Gates Industrial Corporation plc

and thank you for standing by. Welcome to Gates Industrial Corporation Q1 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Please press star zero. I would now like to hand the conference over to your speaker today, Bill Welke. Please go ahead.

Bill Welke Thank you, everyone, for joining us this morning. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our first quarter results. A copy of the release is available on our website at investors.gates.com. Today's call is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the investor relations section of our website. Please refer now to slide two of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings call, if at all. I would now like to turn the call over to Ivo.

Thank you, Bill. Good morning, all, and thank you for joining us on our first quarter earnings call. Before I jump into more of the details, let me begin with a few high-level thoughts on the quarter outlined on our slide three. We delivered another quarter of above-market growth, achieving a record level of quarterly revenue combined with strong operational execution. our business is off to an excellent start to the year. Economic momentum is building across most of our end markets, resulting in solid performance for the quarter that significantly exceeded our original guidance and the updated expectations we provided at the beginning of April. Our substantial above-market growth is evidence of the accelerating success we have seen with our innovation investments and growth initiatives, which are delivering solid share gains. We saw continued strength across the business, as well as outstanding momentum in orders as we exited the quarter. The exit from the pandemic and the resulting steady economic recovery we are seeing today have created a number of what we believe are transitory headwinds, from the rise in inflation and tight raw material supply conditions to scarcity in labor markets and availability of logistics capacity. Operationally, our teams were agile and proactive, successfully navigating these complexities, as well as lingering COVID-induced inefficiencies, to drive productivity initiatives that contributed to our significant year-over-year margin expansion. As a result of our strong start to the year and the trends we are currently seeing in our end markets, we are raising our full year guidance, which Bruce will cover later in the presentation. Finally, I would like to point you to the 2020 sustainability report we published last week. Gates is committed to doing our part for a more sustainable future, from efforts to minimize the environmental impact of our own operations to designing environmentally friendly products that improve the efficiency of our customers' applications. The report highlights our focused initiatives related to corporate governance, involvement, employee health and safety, and diversity and inclusion. I'm energized by the employees' engagement across our organization on these key priorities outlined in detail in the report. I would encourage you to review it on our website for the full extent of our progress. With that, let's move on to more of the detail on the results. Moving on to slide four. Total revenue in a quarter was $881 million and included year-over-year core growth of 21%. This growth was broad-based with sequential acceleration across all end markets, channels, and regions. The most significant year-over-year growth came in the first fifth channel, where we saw particular strength in the diversified industrial, on-highway, and mobility and recreation end markets. Sales into replacement channels improved substantially year-over-year, with the most notable growth coming from industrial end markets. I will highlight that at this early point in market recovery, we see no evidence of significant restocking. Our first quarter adjusted EBITDA was $196 million, representing growth of over 60% compared to the prior year and margin expansion of 530 basis points. The margin expansion was primarily driven by gross margin improvement achieved through a combination of increased volume, benefits from our restructuring actions, and strong operational execution. Our solid execution more than offset inflation supply disruptions and COVID-19 costs, as well as inefficiencies related to the Texas winter storm in February. Despite these additional costs, we delivered a core incremental margin of approximately 47% on a year-over-year basis. Our adjusted earnings per share were 33 cents in a quarter, an increase of 57% compared to the prior year period. This increase was driven by significantly higher operating income, partially offset by higher income tax expense related to our higher pre-tax income in Q1 of this year, and some non-recurring favorable items in Q1 of last year. Moving on to slide five and the segment highlights. Both of our reportable segments delivered terrific results in a quarter. Revenue in our power transmission segment grew nearly 27% on a year-over-year basis, including core growth of 23%. Our growth in power transmission was led by the industrial and markets, primarily diversified industrial, personal mobility, and on and off highway applications. Sales were further augmented by execution on our initiatives, which drove our estimated low double digit above market growth in the segment. Sales across replacement channels showed strong growth, but were outpaced by those into first fit channels. Our fluid power segment saw revenue increase 20% year-over-year, including core growth of approximately 18%. Similar to power transmission, the growth in fluid power was led by our first business, primarily in diversified industrial and off-highway applications. Sales into replacement channels also improved significantly from Q4 and showed strong year-over-year growth. Fluid power revenues also benefited considerably from the very solid performance of our new products, which helped deliver the segment's estimated high single-digit above-market performance. Segment-adjusted EBITDA margins improved by nearly 600 basis points in power transmission and by over 400 basis points in fluid power, with higher volume, restructuring benefits, and operational execution, offsetting inflationary pressures. Across both segments, our above-market growth was driven primarily by the performance of our organic initiatives. In power transmission, our industrial chain-to-belt revenue grew approximately 50% year-over-year, while our personal mobility revenue increased over 80%. great progress from a meaningful base in applications that we believe provide a secular, long-term growth opportunity for the company. In our fluid power segment, sales of our new products, which we have continued to introduce, increased nearly 90% year-over-year in Q1, with the most significant growth coming from replacement channels. These new products have been accelerating our penetration of new applications, particularly in stationary and markets. We had numerous design wins in both segments, in key end markets such as intralogistics, food and beverage, chemical processing, rail, and industrial spraying. to name few. While we did see robust market growth in a quarter across many end markets, our growth initiatives continue to deliver meaningful performance over and above the base market recovery, while our innovation and commercial organizations are delivering solid results. So to summarize, truly a great performance across both segments in terms of top line growth and margin expansion, as well as new products and design wins to further support future growth. With that, I will now turn the call over to Brooks for some additional color and the update to our guidance. Brooks.