Gates Industrial Corporation plc

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time, I would like to welcome everyone to the Gates Industrial Corporation Q2 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Rich Cross, Vice President, Investor Relations. Please go ahead.

Greetings, and thank you for joining us on our second 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. He'll be followed by Brooks Mallard, our CFO. Before the market opened today, we published our second 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 the slide presentation, each of which is available in the investor relations section of our website. These referred 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 Form 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've described in our most recent annual report on Form 10-K, and in other filings we make with the SEC, including our Q1 quarterly report on Form 10Q that was filed in April 2025. We disclaimed any obligation to update forward-looking statements. This quarter, we'll be attending the Jeffries Industrials Conference, the Morgan Stanley Laguna Conference, and the RBC Capital Markets Global Industrials Conference all in September and look forward to meeting many of you. Before we start, please note all comparisons are against the prior year period unless stated otherwise. And now I'll turn it over to Eva.

Thank you, Rich. Good morning, everyone, and thank you for joining us on our call today. Let's begin on slide three of the presentation. In the second quarter, Gates delivered solid results as revenues outperformed our guidance, supported by more favorable currency trends. Core revenue performance was in line without April guidance. Core growth in our replacement channel was up, supported by low single-digit growth in both automotive and industrial. In the industrial and markets, personal mobility had another quarter of double-digit growth, and off-highway was flat, with growth in agriculture offsetting a decline in construction. We delivered solid operating performance in a quarter with adjusted EBITDA margin solidly exceeding 22%, in line with our expectations. Gross margin expanded 40 basis points, and we continue to make progress with our various enterprise initiatives. Our balance sheet continues to trend towards our short-term target of below two times net leverage. Our net leverage declined to 2.2 times at the quarter end. Our free cash flow grew year over year. We have updated our 2025 guidance, raising our adjusted EBITDA midpoint to $780 million and our adjusted EPS midpoint to $1.48. We have maintained our core growth midpoint of 1.5% and narrowed the range. Brooks will discuss the updated guidance in more detail later in the presentation. We continue to execute well in an uncertain macro environment, and we are focused on what we can control. Our in-region, for-region operational structure is proving itself effective as the enacted tariffs continue to fluctuate, and we have been able to mitigate the impact to our business. Please turn to slide four. Second quarter total sales were $884 million, which represented a 0.6% decline on a core basis. Foreign currency was slightly positive versus the prior year period. During the second quarter, underlying demand conditions for our products were as expected. we experienced strong growth in personal mobility, which we had anticipated at the start of the year. Our replacement channels were constructive, posting low single-digit growth. Notably, the industrial replacement channel realized positive core growth for the first time since Q1 2023. Our automotive end market was approximately flat with growth in auto replacement offset by decline in auto OEM. Additionally, industrial OEM sales were under pressure, primarily due to soft demand in construction and on highway. Adjusted EBITDA was $199 million, with adjusted EBITDA margin coming in at 22.5%. a decrease of 30 basis points. Of note, a one-time $7 million gain on a real estate transaction recognized in the year-ago period had an 80 basis point impact on the adjusted EBITDA margin comparison. Gross margin was 40.8% in the quarter and has remained above 40% for five consecutive quarters despite uneven demand trends. We continue to progress towards our mid-term margin targets for both gross profit margin and adjusted EBITDA margin. Adjusted earnings per share was 39 cents, an increase of approximately 8%. Underlying operating performance contributed 4 cents, partially offset by the non-recurring real estate gain of 2 cents recognized in a year-ago period and unfavorable for an exchange of one cent. Lower interest expense and lower share count contributed about two cents on combined basis. On slide five, we'll review our segment highlights. In the power transmission segment, we generated revenues of $550 million in a quarter. and we're up slightly on a core basis. High single digit growth in industrial OEM sales was mostly offset by decline in automotive OEM sales. Personal mobility grew 18% in a quarter, and we continue to execute well on the ramp up of new design rates. The replacement channel was stable with slight growth year over year. We are investing in our commercial front end and innovation. in areas of strategic growth potential to position the company to capitalize on opportunities ahead of us. In the fluid power segment, our sales were $334 million, which translated to a 2.5% decrease on a core basis, and market dynamics were mixed in a quarter. On-highway was incrementally weaker, as commercial truck production forecasts had been revised lower. particularly in North America. Softer construction demand continued. However, this was partially offset by low single digit growth in agriculture, which is the first positive read since Q4 2022. We believe the ag market is close to the bottom of the current stocking cycle. Demand in replacement business was healthy, supported by automotive and industrial which each grew low single digits. Industrial OEM sales declined low double digits on a core basis. Additionally, we are beginning to see a meaningful acceleration of quoting and booking activity in the data center market, which we expect to positively benefit the fluid power segment towards end of this year and mainly as we enter 2026. Adjusted EBITDA margin for the power transmission segment declined 50 basis points year over year, partly due to higher spending on research and development projects to support new product development in personal mobility and industrial chain development. Fluid power expanded adjusted EBITDA margins by 10 basis points and benefited from more stable revenue performance in the off-road markets and favorable replacement activities. partially offset by investments in data center initiatives. I will not pass the call over to Brooks for further comments on our results.