Gates Industrial Corporation Plc · NYSE:GTES
Gates Industrial — Q2 2024 Earnings Presentation
22 slides from Gates Industrial's earnings presentation, Jul 31, 2024
Slide 1: Q2 2024 Earnings Presentation
Q2 2024 JULY 31, 2024 EARNINGS PRESENTATION
Slide 2: Legal Disclaimers
LEGAL DISCLAIMERS 2 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This presentation contains, and management may make on our call today, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 19
Slide 3: Q2 2024 Key Highlights
Q2 2024 KEY HIGHLIGHTS 3 ▪ Core revenues (4%) YoY • Global replacement channel revenues grew, led by automotive • Industrial revenue remained weak driven by agriculture and construction ▪ Solid expansion in profitability vs. year ago • Adjusted EBITDA margin of 22.8%, +170 bps YoY • Gross margin exc
Slide 4: Q2 2024 Financial Performance
Q2 2024 – FINANCIAL PERFORMANCE 4 $886M (4.0%) Core Decline YoY ▪ ▪ Replacement outperformed First Fit Overall industrial demand trend largely in line with expectations with incremental weakness in Off-Highway Net Sales $202M 22.8% Adjusted EBITDA margin ▪ ▪ Gross margin increased 270 bps YoY Enterp
Slide 5: Q2 2024 Segment Results
Q2 2024 – SEGMENT RESULTS 5 PERFORMANCE HIGHLIGHTS POWER TRANSMISSION ▪ Overall replacement up slightly led by modest NET SALES $542M industrial channel growth; Automotive Replacement about flat (3.5%) Core YoY ▪ Majority of industrial end markets declined; Energy ADJUSTED EBITDA $124M and On-Highwa
Slide 6: Q2 2024 Regional Core Revenue Performance
Q2 2024 – REGIONAL CORE REVENUE PERFORMANCE 6 Total Gates Greater China (4.0%) 10% 10% EA&I North 49% REVENUE America EMEA 26% (3.7%) (6.8%) (3.9%) 5% North EMEA South Greater America America China • NA: Replacement up, led by auto; Industrial First Fit down double-digits (0.7%) South 0.5% • EMEA: W
Slide 7: Adjusted EPS Walk
Q2 2024 ADJUSTED EPS WALK 7 $0.03 $0.01 $0.36 $0.01 $0.34 ($0.03) Q2 2023 Adj. EPS Operating Performance Interest Expense Income Tax Expense* Other Q2 2024 Adj. EPS *Effective Q2 2024, we are applying a normalized effective tax rate to our adjusted earnings. Please see pages 18-20 in the Appendix fo
Slide 8: Q2 2024 Capital Efficiency & Cash Flow
Q2 2024 – CAPITAL EFFICIENCY & CASH FLOW 8 $67M Free Cash Flow Solid FCF generation ▪ ▪ 70% conversion to adjusted net income Trade working capital increased slightly YoY 2.3x Net Leverage Improved 0.5x YoY ▪ Q2 debt refinancing lowers annualized interest expense ▪ Nearest debt maturity is 2029 23.1
Slide 9: Updated 2024 Guidance
UPDATED 2024 GUIDANCE 9 PRIOR 2024 UPDATED 2024 B/W (Midpoint) CORE REVENUE GROWTH (3%) to +1% (4%) to (2%) (2%) ADJUSTED EBITDA $745M – $805M $740M – $770M ($20M) ADJUSTED EPS $1.28 – $1.43 $1.29 – $1.35 ($0.04) CAPITAL EXPENDITURES ~$100M ~$100M No Change FREE CASH FLOW CONVERSION 90%+ 90%+ No Cha
Slide 10: Updated Walk to 2024 Adjusted EPS Midpoint
UPDATED WALK TO 2024 ADJUSTED EPS MIDPOINT 10 $1.36 $0.03 $1.32 ($0.03) ($0.02) ($0.02) 2024 Adj. EPS (May Lower Operating Income Cost of Accelerated New Unfavorable F/X Higher Tax, Lower Updated 2024 Adj. EPS 2024 Guidance) Business Conversions Interest & Other *Effective Q2 2024, we are applying a
Slide 11: Summary Thoughts
SUMMARY THOUGHTS 11 ▪ Solid 1H operating performance; focused on structural growth and cost reduction • Continue to progress enterprise initiatives • Material science investments enabling expansion into secular growth areas • Initiating footprint optimization activities as outlined at March 2024 Cap
Slide 12: © 2024 Gates Corporation. All rights reserved.
12 © 2024 Gates Corporation. All rights reserved.
Slide 13: Appendix
APPENDIX © 2024 Gates Corporation. All rights reserved.
Slide 14: Adjusted EPS – Summary Walk
Q2 2024 ADJUSTED EPS – SUMMARY WALK 14 Q2 2023 $0.34 OPERATING PERFORMANCE 0.01 Margin improvement supported by pricing, initiatives and favorable mix INTEREST EXPENSE 0.03 Reduced debt balance and lower financing costs INCOME TAX EXPENSE (0.03) Higher effective tax rate OTHER 0.01 Lower share count
Slide 15: Reconciliations – Core Revenue Growth
RECONCILIATIONS – CORE REVENUE GROWTH 15 (USD in millions) Power Transmission Fluid Power Q2 2024 Reconciliation of Core Sales Growth Net sales for the quarter ended June 29, 2024 $ 541.9 $ 343.6 $ 885.5 Impact on net sales of movements in currency rates 12.2 0.9 13.1 Core sales for the quarter ende
Slide 16: Reconciliations – Adjusted EBITDA & Net Leverage
RECONCILIATIONS – ADJUSTED EBITDA & NET LEVERAGE 16 (1) During the three, six and twelve (USD in millions) Q2 2024 Q2 2023 YTD Q2 2024 YTD Q2 2023 LTM Q2 2024 LTM Q2 2023 months ended June 29, 2024, Reconciliation to Adjusted EBITDA inventory impairments and Net Income from Continuing Operations $ 7
Slide 17: Segment Adjusted EBITDA Margin
Q2 2024 SEGMENT ADJUSTED EBITDA MARGIN 17 (USD in millions) QTD Q2 2024 QTD Q2 2023 Change YTD Q2 2024 YTD Q2 2023 Change Reconciliation to Adjusted EBITDA Margin and Incremental Margin Power Transmission Net Sales $ 541.9 $ 573.9 $ (32.0) $ 1,074.7 $ 1,122.0 $ (47.3) Power Transmission Adjusted EBI
Slide 18: Reconciliations – Adjusted Net Income
RECONCILIATIONS – ADJUSTED NET INCOME 18 (USD in millions, except share numbers and per share amounts) Q2 2024 Q2 2023 YTD Q2 2024 YTD Q2 2023 LTM Q2 2024 LTM Q2 2023 Reconciliation to Adjusted Net Income Net Income Attributable to Shareholders $ 70.7 $ 64.9 $ 110.7 $ 91.3 $ 252.3 $ 228.1 Adjusted f
Slide 19: Reconciliations – Adjusted Net Income (Cont.)
RECONCILIATIONS – ADJUSTED NET INCOME (CONT.) 19 (1) During the three, six and twelve months ended June 29, 2024, inventory impairments and adjustments included $3.4 million, $17.3 million and $20.5 million, respectively, for the reversal of the adjustment to remeasure certain inventories on a Last-
Slide 20: 2023 Adjusted Net Income
2023 ADJUSTED NET INCOME (1) 20 (USD in millions, except share numbers and per share amounts) Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Reconciliation to Adjusted Net Income Net Income Attributable to Shareholders $ 26.4 $ 64.9 $ 78.7 $ 62.9 $ 232.9 Adjusted for: Loss on the disposal of discontinued o
Slide 21: Reconciliations – Free Cash Flow & Free Cash Flow Conversion
RECONCILIATIONS – FREE CASH FLOW & FREE CASH FLOW 21 CONVERSION (USD in millions) Q2 2024 Q2 2023 YTD Q2 2024 YTD Q2 2023 LTM Q2 2024 LTM Q2 2023 Reconciliation of Free Cash Flow Net Cash (Used in) Provided By Operating Activities $ 93.8 $ 131.4 $ 72.8 $ 183.9 $ 369.9 $ 531.5 Capital Expenditures (1
Slide 22: Reconciliations – Return on Invested Capital (ROIC)
RECONCILIATIONS – RETURN ON INVESTED CAPITAL (ROIC) 22 (USD in millions) LTM Q2 2024 LTM Q2 2023 Return On Invested Capital (ROIC) LTM Adjusted EBITDA $ 773.0 $ 715.5 LTM Total depreciation and amortization (218.1) (214.8) LTM Amortization of intangible assets arising from the 2014 acquisition of Ga