Gates Industrial Corporation Plc · NYSE:GTES
Gates Industrial — Q2 2023 Earnings Presentation
19 slides from Gates Industrial's earnings presentation, Aug 4, 2023
Slide 1: Q2 2023 Earnings Presentation
Q2 2023 AUGUST 4, 2023 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 2023 Key Highlights
Q2 2023 KEY HIGHLIGHTS 3 ▪ Revenue outpaced guidance midpoint • Solid core growth of ~4% YoY • Automotive outperformed industrial markets ▪ EBITDA margin improved +120 bps YoY • Adjusted EBITDA margin above 21% • Gross margin expanded 170 bps ▪ Free cash flow conversion exceeded 100% • Working capit
Slide 4: Q2 2023 Financial Performance
Q2 2023 – FINANCIAL PERFORMANCE 4 $936M ~4% Core Growth YoY ▪ ▪ Strong automotive growth Industrial demand uneven Net Sales $197M 21.1% Adjusted EBITDA margin ▪ ▪ Improved operating environment Gross margin drove adjusted EBITDA margin improvement Adjusted EBITDA $0.36 (1) Operating income expanded
Slide 5: Q2 2023 Segment Results
Q2 2023 – SEGMENT RESULTS 5 PERFORMANCE HIGHLIGHTS POWER TRANSMISSION NET SALES $574M ▪ Strong automotive growth across both first-fit and replacement channels globally ▪ Improved operating environment helped fuel 180 bps ADJUSTED EBITDA $119M margin expansion YoY ADJUSTED EBITDA MARGIN 20.7% FLUID
Slide 6: Q2 2023 Regional Core Revenue Performance
Q2 2023 – REGIONAL CORE REVENUE PERFORMANCE 6 Total Gates Greater China +4% 10% EA&I 10% North 48% REVENUE America +9% 27% (3%) EMEA +28% 5% EMEA North Greater America China South America +4% +3% South North America affected by East Asia & America India record revenue performance in prior year perio
Slide 7: Adjusted EPS Walk
Q2 2023 ADJUSTED EPS WALK 7 $0.06 ($0.03) $0.01 $0.36 $0.32 Q2 2022 Adj. EPS Operating Income Net Interest Other Q2 2023 Adj. EPS Note: Figures don’t add due to rounding. EARNINGS GROWTH DRIVEN BY GROSS MARGIN IMPROVEMENT © 2023 Gates Corporation. All rights reserved.
Slide 8: Q2 2023 Capital Efficiency & Cash Flow
Q2 2023 – CAPITAL EFFICIENCY & CASH FLOW 8 $116M Free Cash Flow 114% conversion ▪ ▪ Stable trade working capital LTM FCF conversion = 135% 2.8x Net Leverage Net leverage ratio fell 0.5x YoY ▪ ▪ Returned $250M of capital to shareholders Improving net leverage metrics 20.6% ROIC ROIC expanded 250 basi
Slide 9: Updated 2023 Guidance
UPDATED 2023 GUIDANCE 9 PRIOR 2023 UPDATED 2023 B/W (Midpoint) CORE REVENUE GROWTH 1 – 5% 0 to +2% (2%) ADJUSTED EBITDA $700M – $750M $710M – $740M No Change ADJUSTED EPS $1.13 – $1.23 $1.18 – $1.24 +$0.03 CAPITAL EXPENDITURES ~$100M <$100M Down Slightly FREE CASH FLOW CONVERSION 100% 100%+ Higher Q
Slide 10: Summary Thoughts
SUMMARY THOUGHTS 10 ▪ Improving margins as environment normalizes • Better operational performance offsetting weaker industrial volume • Streamlining manufacturing footprint • Operational improvements sets the foundation for future gross margin expansion opportunity ▪ Improving balance sheet flexibi
Slide 11: © 2023 Gates Corporation. All rights reserved.
11 © 2023 Gates Corporation. All rights reserved.
Slide 12: Appendix
APPENDIX © 2023 Gates Corporation. All rights reserved.
Slide 13: Adjusted EPS – Summary Walk
Q2 2023 ADJUSTED EPS – SUMMARY WALK 13 Q2 2022 $0.32 Improved operating performance from OPERATING INCOME 0.06 pricing and gross margin improvement NET INTEREST EXPENSE (0.03) Higher interest rate Income tax expense, minority interest OTHER 0.01 and share count Q2 2023 $0.36 © 2023 Gates Corporation
Slide 14: Adjusted EBITDA & Incremental Margin
Q2 2023 ADJUSTED EBITDA & INCREMENTAL MARGIN 14 (USD in millions) Q2 2023 Q2 2022 Change Reconciliation to Adjusted EBITDA Margin and Incremental Margin Power Transmission Net Sales $ 573.9 $ 543.0 $ 30.9 Power Transmission Adjusted EBITDA $ 119.0 $ 102.4 $ 16.6 Adjusted EBITDA Margin 20.7% 18.9% 18
Slide 15: Reconciliations – Core Revenue Growth
RECONCILIATIONS – CORE REVENUE GROWTH 15 (USD in millions) Power Transmission Fluid Power Q2 2023 Reconciliation of Core Revenue Growth Net sales for the quarter ended July 1, 2023 (1) $ 573.9 $ 362.4 $ 936.3 Impact on net sales of movements in currency rates 7.1 (1.6) 5.5 Core revenue for the quart
Slide 16: Reconciliations – Adjusted EBITDA and Net Leverage
RECONCILIATIONS – ADJUSTED EBITDA AND NET LEVERAGE 16 (USD in millions) Q2 2023 Q2 2022 YTD Q2 2023 YTD Q2 2022 LTM Q2 2023 LTM Q2 2022 Reconciliation to Adjusted EBITDA Net Income from Continuing Operations $ 71.3 $ 59.3 $ 102.2 $ 96.7 $ 248.4 $ 246.1 (1) During the three, six and twelve months end
Slide 17: Reconciliations – Adjusted Net Income
RECONCILIATIONS – ADJUSTED NET INCOME 17 (USD in millions, except share numbers and per share amounts) Q2 2023 Q2 2022 YTD Q2 2023 YTD Q2 2022 LTM Q2 2023 LTM Q2 2022 Reconciliation to Adjusted Net Income Net Income Attributable to Shareholders $ 64.9 $ 53.1 $ 91.3 $ 84.0 $ 228.1 $ 216.9 Adjusted fo
Slide 18: Reconciliations – Free Cash Flow & Free Cash Flow Conversion
RECONCILIATIONS – FREE CASH FLOW & FREE CASH FLOW 18 CONVERSION (USD in millions) Q2 2023 Q2 2022 YTD Q2 2023 YTD Q2 2022 LTM Q2 2023 LTM Q2 2022 Reconciliation of Free Cash Flow Net Cash Provided By (Used In) Operating Activities $ 131.4 $ 23.6 $ 183.9 $ (81.8) $ 531.5 $ 188.8 Capital Expenditures
Slide 19: Reconciliations – Return on Invested Capital (ROIC)
RECONCILIATIONS – RETURN ON INVESTED CAPITAL (ROIC) 19 (USD in millions) Q2 2023 Q2 2022 Return On Invested Capital (ROIC) LTM Adjusted EBITDA $ 715.5 $ 660.4 LTM Total depreciation and amortization (214.8) (220.8) LTM Amortization of intangible assets arising from the 2014 acquisition of Gates 115.