Gates Industrial Corporation plc

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Gates Industrial Corporation Q1 2025 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 followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Rich Quas, Vice President of Investor Relations.

Rich. Greetings, and thank you for joining us on our first quarter 2025 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 first quarter 2025 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 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 risk 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 the WOLF Global Transportation and Industrials Conference and KeyBank Industrials and Basic Materials Conference next month and look forward to meeting 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, and thank you for joining our call today. Let's start on slide three of the presentation. Our first quarter sales outpaced our initial guidance, supported by positive core sales growth of 1.4%, with both volume and price contributing. Our replacement channel sales grew mid-single digits, driven by high single-digit growth in automotive replacement. At the end market level, Ongoing softness in the agriculture and construction markets and weakness in energy were more than offset by strong growth in personal mobility and mid-single-digit growth in our automotive and market all-in. Our adjusted EBITDA margin exceeded 22%, and our gross margin expanded to 40.7%. We continue to advance our various enterprise initiatives, which are primarily focused on gross margin improvement. Our net leverage finished at 2.3 times at the quarter end and decreased slightly year over year. Our free cash flow performance was consistent with normal seasonality. Our balance sheet is in solid shape. We repurchased $13 million of our shares during the quarter and have over $100 million remaining under our existing authorization. We are maintaining our initial 2025 financial guidance. We have implemented actions to mitigate the relevant tariff impact on our business based on current tariff rates, with price increases being the predominant tool. Our existing in-region, four-region operational structure limits the present tariff regime exposure, and we anticipate offsetting the estimated tariff impact through price implementation and various operational initiatives. Brooks will provide more detail on our exposure in a few minutes. Since the U.S. Presidential Administration's announcement on tariffs on April 2nd, we have not observed a noticeable change in customer demand or behavior. That said, there is more uncertainty in the market now relative to the start of the year, and we continue to exercise a healthy dose of pragmatism in our forward planning. We are managing costs more closely, and we are prepared to take additional actions as needed. Our manufacturing footprint is largely in region for region, which we believe is an advantage relative to our competition. Furthermore, since 2022, we have worked extensively to optimize our sourcing and logistics networks. We are well positioned to continue to deliver further optimization as the current tariff policies take additional hold. Our seasoned management team has experienced multiple economic cycles, as well as previous supply chain dislocations. I'm confident in our team's ability to effectively manage our business as we enter this period of increased uncertainty. We turn to slide four. First quarter total sales were $848 million, which translated to core growth of 1.4% and was slightly better than our guidance. Total revenues were down just under 2%, inclusive of unfavorable foreign currency facts. Our automotive growth was healthy, supported by the replacement channel growing high single digits on a core basis, which more than offset weakness in automotive OEM. Industrial and market demands generally remain soft. although core revenue decreases were less of a headwind relative to prior quarters. Personal mobility continued to recover and contributed nicely with more than 30% growth. This was offset by continued soft demand in the agriculture and construction and markets, which decreased in the mid single digits. We experienced greater stability in the industrial replacement channel with core sales performance about even with the prior year period. Book-to-bill finished just above one for the quarter. In general, business activity followed our normal seasonality, and we did not observe material pre-buy activity during the quarter. Adjusted EBITDA was $187 million and represented a margin rate of 22.1%, a decrease of 60 basis points. The year-over-year margin performance was in line with the midpoint of our guidance. Recall, we had a non-recurring profit benefit primarily related to insurance proceeds in the prior year period. that added approximately 100 basis points to last year's margin performance. Gross margin measured 40.7%, and we exceeded the 40% threshold for gross margin for the fourth consecutive quarter. Adjusted earnings per share was 36 cents, an increase of approximately 6%. Underlying operating performance was positive, although offset by the non-recurring favorable items from last year discussed earlier and unfavorable foreign exchange. Lower interest expense and lower share count combined contributed about three cents to adjusted earnings per share. On slide five, we'll review our segment highlights. In the power transmission segment, we generated revenues of $527 million in the quarter, which translated to approximately 2% increase on a core basis. The replacement channel was up year over year, led by mid-single-digit growth in automotive replacement. Overall, power transmission OEM sales were slightly down. driven by a high single-digit decrease in automotive OEM sales. Industrial OEM sales benefited from double-digit growth in personal mobility. Demand was muted across the balance of industrial end markets in power transmission. In the fluid power segment, our sales were $320 million. On a core basis, sales were approximately flat. Demand in the replacement business was healthy, supported by automotive replacement, which grew mid-teens. Industrial replacement stabilized with sales approximately flat. Industrial OEM sales declined low double digits on a core basis. With respect to profitability, both segments were impacted by foreign currency headwinds, as well as incremental SG&A expenses. related to investments in system improvements we referenced on our last earnings call. The power transmission segment partially offset these headwinds with benefits from strengthening recovery in personal mobility, while the fluid power segment experienced greater margin pressure due to ongoing demand softness in the agriculture and construction end markets. I will now pass the call over to Brooks for further comments on our results.