Cummins Inc.

Greetings and welcome to the Cummins Inc. Q4 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. We ask that you please ask one question, one follow-up, and return to the queue. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. Joining us today are Chair and CEO, Jennifer Rumsey, Vice President and CFO, Mark Smith, and Chris Clulow, Vice President, Investor Relations. It's now my pleasure to introduce your host, Chris Clulow. Please go ahead, sir.

Thank you, Kevin. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the fourth quarter and full year of 2024. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the futures. Our actual future results could differ materially from those projected in such forward-looking statements because of the number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statements in the slide deck and our filings with the Securities and Exchange Commissions, particularly the risk factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the investor relations section at Cummins.com. That out of the way, I'll turn you over to our chair and CEO, Jennifer Rumsey, to start us off.

Thank you, Chris. Good morning. I'll start with a summary of 2024, discuss our fourth quarter and full year results, and finish with a discussion of our outlook for 2025. Mark will then take you through more details of our fourth quarter and full year financial performance and our forecast for this year. As I reflect back on 2024, I am pleased to share that we delivered strong financial results with records in several parts of the business, while also making significant progress in the execution of our Destination Zero strategy. I am incredibly proud of what Cummins and our employees accomplished for our stakeholders, and I feel energized about the opportunities ahead for us as we continue to demonstrate our relentless focus on advancing our strategy and executing our financial commitments as we lead the energy transition. It continues to be clear that our multi-solution Destination Zero strategy that leverages advancements and solutions from both our core and Accelera by Cummins businesses will continue to position us to succeed. We demonstrated this in 2024 as we further strengthened our position through evolving our portfolio and expanding and establishing relationships with new and long-standing key stakeholders and partners. Most notably, for our core business in 2024, we introduced the Cummins Helm engine platform. Applied across Cummins' legendary BX10 and X15 series engine portfolios, The HELM platforms provide customers with the option to choose the fuel type, either advanced diesel or alternate fuels like natural gas and hydrogen, that best suits their business needs and offers the power and performance customers expect, while also reducing emissions. Cummins began full production of the X15N natural gas engine at the Jamestown engine plant earlier this year. and we are actively engaged with some of North America's largest and most demanding heavy-duty fleets as they look to reduce their carbon footprint. Additionally, in our core business, we introduced four new generator sets to the award-winning Centum series, two each powered by Cummins QSK50 and QSK78 engines. In response to high market demand, these new models have been engineered specifically for the most critical applications, such as data centers. In order to further raise our capacity to meet rising power generation demand, we also intend to invest $200 million across our U.S., England, and India manufacturing sites. As you will see in our full year financial performance details and 2025 guidance, we are excited about the continued impressive performance and growth potential for our power systems business. Cummins also successfully completed the separation of our filtration business, Atmos Filtration Technologies. Cummins will continue its focus on advancing innovative power solutions, while Atmos is now well-positioned to pursue its own plans for profitable growth. The separation of Atmos resulted in the tax-free exchange of shares, which reduced Cummins' shares outstanding by approximately $5.6 million in the first quarter. In our Accelera business, we completed the formation of our joint venture, Amplify Cell Technologies, with Daimler Trucks & Buses, PACCAR, and EVE Energy to localize battery cell production and the battery cell supply chain in the United States. This strategic collaboration will advance zero-emissions technology for electric commercial vehicles and industrial applications. Amplify began construction this year of a 21-gigawatt-hour factory in Mississippi with potential for future expansion as demand grows and is targeting start of production in 2027. Lastly, as we navigate this long and messy transition for our customers, we remain committed to pacing and refocusing our investments on the most promising paths as the adoption of zero-emission solutions slows in some regions around the world. As you can see in our fourth quarter results, we recorded charges related to the reorganization of our Accelera business segment as we underwent a strategic review to streamline the business while also ensuring we are set up for long-term success. We remain committed to Accelera and its mission and this business continues to play an important role in our Destination Zero strategy. Now I will comment on overall company performance for the fourth quarter of 2024 and cover some of our key markets. Demand for our products remains strong across many of our key markets and regions, offsetting the softening in the North America heavy-duty truck market. Revenues for the quarter totaled $8.4 billion, a decrease of 1% compared to 2023, as lower North America heavy-duty and pickup truck volumes and a reduction in sales from the separation of Atmos were partially offset by continued high demand in our global power generation markets, stronger aftermarket and North America medium-duty truck volumes, as well as improved pricing. EBITDA was $1 billion, or 12.1%, compared to a loss of $878 million, or negative 10.3%, a year ago. Fourth quarter 2024 results included $312 million of charters related to the strategic reorganization of our Accelera business segment. This compares to the fourth quarter 2023 results, which included $2 billion of costs related to the agreement to resolve U.S. regulatory claims. $42 million of costs related to our voluntary retirement and separation programs, and $33 million of costs related to the separation of the Atmos business. Excluding those items, EBITDA was $1.3 billion, or 15.8%, compared to $1.2 billion, or 14.4%, a year ago. EBITDA and gross margin dollars improved compared to the fourth quarter of 2023 as the benefits of higher power generation volume, pricing, and operational efficiency more than exceeded lower North America truck volumes and the separation of Atmos. 2024 revenues were a record $34.1 billion, essentially flat with 2023 despite the decline in North America heavy-duty truck demand in the second half of the year and reduction of sales from the Atmos separation. EBITDA was a record $6.3 billion or 18.6% of sales compared to $3 billion or 8.9% of sales in 2023. 2024 results include a gain net of transaction costs and other expenses of $1.3 billion related to the ATMIS divestiture, $312 million of charges related to the Accelera reorganization, and $29 million of first quarter restructuring expenses. This compares to the 2023 results that included $2 billion of costs related to the agreement to resolve U.S. regulatory claims, $100 million of costs related to the separation of ATMIS, and $42 million of costs related to the Voluntary Retirement and Separation Program. Including those items, EBITDA was a record $5.4 billion, or 15.7% of sales, for 2024. compared to $5.2 billion or 15.3% of sales for 2023, as the benefits of higher power generation volumes, pricing, and operational efficiency more than exceeded lower second half North America truck volumes and the reduction of margin from the APMA separation. EBITDA dollars were a record in power systems, distribution, and engine segments. Our power systems business in particular finished 2024 with a record full-year EBITDA of 18.4% of sales, up from 14.7% in 2023. I am very pleased with the performance across our core business segments, and you will see from our guidance that we are excited to continue to build on this momentum. Now let me provide our overall outlook for 2025 and then comment on individual regions and end markets. We are forecasting total company revenues for 2025 to be down 2 to up 3% compared to 2024, and EBITDA to be 16.2 to 17.2% of sales, up from 15.7% in 2024. While we expect weaker first half demand in our North America on-highway truck markets, we expect many of our markets, particularly power generation, to remain strong throughout the year. Industry production for heavy-duty trucks in North America is projected to be 260,000 to 290,000 units in 2025, flat to down 10% year over year. We anticipate weaker first half demand, and while we do expect a pre-buy in the second half of the year, the uncertainty on the exact timing and extent is driving our wider guidance range. In the medium-duty truck market, we expect the market size to be 140,000 to 155,000 units, down 5% to 15% compared to 2024, primarily driven by weaker-than-expected recent net orders and a depleting backlog. Our engine shipments for pickup trucks in North America are expected to be 130,000 to 140,000 in 2025, flat to up 5% year over year. In China, we project total revenue, including joint ventures, to increase 5% in 2025. We are projecting a range of down 5% to up 10% in heavy and medium duty truck demand in China. While export demand is expected to decline slightly, we are hopeful that the recent NS4 scrapping policy and other stimulus actions may lead to domestic demand growth. We have not, however, seen a meaningful recovery thus far. While there's still uncertainty around the China truck market for 2025, we expect strength in other markets, particularly power generation, where demand is expected to remain high as data center momentum continues. In India, we project total revenue, including joint venture, to increase 10% in 2024, primarily driven by stronger power generation demand. We expect industry demand for trucks to be down 5% to up 5% for the year. For global construction, we expect flat to down 10% year over year, primarily driven by weak property investment and shrinking export demand in China. We project our major global high horsepower markets to remain strong in 2025. Revenues in global power generation markets are expected to increase five to 15% driven by continued high demand in the data center market. Sales of mining engines are expected to be down 5% to up 5%. For aftermarket, we expect revenue improvement with a range of flat to an increase of 5% for 2025. In Accelera, we expect full year sales to be $400 to $450 million compared to $414 million in 2024. In summary, 2024 was a record year for revenues, net income, EBITDA, and earnings per share. In 2025, we anticipate that demand will be slightly weaker in the North America on highway truck markets particularly in the first half of the year, but offset by continued strength in the power generation market and resiliency in our distribution business, given our strong aftermarket presence. Despite our relatively flat revenue forecast, we are expecting to improve profitability and cash flow. We remain committed to our multi-solution approach that is proving to be the right strategy for our customers, for the environment, and for the continued growth of Cummins, while also returning cash to investors. Now let me turn it over to Mark, who will discuss our financial results.