Gates Industrial Corporation plc Q3 FY2025 earnings call

• Gates posted solid third quarter results with positive core revenue growth of almost 2% despite subdued macro industrial demand. - End market performance was mixed; Personal Mobility continued to trend higher, Off-Highway grew mid-single digits with growth in construction but ag declined in North America and Europe, Diversified Industrial and Energy were down slightly, On-Highway demand was soft, Automotive grew low single digits. - Adjusted EBITDA margin increased to 22.9%, net leverage ratio declined to 2.0x. - Updated 2025 guidance: trimmed core revenue growth midpoint to 1%, maintained adjusted EBITDA midpoint, raised adjusted EPS guidance. - Ongoing restructuring plans including closing multiple factories, labor realignment, and ERP conversion for European footprint, with expected costs and margin impacts in first half of 2026 and benefits in second half. - Strategic initiatives in Personal Mobility and data center continue to expand.

Power Transmission segment generated revenues of $533 million in the quarter with core growth of 2.3%. Personal Mobility continued to be a strong contributor with growth exceeding 20% in the quarter. Fluid Power segment had sales of $322 million, representing core growth of just under 1%. Replacement demand was strong, driven by double-digit growth in Automotive Replacement globally, while Industrial OEM sales in Fluid Power declined mid-single digits.

• Trimmed core revenue growth midpoint to 1% and narrowed the range to 0.5% to 1.5%. - Maintained adjusted EBITDA midpoint of $780 million and narrowed the range to $770 million to $790 million. - Raised adjusted earnings per share guidance to the range of $1.48 per share to $1.52 per share. - Lowered free cash flow conversion outlook to a range of 80% to 90% from 90% plus due to increased restructuring cash outlays.

• Macro economic uncertainties that could impact end market performance. - Trade policies and industrial policy changes that may affect specific end markets like agriculture. - Impact of restructuring activities on margins in the first half of 2026, though expecting normalization and benefits in the second half.

Q: Clarify on Slide 12 margin walk, growth vectors like data center and Personal Mobility, and visibility on OEM production schedules A: Ivo Jurek discussed optimism on Personal Mobility growth (anticipated 30% compound annual growth from '25 to '28), positive design-in activity in data center liquid cooling, and expectations of stabilization in traditional end markets like auto OE and commercial construction. Brooks Mallard added on ERP implementation and cost impacts of restructuring Q: Details on restructuring, number of plants, headcount reduction, payback cadence A: L. Mallard mentioned closing multiple factories, hundreds of affected employees, payback generally 1-2 years depending on investment, with onetime costs in first half of 2026 around $30-35 million Q: Tariff impact, pricing, and volume falloff A: L. Mallard said tariff impact on profitability is 30-40 bps, Ivo Jurek discussed transitory headwinds in ag and trade environment affecting recovery Q: Exit rate in fourth quarter, EBITDA rate, cash conversion A: Ivo Jurek noted fourth quarter revenue embeds normal seasonality, L. Mallard discussed EBITDA with material cost initiatives offsetting some dilution, and cash conversion affected by restructuring charges with expectation of improvement in 2026 Q: Margin bridge, capital allocation, growth by region A: Ivo Jurek emphasized executing well without macro help, Board authorized $300 million share repurchase, and growth by region with EMEA returning to growth, China and India performing well Q: Data centers, pricing strategy A: Ivo Jurek mentioned data center design-in activities remain robust, L. Mallard discussed using pricing to cover material and utility inflation and 80/20 playbook to optimize pricing