Gates Industrial Corporation plc

Thank you for standing by. My name is Brianna and I will be your conference operator today. At this time, I'd like to welcome everyone to the Gates Industrial Q3 2024 earnings call. Please note that this call is being recorded. At this time, all participants are in a listen only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, Press star one again. I will now turn the conference over to Rich Quas, VP, Investor Relations. Please go ahead, sir.

Greetings, and thank you for joining us on our third quarter 2024 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek. We'll be followed by Brooks Mallard, our CFO. Before the market opened today, We published our third quarter 2024 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 in 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. Later this quarter, we will be attending the Baird Global Industrial Conference, the UBS Global Industrials and Transportation Conference, and the Goldman Sachs Industrials and Materials Conference. We look forward to meeting with many of you. Before we start, please note all comparisons are against the prior year period unless stated otherwise. Now I'll turn the call over to Ivo.

Thank you, Rich. Good morning, everyone. We'll begin on slide three. In the third quarter, our team continued to execute well and delivered solid profitability improvement while encountering soft demand in certain industrial and markets. We experienced about a 4% decline on a core basis, primarily driven by weaker demand in the agriculture, construction, and personal mobility and markets. Total replacement sales increased 1%, led by modest growth in automotive replacement, while sales to OEMs declined in the low double-digit range. Book-to-bill ended slightly above 1. We generated a 30 basis points increase in adjusted EBITDA margins. The improvement was fueled by a 110 basis point increase in our gross margin. Gross margin benefited from ongoing advancement of our various enterprise initiatives, which include pricing actions and productivity. In addition, channel mix was favorable. These factors more than offset the impact of volume weakness during the quarter. Our net leverage ratio declined to 2.4 times from 2.6 times in the year-ago period, supported by a lower debt balance and improved profitability. During the quarter, we returned capital to shareholders via a $125 million share repurchase. We have updated our 2024 guidance, raising our adjusted EPS midpoint to $1.35. We have maintained our full year 2024 adjusted EBITDA midpoint of $755 million and narrowed that range. Brooks will touch a bit more on our guidance later in the presentation. So now please turn to slide four. In the third quarter, we produced sales of $831 million, which was a 3.8% decrease on a core basis. Replacement sales grew slightly. We continue to see durable demand trends in our global automotive replacement business. OEM sales decreased primarily affected by lower demand in ag, construction, and personal mobility. Our key Asian geographies and South America generated core sales growth, a bright spot in the quarter. Adjusted EBITDA was approximately $183 million, which translated to a 22% margin and an increase of approximately 30 basis points. The improvement was led by 110 basis point increase in gross margin, driven by efficiencies from our enterprise initiatives, as well as an increased mix of replacement sales, which carries higher margins compared to our fleet average. SG&A was higher due to increased spending associated with investments in our strategic initiatives and unfavorable effects. We believe we are making appropriate SG&A investments to improve the enterprise growth algorithm for the long term. Adjusted earnings per share was $0.33, which was 8% lower versus the year prior. Operating income was approximately a $0.03 headwind, which was impacted by the lower core sales performance. We managed our operations well in the weaker sales environment. The year-over-year decline in adjusted EBITDA compared to the year-over-year decline in sales measured 16% better than normal performance aided by our execution on the company-wide enterprise initiatives. On slide five, we'll review our segment performance. In the power transmission segment, we generated sales of $513 million, which represented an approximate 3% decrease on a core basis. The replacement channel was up year over year, backed by the modest growth in automotive replacement. OEM demand stayed under pressure, with both industrial and automotive experiencing declines in the low double-digit range. Broadly, we saw declines across our end markets in power transmission. Diversified industrial and automotive benefiting from good replacement activity were the most resilient end markets as both posted low single-digit decrease in core sales. Ad and construction demand remained muted. Personal mobility remained a headwind for growth, but the sales base has stabilized and inventories at the mobility manufacturers are trending lower. We expect inventory levels to normalize by year end and believe the business is well positioned for growth in 2025. Power transmissions adjusted EBITDA margin, expanded 30 basis points. Gross margins expansion drove the increase. led by contribution from our enterprise initiatives, as well as favorable channel mix, partially offset by lower volumes. In the fluid power segment, our sales were $317 million. On a core basis, sales decreased just under 5%. The replacement business grew modestly, led by automotive replacement, which grew mid-single digits. industrial replacement core sales performance was relatively flat. Industrial OEM sales declined mid-teens on a core basis, driven by continued demand pressure in ag and construction. Despite lower volumes, fluid power EBITDA margins expanded 20 basis points due to the progress with our enterprise initiatives and a higher replacement sales mix. Additionally, As part of our footprint optimization initiative announced in March at our Capital Markets Day, we have commenced projects that will predominantly impact our fluid power business and should be a nice contributor to profitability in 2025 and beyond, all else equal. I will now pass the call over to Brooks for further comments on our results. Brooks.