Gates Industrial Corporation Plc · NYSE:GTES
Gates Industrial — Q3 2024 Earnings Presentation
23 slides from Gates Industrial's earnings presentation, Oct 30, 2024
Slide 1: Q3 2024 Earnings Presentation
Q3 2024 OCTOBER 30, 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: Q3 2024 Key Highlights
Q3 2024 KEY HIGHLIGHTS 3 ▪ Core revenues (3.8%) YoY • Soft OEM sales performance trends continued, particularly in industrial • Growth in Replacement channels ▪ Adjusted EBITDA margin increase YoY fueled by gross margin improvement • Adjusted EBITDA margin of 22.0%, +30 bps vs prior year • Gross mar
Slide 4: Q3 2024 – Financial Performance
Q3 2024 – FINANCIAL PERFORMANCE 4 $831M (3.8%) Core Decline YoY ▪ Replacement channels partially offset OEM weakness Net Sales ▪ Positive core growth in Asian geographies $183M ▪ Gross margin increased 110 bps YoY ▪ Enterprise initiatives benefited profitability; favorable channel mix 22.0% Adjusted
Slide 5: Q3 2024 – Segment Results
Q3 2024 – SEGMENT RESULTS 5 PERFORMANCE HIGHLIGHTS POWER TRANSMISSION NET SALES $513M ▪ Replacement grew supported by Automotive; OEM channel down broadly (3.3%) Core YoY ▪ Automotive and Diversified Industrial were the most ADJUSTED EBITDA $113M resilient end markets; Agriculture, Construction and
Slide 6: Q3 2024 – Regional Core Sales Performance
Q3 2024 – REGIONAL CORE SALES PERFORMANCE 6 Total Gates (3.8%) 10% Greater China EA&I 11% North 49% REVENUE (6.4%) America 25% EMEA EMEA (5.6%) +3.7% 5% North Greater America China South America • NA: Industrial OEM channel decline impacted by Agriculture and +2.8% +1.5% Construction; Replacement up
Slide 7: Q3 2024 Adjusted EPS Walk
Q3 2024 ADJUSTED EPS WALK 7 $0.36 $0.01 $0.02 $0.33 ($0.03) ($0.03) Q3 2023 Adj. EPS Operating Performance Interest Expense Income Tax Expense Other & Lower Share Count Q3 2024 Adj. EPS ENTERPRISE INITIATIVES MITIGATED EARNINGS IMPACT FROM LOWER CORE SALES; HIGHER TAX PARTLY OFFSET BY OTHER ITEMS ©
Slide 8: Q3 2024 – Capital Efficiency & Cash Flow
Q3 2024 – CAPITAL EFFICIENCY & CASH FLOW 8 ▪ FCF conversion above seasonal trend $88M Free Cash Flow 101% FCF conversion ▪ ▪ Inventory increased supporting new business wins Positioning inventory to sustain exceptional service levels ahead of demand inflection 2.4x Net Leverage Improved 0.2x YoY ▪ ▪
Slide 9: Updated 2024 Guidance
UPDATED 2024 GUIDANCE 9 PRIOR 2024 UPDATED 2024 B/W (Midpoint) CORE SALES GROWTH (4%) to (2%) (~4%) to (~3%) (~0.5%) ADJUSTED EBITDA $740M – $770M $745M – $765M No Change ADJUSTED EPS $1.29 – $1.35 $1.33 – $1.37 +$0.03 CAPITAL EXPENDITURES ~$100M ~$100M No Change FREE CASH FLOW CONVERSION 90%+ 90%+
Slide 10: Updated Walk to 2024 Adjusted EPS Midpoint
UPDATED WALK TO 2024 ADJUSTED EPS MIDPOINT 10 $0.03 $1.35 $0.01 $1.32 ($0.01) 2024 Adj. EPS (July 2024 Guidance) Higher Operating Income Higher Interest Expense Lower Tax & Share Count Updated 2024 Adj. EPS © 2024 Gates Corporation. All rights reserved.
Slide 11: Footprint Optimization Update
FOOTPRINT OPTIMIZATION UPDATE 11 ▪ Three facility closures announced in 2H 2024 • Consolidation of subscale facilities $40M EXPECTED • Projects expected to be substantially completed by year-end 2024 ▪ Global initiative; executing additional projects in 2025 ANNUALIZED SAVINGS • Focusing on manufact
Slide 12: Summary Thoughts
SUMMARY THOUGHTS 12 ▪ Solid results in an uneven demand environment • Strong execution in managing what we can control • Delivered record Q3 gross margin in a declining volume environment • Adjusted EBITDA margin tracking to ~22% for year, 100+ basis points improvement YoY with volumes down ▪ Multip
Slide 13: © 2024 Gates Corporation. All rights reserved.
13 © 2024 Gates Corporation. All rights reserved.
Slide 14: Appendix
APPENDIX © 2024 Gates Corporation. All rights reserved.
Slide 15: Q3 2024 Adjusted EPS – Summary Walk
Q3 2024 ADJUSTED EPS – SUMMARY WALK 15 Q3 2023 $0.36 OPERATING PERFORMANCE (0.03) Core sales decline vs. prior year period INTEREST EXPENSE 0.01 Reduced debt balance INCOME TAX EXPENSE (0.03) Higher effective tax rate OTHER 0.02 Other and lower share count Q3 2024 $0.33 © 2024 Gates Corporation. All
Slide 16: Reconciliations – Core Sales Growth
RECONCILIATIONS – CORE SALES GROWTH 16 (USD in millions) Power Transmission Fluid Power Q3 2024 Reconciliation of Core Revenue Growth Net sales for the quarter ended September 28, 2024 (1) $ 513.4 $ 317.3 $ 830.7 Impact on net sales of movements in currency rates 5.4 3.4 8.8 Core revenue for the qua
Slide 17: Reconciliations – Historical Core Sales Growth CAGR
RECONCILIATIONS – HISTORICAL CORE SALES GROWTH CAGR 17 (USD in millions) FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 Reconciliation of Core Revenue Growth Net sales for the fiscal year $ 3,041.7 $ 3,347.6 $ 3,087.1 $ 2,793.0 $ 3,474.4 $ 3,554.2 $ 3,570.2 Impact on net sales of mo
Slide 18: Reconciliations – Adjusted EBITDA & Net Leverage
RECONCILIATIONS – ADJUSTED EBITDA & NET LEVERAGE 18 (USD in millions) (1) In July 2022, Gates suspended our Q3 2024 Q3 2023 YTD Q3 2024 YTD Q3 2023 LTM Q3 2024 LTM Q3 2023 operations in Russia. As of September Reconciliation to Adjusted EBITDA 28, 2024, we deconsolidated the Net Income from Continui
Slide 19: Reconciliations – Segment Adjusted EBITDA Margin & Incremental/Decremental Margin
RECONCILIATIONS - SEGMENT ADJUSTED EBITDA MARGIN & 19 INCREMENTAL/DECREMENTAL MARGIN (USD in millions) Change Incremental / Change Incremental / QTD Q3 2024 QTD Q3 2023 YTD Q3 2024 YTD Q3 2023 Decremental Margin Decremental Margin Reconciliation to Adjusted EBITDA Margin and Incremental / Decrementa
Slide 20: Reconciliations – Adjusted Net Income
RECONCILIATIONS – ADJUSTED NET INCOME 20 (USD in millions, except share numbers and per share amounts) Q3 2024 Q3 2023 YTD Q3 2024 YTD Q3 2023 LTM Q3 2024 LTM Q3 2023 Reconciliation to Adjusted Net Income Net Income Attributable to Shareholders $ 47.6 $ 78.7 $ 158.3 $ 170.0 $ 221.2 $ 254.9 Adjusted
Slide 21: Reconciliations – Adjusted Net Income (Cont.)
RECONCILIATIONS – ADJUSTED NET INCOME (CONT.) 21 (1) In July 2022, Gates suspended our operations in Russia. As of September 28, 2024, we deconsolidated the Russian subsidiary upon loss of control and recognized a deconsolidation loss. (2) During the three, nine and twelve months ended September 28,
Slide 22: Reconciliations – Free Cash Flow & Free Cash Flow Conversion
RECONCILIATIONS – FREE CASH FLOW & FREE CASH FLOW 22 CONVERSION (USD in millions) Q3 2024 Q3 2023 YTD Q3 2024 YTD Q3 2023 LTM Q3 2024 LTM Q3 2023 Reconciliation of Free Cash Flow Net Cash Provided By Operating Activities $ 115.9 $ 107.8 $ 188.7 $ 291.7 $ 378.0 $ 538.7 (1) Capital Expenditures (28.0)
Slide 23: Reconciliations – Return on Invested Capital (ROIC)
RECONCILIATIONS – RETURN ON INVESTED CAPITAL (ROIC) 23 (USD in millions) LTM Q3 2024 LTM Q3 2023 Return On Invested Capital (ROIC) LTM Adjusted EBITDA $ 766.1 $ 727.2 LTM Total depreciation and amortization (217.8) (215.6) LTM Amortization of intangible assets arising from the 2014 acquisition of Ga