Cummins Inc.

Greetings. Welcome to Cummins Inc. second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If you would like to join the queue, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I would now like to turn the call over to Nick Ahrens, Executive Director of Investor Relations. Thank you. You may begin.

Thank you. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the second quarter of 2025. Participating with me today are Jennifer Rumsey, our chair and chief executive officer, and Mark Smith, our chief financial officer. We will 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 Security and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck in our filings with the Security and Exchange Commission, 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 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 commons.com. With that out of the way, I will turn you over to our chair and CEO, Jennifer Rumsey, to kick us off.

Thank you, Nick. Good morning, everyone. We delivered impressive results in the second quarter, led by record performance in our distribution and power system segments. that more than offset continued softening in the North America truck market. The record financial performance from these two segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year over year, despite North America heavy and medium duty truck volumes declining 30% from a year ago. I am incredibly proud of our employees' continued focus on meeting customer commitments and delivering our priorities. And I'm confident that our efforts will allow us to continue to operate from a position of strength. Now I will move on to some highlights from our second quarter. Then I will discuss our sales and end market trends by region. Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year. Mark will then take you through more details of our second quarter financial performance. In the second quarter, we continue to make progress in the execution of our Destination Zero strategy with the introduction of a new product in our power system segment. Expanding on the success of our acclaimed Centum Series generator sets, we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power. The S17 Centum GenSet was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments. where compact design and high performance is critical. The new gen set is designed to support a wide range of critical market segments, such as commercial properties, healthcare facilities, and water treatment plants. In July, we also announced a 10% increase in our quarterly dividend from $1.82 to $2 per share, the 16th consecutive year in which we have increased the dividend. During the quarter, we returned $251 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. Now I'll comment on the overall company performance for the second quarter of 2025 and cover some of our key markets. Revenues for the second quarter were $8.6 billion, a decrease of 2% compared to the second quarter of 2024. EBITDA was $1.6 billion, or 18.4%, compared to $1.3 billion, or 15.3%, a year ago. And gross margin improved 150 basis points from a year ago. This improvement in profitability was driven by the benefits of higher power generation demand, operational efficiencies, pricing, and lower compensation expenses, which more than offset lower North America truck volumes on the unfavorable net impact from tariffs. We see a marked contrast in demand between longer cycle sectors, such as power generation, which also continues to benefit from some well-established secular themes, and declining confidence in some of our more economically sensitive shorter cycle markets in North America, particularly truck, pickup, and consumer-related markets. We anticipate this contrast will become more pronounced in the second half of the year. Our second quarter revenues in North America decreased 6% compared to 2024. Industry production of heavy-duty trucks in the second quarter was 57,000 units, down 27% from 2024 levels, while our heavy-duty unit sales were 22,000, down 29% from a year ago. Industry production of medium-duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%. while our unit sales were 25,000, down 35% from 2024. We shipped 34,000 engines to Stellantis for use in the RAM pickups in the second quarter of 2025, down 18% from 2024 levels. Revenues for North America power generation equipment increased by 25%, driven primarily by continued strong demand in data centers and mission-critical applications. Our international revenues increased by 5% in the second quarter of 2025 compared to a year ago. Second quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9%, as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand. Industry demand for medium and heavy duty trucks in China was 304,000 units, an increase of 13% from last year. Our sales in units, including joint ventures, were 43,000, an increase of 31%. The increase in China market size was primarily due to higher than expected domestic demand, driven by NS4 scrapping incentives. Industry demand for excavators in China in the second quarter was 59,000 units, an increase of 11% from 2024 levels. Our units sold were 11,000, an increase of 13%. An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development, and farmland renovation demand. Sales of power generation equipment in China increased 32% in the second quarter due to accelerating data center demand. Second quarter revenues in India, including joint ventures, were $699 million, a decrease of 1% from the second quarter a year ago. Industry truck production increased 1% from 2024. Power generation revenues increased 31% in the second quarter, driven by increases in G-drive and data center demand. To summarize, we achieved impressive results in the second quarter, with record financial performance in our power systems and distribution segments. As we look ahead to the third quarter, we expect North America heavy and medium duty truck volume to decline 25 to 30% from second quarter levels. As we have seen, truck orders recently reached multi-year lows and OEMs have initiated reduced work weeks through the next three months. The duration of this reduced demand at North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies, and the pace at which regulatory clarity emerges. Despite the challenges in the North America truck markets, we have the benefit of operating a diversified global business and expect continued strength in our power generations market, in addition to stability in our aftermarket and industrial businesses. Tariffs are undoubtedly having an impact on Cummins, our suppliers, customers, and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies as supply chains worked through existing inventory. We've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. Additionally, although we primarily produce engines and gensets in the markets where we sell them, We are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing. As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong second quarter performance that demonstrates the earnings potential of common at a time when demand in North America and China truck market sits at weak levels. While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty. And we will maintain our focus on our customers employees, and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now let me turn it over to Mark.