GTES - Earnings call transcript Q4 2024 | Gates Industrial Corporation plc

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Operator

Good morning, and welcome to Gates Industrial Corporation's Fourth Quarter and Full Year 2024 Earnings Call. [Operator Instructions].

As a reminder, this conference call is being recorded.

I would now like to turn the call over to Rich Kwas, Vice President, Investor Relations. Thank you. ahead. go Please

Richard Kwas

to you and thank our us our Mallard, call on and be Jurek, Greetings, by followed Year for XXXX Quarter Brooks over the passing Full language CFO. cover CEO, Earnings Fourth Ivo forward-looking will and our before joining our Call. non-GAAP Obviously,

results, we website release the is on our opened Before fourth and of the today, market full Copy quarter investors.gates.com. at our published year XXXX financial available

a webcast Our slide call by is is presentation. being and this accompanied morning

call, our the to financial our website. non-GAAP of Investor On each our will we certain presentation, which are non-GAAP slide in of financial refer the believe Relations we is earnings section useful measures the in release, measures historical performance. of that are included in and evaluating Reconciliations available

to are to Slide statements include will of materially Securities Litigation These X our to results which Reform of Private different the could forward-looking that reminder be from provides the subject refer Act. Please risks statements now that a cause remarks actual These within as statements. meaning the presentation, by we to on our SEC. disclaim XX-K recent report or include, among we these implied described update such statements. any most annual forward-looking matters make in other forward-looking in with expressed filings and Form have others, the in obligation that We risks forward-looking

we you. the before during unless March. against look We period otherwise. And meeting please comparisons and many investor February will stated be attending of conferences year several We forward to note prior with are start, all

to Ivo. Now I'll over turn it

Ivo Jurek

joining you we Good you, morning, Rich. Thank and today. appreciate everyone, us

forecast The in team accomplished at encountering the XXX a challenging expected grew of EBITDA XXXX. environment globally points, margins our in presentation demand more made Slide XXXX. on the what begin initial year. we've progress exceeding Let's we've significantly outset and basis than adjusted the while by We of significant X Gates We. review

to us focus relative margin enterprise deliver well expansion initiatives on enabled teams and to our executed XXXX. strong Our our gross

EBITDA, Our our XXXX. lowered profit we adjusted refinanced record adjusted successfully net thus, in to reduced share and costs stack, ratio. leverage us improvement Further, and debt helped generate our financing earnings per our

supported we ultimately exit year-end. prior of their $XXX the million sell repurchasing by year stock Lastly, facilitating Blackstone to our during down

we operations positioned industrial demand in state during of capitalize later provide Fundamentally, towards on our made the to midterm presentation. believe the and on business I more targets. strong and our are journey we've Brooks potential achieving recovery XXXX, color headway will our current

strength summarize operational EPS. share organization's other higher X, a Slide items. flexibility. indicative improved interest and our growth per On we more which We income We lower our contribution was augmented rate contribution, tax adjusted the share led movements key by of expense offset delivered earnings operating XXXX than financial lower XXXX in count, believe and from by and

X, quarter reported Slide the review U.S. our revenue fourth the impacted with I negatively On dollar expectations, while results. strengthening the will quarter Core during consistent performance was revenues. of

increase posted a replacement Our in mid-single-digit our supported channel growth, by replacement.

personal Encouragingly, decreased markets. the quarters the and X time core increased first by approximately mobility in sales in expanded OEM reductions Construction affected primarily volume Agriculture Our XX%. growth end for and

above year. end the Our book-to-bill at remained X of the

was driven performance adjusted to margin XX.X%, basis for increase increase expanded was The a gross XX.X%. basis EBITDA overall initiatives, ongoing operating various to as performance channel profitability primarily record from XX contributions supported margin was point a as margin as realization enterprise which The and Our performance drag. volume solid our Gross points fourth mix. XXX well benefited in from by quarter. a gross margin favorable improved price

seeing cycle of the XXX%, an capitalize at some levels that in to and expected or our we full the others, demand levels fully near and which our have XX%. inventory conversion ensure are flow on to during are maintained we We trough inflection. cash shoots and Our year was brought green end in free markets quarter believe

during positioned which have half inventory earnest plans, we of second continued CapEx and Additionally, the invested footprint to support XXXX. in launched our optimization

ratio XXXX. strong of We year-end believe to we're leverage leverage our declined ratio year. $XXX share to further. target from hit X.Xx ratio X.Xx during X that to to our in net would cash net Xx. of Resources Our leverage at million net have repurchases reduced the XXXX that allocated a We position

under single million just quarter revenues represented basis Total total down core X.X% Fourth a inclusive were that Please industrial quarter. by in on was end and through effects our turn to currency basis. markets, revenue America core and a foreign North incrementally digits slightly of the This $XXX worsened by a expectations. decrease driven mid-single-digit primarily declines which low Slide X%, unfavorable on offset than Automotive grew X. Europe. were better was

the elevated. see of auto continues as constructive Our with in to grew industrial recovery. we line builds remained Automotive and flat signs in decreased OEM business. industry expectations and Asian replacement see Construction business sales demand Replacement were continue to as inventories OEM sales modestly Agriculture

driven yielded more EBITDA basis was a solid by expansion Operating Adjusted was share lower an improvement $X.XX adjusted prior margin offset partially Adjusted year. earnings count Benefits contributed sales. gross down led income core savings. margins. basis approximately in XXX sales lower and was XX.X%, our per which enterprise than The lower share X% million A versus volume a of points. EBITDA $XXX $X.XX, was offset $X.XX. headwind from by points by was initiatives the and initiative XX increase the from of impact

supported Industrial growth channel personal stabilization with decline. Transmission replacement the revenues under which Automotive decrease to that on demand highlights. approximate On overall replacement X% to In in generated year-over-year, translated returned million quarter, a some posting The the declines. Power Slide basis. core by was channel magnitude of OEM we up segment, in the double-digit both review we'll increase order Automotive OEM Notably, and of $XXX growth in segment and Industrial X, our was pressure modest mobility in the with a replacement. lessened

EBITDA Transmission top by basis margin XX Our adjusted points, lower the declined impacted line.

OEM basis, In replacement grew digits. were XXX sales core slightly which declines. than on a from our was mid-single the enterprise by This single a peak segment, a teens declined X%. Power high by which the Agriculture business high digits. which sales On and sales continued offset supported approximately core softness remained replacement million. basis, points, replacement, initiatives by Automotive EBITDA in offset mix, Fluid more Industrial expanded volume higher driven our stable, benefiting replacement, in Construction. declined Fluid The and Power sales pressure margins demand segment Industrial $XXX basis

pass for results. our Brooks comments further now the I to over on will call

L. Mallard

growth. was Slide Ivo. performance activity in core more Asia you, performed offset on and the by the our macro weakness delivering X This East China begin broad Thank and review quarter, in soft sales I'll by modest a than in Americas. region. Europe industrial well and

primarily Agriculture in impacted sales in X% and were and demand. replacement mid-single by replacement markets Auto OEM North with Construction high with declined slight and single-digit core end decreased digits America, OEM North to expanded channel approximately our increase Industrial replacement. performance. a growth most In sales Industrial American affected channel digits lower the double sales

strength down Automotive down modestly Personal the growth the supported the in replacement low sales, the replacement growth. single diversified just mid-teens, core over while from the growth grew grew Industrial level, China At by OEM X%. decline were high sales double mixed Replacement Automotive replacement digits, experiencing in Automotive to digits slightly headwinds, low fell replacement Industrial strength low demand were with by were end sales low and returned Mobility OEM OEM sales single and single with end and in core in sales Automotive the industrial offset EMEA, by significant digits market. digits. decreased a replacement Energy single-digit was benefited driven teens. weakness. in Industrial softness. market In channel. expanded sales core Agriculture

growth end X.X% single Asia declined Industrial by East and OEM more growth markets. which Automotive sales. the Automotive sales digits, replacement and low in channel offset core posted than was in India

to single core disruptions impacted digits, America by high mid- sales South in logistics Brazil. declined primarily

per but contributions change our initiatives. we share was contributed Lower share to a largely $X.XX. in display adjusted per by Slide earnings Other was per On of components from lower $X.XX our headwind the enterprise earnings count adjusted volume and key items share year-over-year mitigated share. X, a

and an has cash trends on XX update our performance sheet at balance year-end. flow Slide

to Our conversion income. free represented cash flow for which adjusted the fourth XXX% net quarter $XXX was million,

the As previously systems on to capitalize mentioned, healthy we footprint timing inventory enhancement anticipated capital an we accelerate help pulled levels certain keeping Also, to ability CapEx are to certain optimization and deploy of to strengthen investments fully inflection. forward programs. some demand projects our

good Our slightly XXXX. of from net was our of balance XXXX. in down X.Xx end the leverage X.Xx at end the the sheet made at progress with ratio We year,

the delivered by the of million debt full successful gross year. of middle on our our over In the basis loan a of X reduction a stack lower that XXXX. XX Xx. interest our our strong debt we Specifically, executed we quarter, which to expense a point term lowered during We leverage realize will and refinancing $XXX target position in XXXX are believe to we for net our spreads, fourth

compared Our basis year-end trailing point XXXX. at finished capital XXX increase XX-month return to XX%, on a invested

capital opportunities. are projects to our support and typically to continue deploy initiatives return We internal enhancements. enterprise These highest system

On Slide for our expectations guidance the our first year XXXX and introduced full XX, we quarter.

XXXX. of down core for up X.X% have the For relative revenues XXXX, to in initiated X.X% guidance to we be range to

midpoint improve anticipate average at we We the year contribution on X.X% a basis. as core weighted of growth, growth market as year-over-year the Importantly, headwind end assumed progresses. have a slight will

from foreign half first expected the year. We a impact are for in with X% about the of greater year, budgeting headwind the exchange

adjusted million. midpoint, represents Our is the EBITDA point in initial to the increase our in XXXX million year-over-year of margin. basis XX $XXX adjusted a guidance $XXX EBITDA range guidance At

per Our per adjusted $X.XX share of $X.XX share. is in the earnings range to share per guidance

net We in spending capital of to XX% to cash more free anticipate are exceed XXXX in high-return our our adjusted projects. We on XXXX. income support flow expenditures

be at For be we the midpoint. revenues quarter, the total to first to down range X% revenues approximately to core of $XXX the million in and $XXX million estimate

of compared in points margin basis QX to first expect XXXX. basis For the a we quarter, XX XX adjusted to points to our EBITDA decrease range

On realization proceeds. walk basis EBITDA left, explain moving from margin that pieces benefited adjusted the our the XXXX XX XX, QX margin. Slide Starting show QX the from we helps a insurance of points our adjusted EBITDA in

adjusted estimate XXXX XX%. QX by proceeds, Excluding margin midpoint basis impacts margin core sales our QX the points. decrease, which EBITDA adjusted expect we a these guidance, X% was our about At XX of nonrecurring EBITDA approximately we

We sales from lower mix. expect enterprise our to offset and improved more than initiatives the with contributions

generating foreign quarter exchange be without rates. a would an XX.X% margin from adjusted XX headwind estimated basis we EBITDA such, point in As unfavorable the

On to at the midpoint. Slide EBITDA our XX, XXXX adjusted we walk provide a

and initiatives footprint to We FX to expect top to million on our $XX headwind operational million profitability items reduction is add year-over-year little estimated with optimization. $XX over a to enterprise to $XXX million from contributions about our a a profitability be based line. about our

some point foreign items of repeat estate. is real a just consensus had to on headwind also we noted XXXX headwind XXXX is don't $XX expect I sale than the gain from such between in important insurance The XXXX slide the that midpoint the An proceeds We as the of difference favorable adjusted million from exchange. well profit our as the the as guidance. the incurred more at EBITDA in

On for XXXX. we operational from right, per $X.XX adjusted to walk about Slide project an XX, left a display share we items. benefit earnings From

to Nonrecurring to a and compared period. Foreign headwind $X.XX adjusted share share a per exchange earnings improvement. net year $X.XX the to below-the-line items represents prior

plans provide our progress. On we Slide our color CapEx and and XX, more background on margin some

system the footprint you XXXX. the our support projects middle, adjusted In XXXX On to you capabilities. and our see and optimization to spend intend in above depreciation margin march by expense XXXX we our to left, X.X% EBITDA enhance see our

Our system of margin headwind a and from XXXX point XX unfavorable includes XX.X% adjusted basis FX EBITDA guidance investments.

to margin to support, our with has optimization volume savings no date achieved realized. footprint Importantly, be yet are been progress our and

we As target. are our good position EBITDA adjusted such, we in XXXX margin believe to deliver

turn over Ivo. now will it to I back

Ivo Jurek

Markets refresher on a XXXX target, gross which at Day. margin provides last Capital XX introduced Slide Brooks. we year our our Thanks,

margins approximately sales. which XX% the gross basis XXX in full almost a our us puts last As year XXX see, a points away We target. we you margin XXXX over our points can XXXX, basis from gross full year year decline expanded generated for core despite little

progress good cost material front opportunities reduction and savings remains in with have us. We of additional initiative made our

anticipate volumes those although date, from our not pick we have recover. up steam we operation significant benefits realized our to To initiatives, excellence as savings

initiative We also realize savings from to footprint expect initial our in optimization XXXX.

is improvement As our estimated should reminder, leverage. believe a of optimization a a us XXX Further, which result over there core margin operating we points footprint solid is recovery in volume basis at of to initiative maturity. yield ahead

the date, position we target progress to made are for good we in XXXX. a margin the achieve outlined believe we to With gross

the opportunities Turning to of XX. us. some Slide of growth secular We key highlight in front

Our for and mobility business our and activity are incrementally win E-scooter new systems and we as the such see have penetrate segments areas to developed reducing applications. higher to design continues e-bike lower strong price, of cost of bikes e-mountain volume applications

We XXXX. generate growth solid in expect our mobility to business

direct centers, addressable are data opportunity we to in the fully customers. We cooling liquid opportunity. support total market conveyance hosting including expanding on form we a the as and to chip, process fluid integrators. and to mid variety In across our of specification door immersion offer deep term liquid services We manufacturers that major performance as applications server providers over web system through portion heat the differentiated and of hyperscalers the including that and long product and are systems, to a rack well believe for cooling that good exchangers. a cooling capabilities of capture meaningful have rear capitalize we products

The for to to base which avenues a us be a half multiple globally America during continues the revenue partner major in in to North contributor second XXXX. nice added channel offer We XXXX, to new other replacement of expect we our market grow.

We to North channel have capture new America EMEA. both and and with partners opportunities in business existing

car we In well reach ages. support emerging various markets, their product as our intend to are and to parc be addition, demand expanding positioned in

few I'll take XX. before your offer we some thoughts Slide to questions. Moving

First, our XXXX, a increase softer-than-expected in demand executed margin environment. in team well a global driving

customers best-in-class We serving our on are levels in highly service our focused and increased to XXXX.

science and capabilities are We growth nicely to also a and deploying services. grew material our wins markets design new secular that process possess

recovery. our Second, industrial positioned we business the well is potential believe with

journey to framework, ahead to term. mentioned I making long of are As business expansion we our our margin is the Within earlier, mid- schedule. the improve investments for

we systems our the are customers. of As to and Brooks our earlier, improve in efficiencies organizational referenced to needs responsiveness our making increasing our investments evolving

In adding commercial to us. advantage growth addition, of to we are circular opportunities take available resources selectively

which continues over years. deployment sheet balance the to capital next help our should aperture Our improve, few widen

I more meeting want their questions, your applied my taking the associates extend fulfilling Global goals and Before our XX,XXX to for customer strategic to than and commitment perseverance Gates needs. towards gratitude our

turn operator now will back I call to that, With the Q&A. the for

Operator

Instructions]. [Operator

comes from question first Our Barclays. Julian Mitchell from

Julian Mitchell

question revenue and first levels as good the color. market just very the Maybe you've margin end around given

looking those example, So slides guess, on I at the for margins, Slide XX.

XX from insurance. You've bps up aside maybe is got those year-on-year the the bps or underlying something. margin out in quarter up the about on The around guide, stripping FX year XX, full suppose, XX first I

are though a even look improve. margin So EBITDA the embedding big it to meant I like after volumes think doesn't you're QX, top line improvement on

efficiency within understand, us there that, savings, of What's Is help that moving the else just for maybe please? Any the phasing on color So is conservatism? around anything example. EBITDA?

L. Mallard

Julian. Yes,

headwind think initiatives, I coming really margin out The at look think, our is kind headwind material continues based pretty based modeled is current on a We We today the rates. the don't really FX FX year-end try as rate, the to rate. more got just we've mostly and very XX, I you be Slide margin to We've from got the and significant oriented. FX predict walk. if upside, big going enterprise right? on that So so significant look, it it lays of

-- So changed levers we dramatically. the haven't

that an terms of recovery to drive numbers. are in inflection in margin walls initiatives drive we still improvement We the continue year-over-year. have X And not our within going enterprise embedded the the market to of Gates

that does your question? think I answer So

Julian Mitchell

guess of second difference that's phasing or half, efficiency is to, first just seems mostly but it there I to footprint was sort trying -- Yes, perhaps [indiscernible]. of any get pretty I half, I think

L. Mallard

definitely Yes, us half. like I going think footprint savings in second definitely the optimization phasing harder hit the FX the impact first the and then is to hit to going And some in on half. of the is

the material phasing of is through as year. fairly linear that's half. half so second versus the move And kind you first savings The

Julian Mitchell

follow-up helpful. topic. just That's And then a

you're In into tariff give don't your commentary color represents of much sort say, terms to Canada, exposures of backdrop? imports buy how broader China I Mexico, grouping COGS, Or the any three? U.S. from sort of around if on, any make of know of those willing you'd kind around of your the total the

Ivo Jurek

say and would Canada I China that Julian, Yes, China excuse -- minimis. and me of de kind

a I we've and that's place not use But actually we the would between this know tools have to presence I to States the manage footprint that down in say likely that have But we what of situation So would Mexico. opportunity actual offset have we before lots a would that process much will as more the really and would assets assets. We we mean in of the gone Mexico flex very sweat any China needed. rebalance tariffs exposure. concern. give in to large obviously, reasonably not of tariffs, that's price up impact. we us good Canada, and also really in through once U.S. and vis-a-vis be we cannot United production

Operator

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

Deane Dray

Good should uptick, X we've bit Mobility waiting feel of for to been have here. quarters get spotlight an a everyone. morning, they I little Personal Since

indicators where is So that looking easy Or And comp? a you're what do this it -- and turn? are at? is how key

Ivo Jurek

mean, said, strong by good comp of we morning the all the much being driven Deane. primarily seen But obviously, Asia performance, have would became a Yeah, easier. yes, very broadly. above. I and say I that that, EMEA

inventories 'XX. mobility in and January declined QX. we peak June the very now very in the since of to line steadily trend see seen constructive very manufacturers also So positive We've are personal very starting constructive recovery so on have

levels. very Activity, time, point are that the are normalized in more or past We've talked about strong. activities wins gotten. this quote inventories very, the design at in less we've the So

Mobility, So inflecting we comp, that have XXXX. will also I very nice broad would and that we easier deliver pretty embedded in Personal our for believe business guidance say we in strength that growth

Deane Dray

All right. appreciate that. really I

green signs teased But cycle. step back, you of are to kind Ivo, you're look debt. they very that were part your Personal beginning of verticals, shoots us if of there just at Now the countered short you maybe say Mobility and

sort green So up show as margin, of any activity a the can at shoot. certainly

referring terms shoots green are 'XX So if to you are us your those and trajectory of prioritize kind in meaningful of guidance? are for embedded were frame And the you that how which to?

Ivo Jurek

Yes, Look, the kind more you for our sure. of Thank start question, customers. with me of Deane. let the of purview

customers front of data from look manage of know we bit in at are us really that things points feel, but We indicators is Our that optimistic said, amount are us, of that a better think very forward-looking better But how to very a the forecasting certainly as to recoveries have that's the happen. in we being to significant going for good of thing. business of going get sense it a manage little what's upon give not we based you a we're folks them. we

long component started above XX. the industrial of first We is December, has month's the for PMI inflect is inflection about in been a very somewhat But much appear again for that activity encouraged would new to suppressed were being not. order given, certainly, industrials on years. probably the over reading, the component than PMI it of that and by time, closer X that last nicely PMI the And time January the very

base We good in the Asia. are industrial customers behavior a starting to in see of

growth a QX. nice have pretty core seen We in

Construction, very degree that's is not. mean a things of Ag Mobility, inflecting. Look, giving start So as I data discussed, that really a us green points should really dislocated. it certainly strong shoot. very is and we definitely is that

believe just doing remain, business replacement strongly, that's shoots we green got show very -- up. that would Automotive say, I Our and is the not

really So markets. end job green done red. it's see a but screens offsetting very, good we mixed than 'XX, couple we've more a our negative starting in bag, And very are of the on a to flashing

I think We've what strong have control. we managed results. delivered under very is

just grid profitability. We that margins. our done and We've gross improved through improving have

time underlying a will our So. that strong guidance have we may inflection embedded we're for the see very occur. And performance in optimistic business. not any again, inflection that we a that forward at very

Operator

from comes question Citigroup. next from Kaplowitz Andy Our

Andrew Kaplowitz

headwinds. for Good growth gross morning, despite you big 'XX And and haven't savings everyone. sticking Ivo said margin to optimization you're experienced from you organic a adjusted EBITDA operational targets footprint margin, really and your slower continued big obviously excellence pretty FX yet.

Maybe it organic like on seems XX.X% in much has comment reduction that? X% 'XX? been resuming can that thought. adjusted And growth material So you to EBITDA a cost bigger without can margin reach you X% you than

Ivo Jurek

but We Yes. that we stop back see question. see need to deliver certainly definitely, Thank you without X% part first to did out to to growth has XX.X% been of close executed growth. on we really us the rebound to the we need organic is the EBITDA the for definitely believe get to X% for to Coming the we don't significant that can declines say cost adjusted that very question, a organic necessarily material commitment. that volume your of well. What

Our We that terrific believe we the of vis-a-vis raw be XXX our improving a coming fantastic will on doing a to We teams improvement have next restructuring year. job. have points trajectory from of basis run of continue we runway that materials. by efficiency did end rated we about believe that our margin state activities a that further are

have all we year our a made be a So in Capitals to significant that are our believe Market deliver to Update without position we commitment in, we last the shareholders midterm rebound. able that on at to necessarily

Andrew Kaplowitz

And helpful. on think you and the just one Ivo, drags Construction that Very business the big then Ag. mentioned the of one

drag in baking they a you're turn inventory you're about maybe too. markets? on you can about Does going for any Do the them seeing in could in the still think in bit a I QX going more in you first the in what a bottomed 'XX? stop talk in And for down you -- is year, have in it have you that here? Energy channel down little businesses Did And in expectations half 'XX? presentation, talk out mentioned that But of you do the instance? is confidence of businesses? imminent these those those inventory

Ivo Jurek

Construction, the and and have last days. seen CNH think reporting super right? few I been have negative, AGCO Ag they mean that I you over

So dislocated And are through had really we've market. that just a they those numbers managed really I mean pretty right? well. staggering,

Our less anything X business coming is down significantly than see the verticals. of out that you

By is bad and the still to is kind the Construction in be of end was end sense, mid-single it Andy, that Ag what market, than prior Commercial it going down 'XX less believe be we market year. digits that in -- versus will XXXX, versus but

they So has it's still that be for is still I been put the high the half with not lots. good. significantly to customers -- mean, equipment inventories think levels dealer of dislocated reasonably the on I those still first going dealer are

inventory much going to should through. in it's the that QX to be dealer position. this take of that year, a the perhaps some think still of end I work healthier time I say by would

still And a tough so but be start second in it of we anticipate market, less that going XXXX. bad pretty getting half that's to should

Operator

from from Our Capital Markets. Jeff question comes next KeyBanc Hammond

Jeffrey Hammond

start on Maybe just to FX this dynamic.

I out, XXX XX line called EBITDA. in and million you So think, million top

just wanted the just drop-through understand high. seems very I to there So

bottom So through if and high Just know a there's transaction? through the I on walk don't why translation drop such a line? me

L. Mallard

in modeled head. XXXX. you it No, that and don't combination a have repeating of repeat transactional translation in on that hit It's we doesn't the

what is. exactly that's it So

Jeffrey Hammond

inventories it's aftermarket it's replacement? Auto And you a holds aftermarket bright simply And Okay. the Industrial extend particularly speak been to replacement, just the up? has where just you're think cracks seeing any that in maybe side people some are and spot life, seems challenges. as just OE if obviously or just like But then wondering if Auto

Ivo Jurek

Automotive Yes. going that's perform, Look, the of different cycles. channel The portfolio business. terrific stability how the the all of a that little are really our we for side this more for have us. to envisage And through these in is aftermarket is line out the have not of doing replacement inventories really kind

my broadening that's of Obviously, kind at taking is and existing business. customers globally for presence are So market plus that, with sense new GDP continue and of to and going baseline share new that the growth that adding we accounts. our

So of we is we're are on very the our very business. in what replacement side bullish Automotive happening --

is, we've going about been The is Industrial business talking be to that destocking feeling done. the

that we there, that are there. think that progressively should destination. little we approaching I have that to seeing XXXX. we we we move Again, as sense we But -- not is a performance bottom near if start very through always hate are and I my are are we better state the

Operator

comes Mike from Our Halloran next question Baird. from

Michael Halloran

optimism or for from basing and turn optimism curve? what think about their perspective Is in do you do purchasing there earlier different more into takes answer the customers. demand referenced you How what that anything there's the saying to accelerating on that actual with customer they're earlier, it your Ivo? an channel question, optimism the relative that the what And think you

Ivo Jurek

because I happening in robust. at the of some customer kind data industrial markets. quite hand-in-hand I CapEx, policy the like what's enthusiastic Yes, come say some account, that go in the books look take and a of end a may doesn't tax Mike, remain of for feelings to their data that -- the But folks under we optimism but general, always that I with try and sentiment the that will take in think about to think the we are stages to in that invest been projects centers bigger of places that money have while. see maybe in get work, certainly plain activities some way, certainty these actually We ability put hard

a in And at the it's looking been getting hard more think little deceleration people optimistic. months that XX, manufacturing So of I start PMIs. XX the

that am XXXX. the things improvements indication think you at that about again, And better. sure again, we looking see give not But think are just we as things are guidance want should feel turning. hard of I an improve. But to evidence I that things that to for said, I folks we would we just our certainly embedding So into make ready how

a in position it everybody turns, are think see to that wait will know. we when let we I and

Michael Halloran

And Willingness just a buyback side, leverage any then to is on deployment on thought the thoughts the the with process? in where on aggressive and side be continue shift just the to more capital M&A cycle. little

L. Mallard

me part. Let and hit the I'll take the first let Ivo part, M&A

in down. us. we're of and $XXX pretty a think that good route We deployment via stock debt pay to returning have between still for is for capital authorization distributed repurchases. very capital look, million buybacks return that stock So still shareholders We evenly

We've continued our we'll debt to We've to debt on from refinanced that. So a look continue stack. at work perspective. sheet balance our

we So until XX term in -- XXXX. our off QX. of And we've loan got shaved about got maturities bps we

to do work continue we there. So

said we've billion. to below our committed gross Having that, debt getting $X

that the spend, So that's can about. you some Well, that's so we're can to years. highest on then be right? optimization is spending our talked going money we we've return going to we continue going we're internally, to invested things got see footprint up of on something over that for to And couple capital next on. to work the investments capital continue the and great And work other of

for of three are our deployment shareholders. very, capital those options all So very good

to going So that path. continue go we're to down

Operator

Jefferies. from Volkmann Stephen from comes question next Our

Stephen Volkmann

Great.

kind to feeling restock follow-up. just Or better start them? they quick for one the is your about world? just historically, Just do distributors a more quick inventory I'm it tend when curious, of pass-through

Ivo Jurek

so fill be have They advance everybody gotten I know is they don't think at of mean We restocking that Stephen, extremely looking capital. their good. quick working so service service to optimizing levels more pass-through. at recovery. I in I end market our and rates think it's a significantly have high

vis-a-vis speak And that as is just my restocking. So is I fulfillment. much our like terrific it's performance shorter fuse again, to said, sense so the to

want to they'll start acquiring that see is they'll more the sense inventory. before my turn So

Operator

comes Wolfe Coe from Our next from Research. question Nigel

Nigel Coe

a here. Just cleanups of couple

really actually you just fourth to us XXXX? was you Did aftermarket be it's Auto -- the think much up about? the tailwind retail that beyond, think you So benefit expect to but talked remind more [indiscernible] I this in strong this there? you mid-single in any a don't I of conversion from any how from quarter, meant digits. benefit have Can

Ivo Jurek

Yes.

fulfillment the some QX. into spoke have good we morning accelerating benefit, Nigel. and Yes, So we did about

was be of to ramp XXX second we benefit. with but into QX, account. it's that we was straight growth see start for So on just good will to said of a replenishment significant of of we points -- in from convert some to it And a line, company. business fully then go incremental think we it model should seen basis basis XXX that And points allocated seeing we I a we up end have started and QX. that on. we that was PCs I mean ramped up about wasn't anticipated that quarter massive, more the By couple

So that's scope of that win. the design

Nigel Coe

Was question Just second the comment? lapping a my around could margin the you we're maybe that gain? becoming is commentary then understand the about prior really And quite clarify that I But FX Okay. But that -- didn't liquid cooling specified gain? we question around if with just in slides. talked So that. year customers. is

terms and of in process has ramp? a add specified if from the I'm just more are XXXX color you bit in just any where DC benefit we So whether of getting could wondering maybe

L. Mallard

Yes.

translational EBITDA we some the that lap of hedges had out that's addition XXXX in question that exactly the model FX, the the hedging don't through We things. to of just the XXXX, And kind worked into as right. So way the $XXX and your fall yes, transactional million then of in the favorable to kind we the on out part we XXXX. then in on activity first look the because on all

Ivo Jurek

pretty data take a your system the varied customers have very significantly of these are integrators, operators. design question, in center we with manufacturers, me of set part of up server And testing way Let center all full the stages a we ramped and the across of to from data engagement Look, customers. broad-based our Nigel. spectrum

We working being with in completed by have are of the specified server are by to guys negotiations stages. to projects a that's that process very the that from potential customers awards number getting late validation print in testing on business

that's advise position will certainly we make we in that, some we We've we are that believe you in And advantage trickling here. be we well but believe going much hoping seen of awards not And the in are positioned too progress effort bigger nicely in, be of when will I'm the a start 'XX. that to future. on very take spectrum we XXXX to in full available announcements, a applications, position revenues certainly the to as and it's we So a to . far

Operator

from from question Sachs. Jerry comes next Goldman Revich Our

Jerry Revich

just the if wondering the bar I'm course Brooks, margin gains can if like as 'XX? that momentum operating about you Can the us green improvement margin you could the quarter. leverage, for first of the looks it flesh about much get than for the efficiency just talk versus talk you is of we higher into up tailwind year so the is that out ramp how year, from you over full

L. Mallard

to about little bit way of talked some about just is from kind would is, still year, mostly improvement efficiency The number build of seasonality. a bigger And pretty perspective, cycling down them in savings. a talked and little but from versus half. typically, to material a the OEM's normal Ag. in bit, in this say FX being I'd on our said, getting because QX Construction up second first like Yes, QX, half OEM bit see faster little organic then bigger I it's little I the growth I you'll leverage, mean say not is bit a we've down about their largely and coming Industrial linear and an operating guidance that's it is I think the a

customers as of operating some So AR the improve. of of we leverage we the to shipping year, year. comps for lap bit we of continue get volume mobility get us little a we start that the got additional the as That as through a move see uptick bit little for the to we and balance will kind

Jerry Revich

data can you Super. center question the And ask another Ivo, on I side.

You've given magnitude versus positioning laid out folks you products. of your per about you the point us dollar your competitive it on range you'd of evolving about the versus you're terms the the terms of TAM just talk build-out in competitors? the how and thinking in billion offering the of Gates to on megawatt range estimates out of at that post versus major anything Parker, $X.X for Can

Ivo Jurek

a cooling Yes, has actually liquid -- size this in at that remains point of TAM the I changed out is think is the thinking time. What our firm see Look, pretty there. don't the to sure. commitments we that on there

For all liquid us, interesting products. we just have the to technologies, the of liquid cooling look, emerging both way across the on cooling kind the spectrum normalized of

that's specific, conveyance late these center starting that we a to fluid used have last customer enthusiasm and we data good in both are be from So that launched our can a of of applications around house amount year, see building base.

conjunction we We that's pumps that differentiated, with of of inch presently, we dozens, that servers with to we frankly, dozens power probably so designed are per have that space demonstrating in own in of specification and process are in are that industrial folks. definitely space best-in-class in cubic from people terms on coupling. the working highly backdoor CoolIT our our are And are cooling

we unique on working Presently, believe part to highly year. bring differentiated, liquid on a applications, sometimes coupling we the we this we able with latter that of are but a working to design marketplace be cooling for will a also are partner

conveyance it's believe to of a but positioned within wheelhouse play have all comps in we application. well our we that that what are we from right to So

Operator

Our next question Snyder comes Stanley. Morgan from from Chris

Christopher Snyder

was replacement. end But I color modest driving Just any specific just QX. guys China. China? in one growth It seems the markets you growth in by on quick first are said mean that led like that on

Ivo Jurek

result Mobility driven had substantially. by up differentiated mean, team Yes. our was broad-based proud quite gives tough, us Look, I know, has to China performance. as pretty up Personal has well China. Mobility of what mean was I are time. delivered. Predominantly think to I And for -- pretty we China that you in been some strong in I that think substantially -- we

terrific We Construction there constructive both had and Commercial have as even replacement. with in was diversified China were industrial Automotive our performance Ag

an way. So it's by think view markets with to developed really the economies. Asia the most turn start going in to Industrial of think because, present I Asia generally that precursor end seeing the in it's been in I quite is good, important we early the By is happen pretty of speaking, the in that much China. my way, across more are what's Yes,

Christopher Snyder

a in point kind sense. and Any U.S. guess, tariff if be it's makes into, of some context. China at early strength period, particular there cycle the Yes. wonder views that great of a do prebuy that least of time maybe I that world could in lot this flowing on in No, developed the I are that?

Ivo Jurek

by a way. not prebuy do believe it's the I

kind our kind for so China that to would in East another out was of that large of frankly, China I as core QX. is in Predominant China presence in multinationals. in are growth with with Chinese less We predominantly. as constructive the and point Asia and is, was OEs it item, India But

ubiquitous broadly a you would are that tell more of across similar a more So strength. kind of region, Asia, you that kind as seeing

prebuy So driven I specifically say China that and driven. wouldn't it's

evidence We that. of have not seen

Operator

question Raso from David will last ISI. come Our Evercore from

David Raso

lean sort utilizing time think at to of about balance I'm color balance forward in curious past, the then little being tires the seeing sheet financial I that as leverage? about deployment little been of what aperture how next capital continues kicking years. just wanted might Blackstone upon let to of situation our our it if expand a more how few And sort think in are the a to will comment do you just get change on over what also clearly more bit with the opportunities, the sheet? to little Is bit level a of least maybe on widen you the just a improve, help it you you M&A? you've how

Ivo Jurek

a all good have gotten Yes. Look, sheet we balance to the we being place general, believe the same. in that

is ability by undervalued. still our significantly a We believe business. half this We stock year a capability generation very reduce of have cash leverage turn our to strong an a about that through

I metrics. So add of improvements from sit, amount I initiatives that a significant to financial tremendous our have amount a where of strategic

the You take every that drive ability a laser-focused our very returns, gives we on. are at do is look that which us to ROIC, we something project better

that. do continue to to secular strong drivers we so positive into with We have exposed opportunities organically end getting to more markets invest highly

capability. to the during continue top line the gives to cycle much our stronger portfolio organically evolve We us position us to ability deliver generation next

obviously investment. that can total opportunity highly and/or if can vis-a-vis a business are our is invest there And we looking reasonable that at more we find but are And accretive think right multiple, that we we we we in M&A, believe at to are buy stock that buybacks businesses in there.

are at We a look to happy that. take

Operator

Kwas closing for We remarks. to further questions. I'd turn have like back to Rich call no the

Richard Kwas

All Thanks, right. everyone.

have great have you to any If a me of feel and rest free to week. reach out follow-up questions, the

Operator

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

now disconnect. may You

Gates Industrial (GTES) 6 Feb 252024 Q4 Earnings call transcript