Gates Industrial Corporation plc

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Gates Q4 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. And if you'd like to withdraw your question, please press star one again. Thank you. Bill Welke, head of investor relations. You may begin.

Thank you for joining us this morning on our fourth quarter 2021 earnings call. 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 fourth quarter and full year results. A copy of the release is available on our website at investors.gates.com. Our call this morning 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. With that, I'll turn things over to Ivo.

Thank you, Bill. Good morning, everyone, and thank you for joining our call today. I'll begin with the overview outline on slide three of the presentation. The fourth quarter marked the conclusion of an excellent year for Gates. Our global teams delivered strong revenue growth, benefiting from solid execution of our strategy to reposition the company's business exposure to higher growth and markets. The investments we are making in material science, innovation, targeted incremental capacity, and our unwavering commitment to service our customers position the company to grow by winning new business while managing demand during these challenging times. Our proactive approach to pricing, particularly early in the year, enabled us to remain price-cost neutral for the year. We delivered incremental margins of nearly 35% despite the rapid rise in inflation we experienced in the second half of the year. Free cash flow generation was also strong, enabling us to significantly reduce our net leverage from 2020 levels. In the fourth quarter specifically, the supportive underlying demand and order trends continued in both of our segments. Despite our focused execution, we were not able to satisfy all customer demand. Channel inventories remain relatively lean. Our book to bill in a quarter was well above one, and our backlog is at record levels. Global order rates are strong, with North America in particular seeing the highest monthly order rate in the company's history in January. From an operational perspective, we navigated ongoing material and logistics availability issues, as well as greater than expected COVID disruptions that significantly impacted our production efficiency. These temporary external challenges notwithstanding, we delivered results in line with the guidance we provided, and maintain a supportive market outlook for 2022. While many of the operating environment challenges persist as we work through Q1 2022, we anticipate these issues will start to abate in Q2. While we are taking a pragmatic view of the operating environment, we expect to deliver another strong performance in 2022. With that, let's move into more of the detail on the quarter's results on slide four. Total revenue of $816 million, including core growth of over 3%, put us at the top end of the range we provided. Our teams executed well in light of the operating environment and delivered another quarter of growth as compared to a record Q4 2020. From a channel perspective, replacement outperformed our OEM business. Our focused growth initiatives in mobility and recreation and diversified industrial and markets once again delivered the most significant growth, offsetting the decline in sales to other OEMs. Our sales to automotive replacement customers performed well. delivering modest growth on a very strong performance in Q4 2020. Our fourth quarter adjusted EBITDA was $140 million for an adjusted EBITDA margin of 17.1%. As expected, this included a margin headwind of approximately 200 basis points, specifically related to price cost, which is being addressed with additional pricing that went into effect early this quarter and will progressively ramp up. Despite incremental operational challenges in the quarter, our profitability was in line with the midpoint of the guidance we provided. Although we expect most of these operational challenges to continue, there are signs that some of the most critical material availability issues are beginning to improve. Our adjusted earnings per share were $0.31 in a quarter, representing an increase of 55% compared to the prior year period. and included some favorable tax items that came through in the quarter. Moving now to slide five and the highlights in our segments, which both saw exceptional core growth in 2021. Our power transmission segment had core growth of over 20% for the year, led by high 20s growth in industrial and markets. Additionally, we saw over 90% growth in mobility and recreation. The strong industrial and market growth in a quarter offset the decline in automotive OEM. Our long-term strategy to reposition our portfolio of business continues to progress well. beyond key industrial chain-to-belt wins in semiconductor processing equipment, warehouse automation, and robotics. In Q4, we announced entry into an exclusive strategic relationship with Gogoro, a rising electric scooter manufacturer in Asia. This partner is pioneering a smart rechargeable battery exchange sustainable micromobility, and utilizes the quiet, maintenance-free operation of Gates carbon drive belts in its drive system. We also secured an additional key win with a leading electric vehicle manufacturer on a new platform, further reinforcing our solid position as these end markets move towards electrification. Our pipeline of opportunities is growing. Conversion and order rates are increasing, and backlog has continued to build. Our fluid power segment saw core growth of 24% in 2021, led by strong performance in diversified industrial and off-highway end markets. In the fourth quarter, our revenue grew approximately 8% year-over-year, led again by diversified industrial and market, and included notable acceleration in the energy and market. We continue to build our order book, securing key wins with our new products in stationary hydraulics, forklifts, and construction applications in particular. We are also making nice progress with respect to innovation and recently launched a further expansion of our differentiated hydraulic product line, opening up additional new market opportunities for the company. With respect to profitability, we delivered solid margin expansion in both segments for the full year. In the fourth quarter, margins in both segments were impacted by operational challenges I mentioned during my opening remarks. The power transmission segment was further impacted by investments we are making in additional production capacity. In support of the book of business, our teams are delivering to successful execution on our strategic business growth initiatives. With that, I will turn the call over to Brooks for additional color on our results. Brooks.