GTES

• Overall Q2 2026 Financial Performance: • Total sales hit a quarterly record of $942 million, growing 6.6% year-over-year including foreign currency benefits, with 4.9% core sales growth. Demand strengthened through the second half of the quarter, with book-to-bill remaining above 1. • Adjusted EBITDA reached $211 million, for an adjusted EBITDA margin of 22.5%, which was modestly above analyst expectations. Adjusted gross margin increased 50 basis points year-over-year. • Adjusted earnings per share grew 13% year-over-year to a quarterly record of 44 cents. Trailing 12-month return on invested capital reached 21.6%, up 30 basis points year-over-year.

• Regional Performance: • Americas delivered 1.5% core sales growth: low single-digit growth in North America offset a decline in South America driven by soft agricultural demand. North America sales momentum accelerated through the quarter, exiting at a mid-single digit growth rate. • EMEA delivered 6.4% core sales growth, led by mid-teens growth in industrial OEM and double-digit growth in industrial aftermarket, with strong contributions from commercial on highway, diversified industrial, and personal mobility. • APAC core sales growth accelerated to 11.5%, with comparable strong growth across China, East Asia, and India, driven by double-digit gains across multiple industrial end markets.

• Cash Flow and Balance Sheet: • Q2 2026 free cash flow was $60 million, with a trailing 12-month free cash flow conversion rate of 94% (above the company's historical average). • The net leverage ratio declined to 1.8x, a 0.4x improvement year-over-year. The company repurchased $22 million of common stock during the quarter. • The company continues to invest in high-return projects to support long-term growth and profitability.

• Strategic Positioning: • Management believes the company is in the early stages of a broad industrial recovery, with improving OEM schedules and solid distributor order demand. The company's multi-year strategy of operational improvement and strategic investment is now yielding results. • Key strategic growth initiatives include personal mobility belt conversion of traditional chain drives, data center water pump applications, and general industrial chain-to-belt conversions, all expected to deliver above-market growth.

• Full year 2026 guidance has been upwardly revised across core metrics: core sales growth guidance is now 2.5% to 4.5%, a 100 basis point increase at the midpoint; full year adjusted EBITDA guidance is $800 million to $830 million, a $10 million increase at the midpoint; full year adjusted earnings per share guidance is $1.62 to $1.70, a 6 cent increase at the midpoint.
• Guidance for capital expenditures and full year free cash flow conversion is unchanged from prior estimates.
• The updated guidance implies 6% core sales growth in the second half of 2026, a sharp acceleration from the ~1% core growth achieved in the first half. Management expects to hit an adjusted EBITDA margin of 23.5% or higher in the second half, putting the company on track to meet its 2024 medium-term margin target.
• Q3 2026 total revenue guidance is $880 million to $920 million, with core revenue growth expected to be ~5.5% at the midpoint, and adjusted EBITDA margin expected to increase 50 to 90 basis points year-over-year.
• Management remains on track to hit the 2024 Analyst Day 24.5% long-term adjusted EBITDA margin target by 2027, and will provide an updated strategic outlook at a future Analyst Day in 2027.

1. Power Transmission Segment: Q2 2026 sales were $589 million, representing 62.5% of total company revenue, with 5% core year-over-year growth. Segment performance was led by mid-teens core growth in the global industrial OEM channel, while the industrial aftermarket grew mid-single digits. Automotive aftermarket grew high single digits across all geographies. End market growth reached mid-20s in personal mobility, with similar gains in commercial on highway. Segment adjusted EBITDA margin increased 60 basis points year-over-year.

2. Fluid Power Segment: Q2 2026 sales were $353 million, representing 37.5% of total company revenue, with 4.2% core year-over-year growth. Industrial OEM sales grew double digits, while the industrial aftermarket grew low single digits. Strong end market performance included high-teens growth in commercial on highway and mid-single digit growth in construction and diversified industrial. The data center business more than doubled year-over-year, with higher sales contribution expected in the second half of 2026. Segment adjusted EBITDA margin decreased 120 basis points year-over-year, primarily due to footprint realignment costs and targeted enterprise investments.

• Soft agricultural demand, particularly in South America, is currently a drag on regional results after two strong years of performance in 2024 and 2025.
• Oil and petroleum-based raw material cost volatility has kept input costs stable to slightly higher, with no near-term expected relief from cost pressures.
• Footprint optimization is being paced to maintain sufficient capacity to meet rising customer demand during the recovery, pushing some cost savings out to 2027 rather than capturing all benefits in 2026.
• Forward-looking performance is subject to general macroeconomic and market risks that could cause actual results to differ materially from management guidance, as outlined in the company's SEC filings.

Q: How much of the expected second half margin improvement comes from temporary headwinds fading versus organic growth leverage, and what should be expected for medium-term incremental margins? / A: Margin improvement is driven by realized benefits from prior footprint optimization, restructuring and cost optimization work. Q3 will see slight incremental margin dilution from implementing new pricing to offset oil-related cost increases, putting incremental margins in the 35% to 40% range. Incremental margins are expected to rise back to 45% or higher in Q4, and continue improving through the first half of 2027. Full 2027 guidance will be provided at year-end. / Q: What is driving the strong 20%+ growth in personal mobility and commercial on-highway, and are these gains sustainable? / A: Commercial on-highway growth comes from a sharp industry recovery in North American Class A truck orders, which are up hundreds of percent year-over-year, with solid gains also in lighter weight classes. For personal mobility, the 25% to 30% core growth target for the next several years remains on track, driven by new product design wins, broader product portfolio penetration across more applications, and continued market share gains. Management expects this growth trajectory to hold. / Q: What is driving the strong growth in APAC, and is the strength durable? / A: APAC strength is driven by strong execution from regional teams and a deliberate strategy to capitalize on broad-based industrial activity across the region. The company is well diversified across end markets in APAC, with very little exposure to volatile energy markets, and nearly all segments are delivering solid performance. Management expects the company will continue to outperform both regional peers and underlying end market growth in APAC over the medium term. / Q: The 24.5% 2027 adjusted EBITDA margin target set at the 2024 Analyst Day appears feasible given current momentum – is this target still achievable? / A: Management confirms the company remains on track to hit this target, despite weak market conditions over the past two years after the target was set. A lot of operational work has been done to position the company to outperform and deliver the targeted margin, and 24.5% is not seen as a final endpoint for margin expansion. Management will provide an updated outlook at the next Analyst Day planned for 2027.