in opportunities our big know-how expertise the bringing of to One and

an we our through aftermarket ramp have we ability to we're channels, We set seamlessly as distinct to capacity think quite and doubling distribution going come volumes close base. we’re think we current drop So this into on drive footprint. as able to business we these it to our their could volumes manufacturing

a brand pretty they brand that Europe, in company. rare good from a is bringing models well bullish recognition well-recognized, of they for of their into very – on Operating and recognized System tier bit the the we what we're perspective, are source And little Gates they're here. So actually fit a and basically I we already a the think of brand kind European ourselves product Gates

Deane Dray

That's hear. good to

Just last pipeline? your Rapro deals in more one, are there

Ivo Jurek

of highly we and strategy. markets it part runway to to always to that the of just we that it’s think our continue like continue there we'll and on and be We're ones, got good believe in, will bolt-on accretive kind find them is Yes, of right working global play a pragmatic as I acquisitions. we it

Deane Dray

you. thank Great,

Ivo Jurek

Thanks Deane.

Operator

question comes the Brady from Please ahead. Your SunTrust Charlie line Robinson. from next of go

Charlie Brady

Hey thanks.

on following Just that Rapro was don't any can leverage and question up. or may you be now Rapro. wondering, you on get new have that you I does to customers that distribution bring you Dean’s

Ivo Jurek

So afternoon. Western reasonable Europe Eastern but base they that they and a I it's big a good Obviously, they in Charlie Europe. mean, presence, in have good Yes, in Middle not good and East, do. business some have customer

as EMEA through about they where we to that to then feel going we products, frankly, us. our our bring to do indicated, channels, core products So customers And be and our ability to really Steve cross-sell those particularly market products us space. in funnel the their believe positive able to are we're take

Charlie Brady

benefit right some relieved, because And back the in going some on of out, running of negative you that facing put be that how as up that just new then obviously I’m that start inefficiencies cost, margin you're flat-out the aside the wondering that when may flat you're market wondering just capacity pressure kind might plants, make. now. and those the to the you utilization is making that impact business? a perspective you on you you’re hydraulic, plant issue how color backlog I'm pressure part having And from fast Thanks. a are margins of and just on been from gets can when

David Naemura

certain kind products Yes kind the running make might as little see being think are, not running It's is I $X point more at a more get look, to sure, or a don't massive, to ramping I some we a are had we’ll up a not first. and think of plans that for next a we big sufficient but an hit otherwise we there, of last mentioned here, I optimal think efficient, we the but I your in your have here this and We'll saw we of in level. going that there, fourth other the factory $X think. there's year, fast, to we level, it’s the flat-out total of outsource it's sure, some once we've into that total lever these quarter inefficiencies a as just it's continue steady-state not million a the in of right, million at a but to be point, of number

Charlie Brady

using just in the Thanks. And release? that us one from this final earnings count see quarter, can give you are the guys in just you share me, I didn't

David Naemura

I mean XXX,XXX,XXX using XXX,XXX,XXX. – We're

Charlie Brady

Thank you.

David Naemura

Thank you.

Operator

comes [Operator Steven Instructions] Your question from Please next Winoker UBS. of the go from line ahead.

Steven Winoker

guys. Thanks good afternoon

David Naemura

Hi, Steve.

Steven Winoker

the for deleveraging, of in X.Xx about and very on accelerating just smaller, maybe performance Rapro business Ivo? point you in the these bolt-ons or occasionally, the how the given any some you're you're a about post-IPO, the now, thoughts impact mentioned the think fitting not that up how backing you're also but small but of Just second still thinking whole deleveraging, of

David Naemura

this Dave. Steve, is

balance, is said a focus right, always a and we've area think deleveraging us. for remains I

to better, growth. At time, to the and think the that. should the to focused continue investments on here, we're same the we're of balance We with trying we Xx midterm build get for that long-term or

accelerate have strategy our approach. doing in the that So spend capital few our in increase a think been bolt-ons and we

it approach going to well continue will business. ability adjusted frankly, the to as So of kind and as and EBITDA we're in but where quite investing remain balanced the out, grow grow with in we help you our business point to bit. And EBITDA delever remains that growth of top mind, well, a keep a us

Steven Winoker

you going smaller sort over these step bolt-ons Are likely? up not to most of

David Naemura

was I saw at. from most where you of think what reflective year we're pretty last

good think lot for are in to we'll with our help accelerate there's going kind I Rapro sized are what in five we're of year deals, when a I post lot us there over to it. synergies, again, think out business, that was for they're with of We Rapro I a time X-ish, kind sense us range, think we we've deal and We about about year never, say about be was Atlas. our deal, make out beginning Never of and of bolt-ons. deal. Look, think opportunities eight and over is core little of strategy. a we EBITDA big But of But the kind think the how this indicates continue it. little and small us. last seen kind how of those million with last a deployed a pretty $XXX a year, not of doing paid capital

Steven Winoker

Right.

that lot You it to label, I addition blew why now of XXXX, kind about a it but like auto seems that of [indiscernible] getting still growing on of of you that get with and What about away. that's growth said a know there? IPO, call kind any color point the fit that you're first guys, kind auto smarter where a how settled business? that digits, in first-fit calls you’re become and And the this in mid-single of as smaller you're part changes since XXXX the I

David Naemura

question. right. It’s you’re a great And

that I that after if important we're business you good think of markets, and we number, establishing over the we're market that, we've of the aftermarket of that half a emerging that to think there sorted where, over guys. bit vehicle want half an rate team’s and a – missed number based emerging number first-fit growing at in a half of and been it's is with aftermarket of that

turn concerns I relative to frankly,, we're much business we America, So of North in we think markets, rates. the registration very about where And sub-X% take. people away have developed as sales low, as

in put got highly dynamic, able get that coming be strategic that we very for filter one, we're to from so very selective. paid very, want innovative we to, we a and to So to products, introduce

I because think it's important an appreciate I point. the question So

Steven Winoker

On EBITDA of second you that dynamics got a guess, normally, of these just But of lot sort sales I under last questions. been just quarter, steering ran you and your different year, investment in half, couple than, front, was dynamics of and as Other second talked you've half on over first that the guess, pretty in in not dynamic we about I half close. the this half second half, everyone's should year? at Okay, the call. investment the we just a cleanup half focused capacity expect on very given a the first at the

David Naemura

that's here the backlog, stay bringing away the guidance, capacity Fluid I’m environment and second higher constrained appreciate otherwise you're half. Having we little unique a to Power asking, on been in would capacity side. from going is not what I and with that Steve, but exactly quarterly have the

I I'll that So I to here frankly but consistent I with don't that. introduces nuances and the little want acknowledge but you quantify kind guide year. kind of a dynamic year that, probably beyond mean, of let prior

Steven Winoker

Can Was on the my CapEx, unusual in Okay. XX million, that there? you the – anything is free Is quarter, the was not of million talk that other was $XX months $XX.X answer the about dynamics the $XX million, than which, CFO. growth? could million, that cash $XX.X you flow last trailing question on at – is build that maybe

David Naemura

growth. Yes it’s build on the

during that, we we as always, And build rate, provide had the the year at of end grew right? coming little low from But we got and towards think always quarter. seasonally point a this a percent end to efficient more we we one, second period off a higher I of at sales. well with as fast a a

Steven Winoker

Alright guys, thanks a lot.

David Naemura

you. Thank

Operator

line from ahead. from comes question next Please Sawyer Morgan the Stanley. Rice of go Your

Sawyer Rice

afternoon Good guys. Thanks. Yeah.

Ivo Jurek

Good afternoon.

Sawyer Rice

about introduction on bit maybe see you And organically then of little or either online? in globally, more future? of inorganically post you'll coming Fluid a say view Dean's region, a maybe of capacity side. way question give us the or capacity here to Power – any utilization capacity different Can guess, asking this that of a the all Maybe, the a I need for level

David Naemura

I levels we’ll capacity very high see Dave. going ramp to so guess, It’s that, now. is whereas Sure. right

come will I to in and down probably there. the level, then very XX-ish a think from will range, percent be we’ll healthy which ramp

up. to we're new new noted, to be we it is. and going it's plants As with as enter going one capacity some to take are capacitated third to backlog, The this come going time

a very get into we're building, the going years plans big we're floor. have future are the are to out as here third frankly, lay in these then of as it more into we're opportunities. point get future around We're where putting and So we grow into your to well. capacity And years, And penetrated. eloquently, we opportunity as well left have we'll we

America of we have which market share, a a opportunity, still $X more have currently. of penetrated but North we Although billion in relatively billion of there's ton $XX-plus

still both we consistent have where say capacity. we So bringing significant EMEA I think the and take that's to up internationally is share, would Asia-PAC, with and opportunities in I see

Sawyer Rice

just as there's maybe, just follow-up then on data And go-to-market one points a the incremental side business, Great. maybe I on if the through if could reception the PT any quarter? that Thanks. any of positive chain-to-belt, with

Ivo Jurek

this manufacturing opportunities, asphalt see, a existing to let's the silos, may last personal we different we of as the applications talking lumber look, with regional Hey, continuing globe. guys this where and and of what my be go we I are this associated that in focus year, we but operating lumbar very and from Sawyer. encouraged to opportunities, have bunch started more – facilities guide lo you And also your let's helped of significantly assets. we're safety Pacific, finding across reliability behold, we the we across type and and Asia hey, facilities, And and is Look me mills, start there to let initiative, to early characterize, we and unearth improve everything a frankly, processing on very out couple by those really mobility. guess, exists of say, in America customers are validate it globe, validating are Ivo. in mobility big market opportunity stages very we are anecdotally, is This interesting grain identified we've to North of the opportunity

you finding pump their oil with manufacturing oil loading maintain opportunities from if opportunities as an in various people in equipment, opportunities quite struggling opportunities in EMEA drives example, chain mud rusted – And in offshore in marine gas, are servicing and light that We and industrial it being and can't extractions. maintaining there where complex. is important finding offloading with we in are keeping are We're payloads. believe finding

number winning validating and exists, of customers applications. opportunity we actually are that So are directly the with a we

realizing XX that converting XX, gotten convert once XX, an them, plants opportunity customers operating be and We we may once have that are are those we one, they convert proof-of-concept. to we have to

And of we So answer, I represents although Gates for on strategy. sense, can think you general the it's that enthusiasm quite a know are long the about of are but a term. bullish I degree what construct as this there's long-width we for early,

Sawyer Rice

Great, thanks.

Operator

comments. at call this I'm now the Bill Mr. closing will Waelke over showing questions back other for time. to turn I no And

Bill Waelke

QX today Thanks for for We look to And don’t Have questions, and our forward call contact please me. you on a your joining us report you to speaking interim, our to hesitate have Gates. results. all everyone. further to good the interest in evening if with

Operator

conference you today's Thank participation. call. concludes your This for

may You disconnect. now

Gates Industrial (GTES) 2 May 182018 Q1 Earnings call transcript