Gates Industrial Corp plc Q1 FY2025 earnings call

• First quarter sales outpaced initial guidance with 1.4% core growth, supported by volume and price. Replacement channel sales grew mid-single digits, led by automotive replacement. Adjusted EBITDA margin exceeded 22%, gross margin expanded to 40.7%. - Net leverage finished at 2.3x, balance sheet solid with $13 million share repurchased and over $100 million remaining under authorization. - Implemented actions to mitigate tariff impact, using price increases as the predominant tool. - Progressing enterprise initiatives focused on gross margin improvement. - Core growth was slightly positive, underlying operating performance strong when excluding non-recurring items and foreign exchange headwinds.

In the Power Transmission segment, revenues were $527 million in the quarter, with approximately a 2% core growth. The replacement channel was up year-over-year, led by mid-single digit growth in automotive replacement. Transmission OEM sales were slightly down, driven by a high single digit decrease in automotive OEM sales, while industrial OEM sales benefited from double digit growth in personal mobility. In the Fluid Power segment, sales were $320 million. On a core basis, sales were approximately flat. Demand in the replacement business was healthy, supported by automotive replacement growing mid-teens, industrial replacement stabilized with sales approximately flat, and industrial OEM sales declined low double digits on a core basis. Both segments were impacted by foreign currency headwinds and incremental SG&A expenses related to system improvements, with Power Transmission partially offsetting headwinds via personal mobility recovery and Fluid Power facing margin pressure due to agriculture and construction end market softness.

• Reiterating 2025 financial guidance: core revenues in range of -0.5% to +3.5% vs 2024, adjusted EBITDA $735M-$795M, adjusted EPS $1.36-$1.52. - Second quarter estimated total revenues $845M-$885M, core revenues flat midpoint. - Tariff exposure ~$50M, with $35M in North America and $15M in China, plan to offset majority of impact with price actions and operational initiatives, anticipate no meaningful impact to adjusted EBITDA for full year.

• Uncertainty in market demand due to existing tariff regime. - Potential margin erosion from inactive tariffs if not effectively mitigated. - Macro and geopolitical uncertainties impacting business operations and demand.

Q: On tariff cadence and competitive positioning A: Brooks mentioned minimal dollar impact on quarters, Ivo stated 75-80% of $50M tariff impact to be offset by price, and Gates is well-positioned due to in-region for-region manufacturing philosophy.

Q: End markets and auto OE tariffs A: Ivo discussed auto builds down, personal mobility strong, and auto OE tariffs not a big concern as most manufacturing in Mexico/Canada is USMCA compliant.

Q: Core growth, price, FX A: Tariff impact offset via 75-80% pricing, FX headwind less than initially thought, with volume offsetting some effects.

Q: Manufacturing in Mexico, USMCA A: Significant manufacturing in Mexico, USMCA compliance mostly covered, with flexibility in US manufacturing for offsetting tariff impacts.

Q: Liquid cooling, channel partners A: Growing engagement in liquid cooling with interest from server manufacturers, etc., and channel partners stable with no meaningful pre-buy observed.

Q: Channel inventory, new partners A: Channel sales in balance, new partner being ramped up, with others in progress for product lines.

Q: Price increases timing, 80-20 initiatives A: Price increases implemented in Q2, realization in Q3; 80-20 initiatives progressing for margin improvement across factories.

Q: Capital deployment, M&A A: Net leverage at 2.3x, focus on share repurchase with over $100M remaining, disciplined M&A with ROIC requirements for accretive deals.