Gates Industrial Corporation plc

Good morning and welcome to Gates Industrial Corporation's fourth quarter and full year 2024 earnings call. All participants are in a listen-only mode. After the speaker's remarks, we will have a question and answer session. To ask a question at this time, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Rich Kloss, Vice President, Investor Relations. Thank you. Please go ahead.

Greetings, and thank you for joining us on our fourth quarter and full year 2024 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek. He'll be followed by Brooks Mallard, our CFO. Before the market opened today, we published our fourth quarter and full year 2020 for financial 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 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. We will be attending several investor conferences during February and March. We look forward to meeting with many of you. And before we start, please note all comparisons are against the prior year period unless stated otherwise. Now I'll turn it over to Eva.

Thank you, Rich. Good morning, everyone, and we appreciate you joining us today. Let's begin on slide three of the presentation and review what we've accomplished in 2024. The Gates team globally made significant progress in 2024. We grew adjusted EBITDA margins by 140 basis points, significantly exceeding our initial forecast while encountering a more challenging demand environment than we've expected at the outset of the year. Our teams executed well on our enterprise initiatives and our focus enabled us to deliver strong gross margin expansion relative to 2023. Our profit improvement helped us to generate record adjusted earnings per share and adjusted EBITDA dollars in 2024. Further, we successfully refinanced our debt stack, lowered our financing costs, and reduced our net leverage ratio. Lastly, We supported Blackstone's sell-down during the year by repurchasing $175 million of our stock, ultimately facilitating their exit prior to year-end. Fundamentally, we believe our business operations are positioned to capitalize on a potential industrial demand recovery during 2025, and we've made strong headway towards achieving our midterm targets. Brooks and I will provide more color on the current state of our journey later in the presentation. On slide four, we summarize the key movements in our 2024 adjusted EPS. We delivered earnings per share growth led by operating income contribution, augmented by lower interest expense and share count, which more than offset a higher tax rate and lower contribution from other items. We believe 2024 was indicative of our organization's operational strength and improved financial flexibility. On slide five, I will review fourth quarter results. Core revenue performance was consistent with our expectations, while the strengthening of the U.S. dollar during the quarter negatively impacted reported revenues. Our replacement channel posted growth, supported by a mid-single-digit increase in auto replacement. Our OEM sales decreased, primarily affected by volume reductions in the agriculture and construction end markets. Encouragingly, personal mobility core growth increased for the first time in seven quarters and expanded approximately 20%. Our book-to-bill remained above one at the end of the year. Our profitability performance was solid as adjusted EBITDA margin expanded 30 basis points to 21.8%. The increase was driven by 130 basis points increase in gross margin to 40.4%, a record gross margin performance for a fourth quarter. Growth margin primarily benefited from ongoing contributions from our various enterprise initiatives, which supported improved operating performance and price realization, as well as favorable channel mix. The lower volume was a drag. Our free cash flow conversion during the quarter was 168%, which brought the full year to 74%. We believe we are at or near trough demand levels in some of our end markets and are seeing green shoots in others and have maintained our inventory levels to ensure that we fully capitalize on an expected cycle inflection. Additionally, we have positioned inventory and invested CapEx to support our continued footprint optimization plans, which launched in earnest during the second half of 2024. Our net leverage ratio declined to 2.2 times from 2.3 times at year end 2023. We allocated $175 million of cash to share repurchases during the year. Resources that would have reduced our net leverage ratio further. We believe that we are in a strong position to hit our 2026 target net leverage ratio of one to two times. Please turn to slide six. Fourth quarter total revenue were $829 million, which represented a 2.6% decrease on a core basis and was slightly better than our expectations. Total revenues were down just under 4%, inclusive of unfavorable foreign currency effects that incrementally worsened through the quarter. Aramonit grew low single digits on a core basis. This was offset by mid-single-digit declines in industrial and markets, primarily driven by North America and Europe. Our Asian business continues to see signs of industrial recovery. Replacement sales grew modestly as we continued to see constructive demand in the automotive replacement business. OEM sales decreased in line with expectations as auto OEM builds were flat and agriculture and construction industry inventories remained elevated. Adjusted EBITDA was $181 million and yielded a margin of 21.8%. an increase of 30 basis points. The expansion was led by a solid 130 basis points improvement in gross margins. Benefits from our enterprise initiatives more than offset the adjusted EBITDA impact from lower core sales. Adjusted earnings per share was 36 cents, which was down 3% versus the prior year. Operating income was approximately two cents headwind driven by lower sales volume and partially offset by initiative savings. A lower share count contributed one cent. On slide seven, we will review our segment highlights. In the power transmission segment, we generated revenues of $520 million in a quarter, which translated to approximate 1% decrease on a core basis. The replacement channel was up year over year, supported by modest growth in automotive replacement and some stabilization in industrial replacement. OEM demand was under pressure with both industrial and automotive posting declines. Notably, personal mobility returned to growth in a quarter with a double-digit increase that lessened the overall magnitude of the OEM channel decline. Power transmissions adjusted EBITDA margin declined 30 basis points, impacted by the lower top line. In a fluid power segment, our sales were $309 million. On a core basis, sales decreased approximately 5%. The replacement business remained stable, supported by automotive replacement, which grew high single digits. This was slightly offset by softness in industrial replacement, which declined mid-single digits. Industrial OEM sales declined high teens on a core basis driven by continued demand pressure in agriculture and construction. Fluid power segment EBITDA margins expanded 120 basis points, benefiting from our enterprise initiatives and a higher replacement sales mix. which more than offset the volume declines. I will now pass the call over to Brooks for further comments on our results.