Gates Industrial Corporation Plc · NYSE:GTES
Gates Industrial — Q4 2023 Earnings Presentation
23 slides from Gates Industrial's earnings presentation, Feb 8, 2024
Slide 1: Q4 2023 Earnings Presentation
Q4 2023 FEBRUARY 8, 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: Full Year 2023 Review
FULL YEAR 2023 REVIEW 3 STRONG EXECUTION 2023A YoY Change Revenue $3.57B 1% ▪ Delivered double-digit YoY growth in adjusted Adjusted EBITDA $747M 10% EBITDA in softening market environment Gross Margin 38.1% 290 bps ▪ Adjusted EPS expanded 19% vs. 2022 Adjusted EBITDA Margin 20.9% 180 bps ▪ Net leve
Slide 4: Q4 2023 Key Highlights
Q4 2023 KEY HIGHLIGHTS 4 ▪ Revenue consistent with expectations • Automotive outperformed industrial • Normal seasonality ▪ Adjusted EBITDA dollars at prior Q4 record • Adjusted EBITDA margin of 21.5%; YoY margin expansion of 290 bps • Gross margin exceeded 39%; +440 bps YoY ▪ Free cash flow convers
Slide 5: Q4 2023 – Financial Performance
Q4 2023 – FINANCIAL PERFORMANCE 5 $863M In Line with Expectations ▪ ▪ Automotive slightly positive; industrial decreased Replacement channels outperformed first fit Net Sales $186M 21.5% Adjusted EBITDA margin ▪ ▪ Seasonally strong performance Gross margin expansion trend continued Adjusted EBITDA $
Slide 6: Segment Highlights
SEGMENT HIGHLIGHTS 6 ADJ. EBITDA NET SALES HIGHLIGHTS MARGIN Q4 2023 POWER TRANSMISSION ▪ Solid growth in automotive, energy and $532.8M 22.0% construction with improved results in China; (4.6%) 360 bps Personal Mobility de-stocking continued Core Growth ∆ EBITDA Margin ▪ Personal Mobility design wi
Slide 7: Regional Core Revenue Performance
REGIONAL CORE REVENUE PERFORMANCE 7 Q4 2023 YoY growth affected by ~250 bps of backlog conversion benefit in Q4 2022 Greater China Total Gates 10% Q4 (5%) North 11% EA&I America Q4 2023 +1% 48% REVENUE North America Greater China 26% Q4 (6%) Q4 (1%) 5% EMEA 2023 (2%) 2023 +2% South EMEA America Q4 (
Slide 8: Q4 2023 Adjusted EPS Walk
Q4 2023 ADJUSTED EPS WALK 8 $0.02 $0.39 $0.02 $0.03 $0.07 $0.25 Q4 2022 Adj. EPS Operating Performance Net Interest Expense Income Tax Expense Other Q4 2023 Adj. EPS ROBUST INCREASE IN PROFITABILITY AND LOWER NET INTEREST EXPENSE FUELED BULK OF THE INCREASE © 2024 Gates Corporation. All rights reser
Slide 9: Q4 2023 – Capital Efficiency & Cash Flow
Q4 2023 – CAPITAL EFFICIENCY & CASH FLOW 9 $165M Free Cash Flow 158% conversion ▪ ▪ Solid conversion YoY improvement in trade working capital 2.3x Net Leverage Net leverage ratio down 0.5x YoY ▪ ▪ Represents lowest ratio as a public company Continue to evaluate debt reduction opportunities 23.0% ROI
Slide 10: 2024 Outlook
2024 OUTLOOK 10 FULL YEAR 2024 CORE FREE CASH REVENUE ADJUSTED CAPITAL FLOW GROWTH EBITDA ADJUSTED EPS EXPENDITURES CONVERSION (3%) – 1% $725M – $785M $1.28 – $1.43 ~$100M 90%+ KEY ASSUMPTIONS/CONSIDERATIONS Q1 ESTIMATES ▪ 1H revenue decline YoY followed by recovery in 2H ▪ Revenues: $840M - $880M ▪
Slide 11: Bridge to 2024 Adjusted EPS Midpoint
BRIDGE TO 2024 ADJUSTED EPS MIDPOINT 11 ($0.03) $1.36 $1.36 $0.07 ($0.04) 2023 Core Revenue Enterprise Initiatives Interest, Other Expense, 2024 Adj. EPS Change & Conversion Tax, Share Count Adj. EPS BUILDING MOMENTUM IN ENTERPRISE INITIATIVES OFFSETTING HEADWINDS © 2024 Gates Corporation. All right
Slide 12: Summary Thoughts
SUMMARY THOUGHTS 12 ▪ Strong finish to the year • Delivered solid margin expansion in a softer demand environment • Exited the year with operations normalized • Strong free cash flow conversion fueled accelerated balance sheet improvement • Demonstrating resiliency of asset base and business model ▪
Slide 13: Capital Markets Day Reminder
CAPITAL MARKETS DAY REMINDER 13 © 2024 Gates Corporation. All rights reserved.
Slide 14: © 2024 Gates Corporation. All rights reserved.
14 © 2024 Gates Corporation. All rights reserved.
Slide 15: Appendix
APPENDIX © 2024 Gates Corporation. All rights reserved.
Slide 16: Underlying 2024 Market Growth Expectations
UNDERLYING 2024 MARKET GROWTH EXPECTATIONS 16 FY 2023 SALES SPLITS 2024 Underlying Market Expectations Personal Energy & Mobility Automotive Replacement Resources 4% 6% Automotive First-Fit Auto Diversified Replacement 33% Industrial Off-Highway Industrial 19% Industrial On-Highway 9% Diversified In
Slide 17: Q4 2023 Adjusted EPS – Summary Walk
Q4 2023 ADJUSTED EPS – SUMMARY WALK 17 Q4 2022 $0.25 Improved operating performance from OPERATING PERFORMANCE 0.07 pricing and margin improvement Lower interest expense combined with NET INTEREST EXPENSE 0.03 higher interest income on cash and short- term investment INCOME TAX EXPENSE 0.02 Incremen
Slide 18: Reconciliations – Core Revenue Growth
RECONCILIATIONS – CORE REVENUE GROWTH 18 (USD in millions) Power Transmission Fluid Power Q4 2023 Reconciliation of Core Revenue Growth (1) Net sales for the quarter ended December 30, 2023 $ 532.8 $ 330.5 $ 863.3 Impact on net sales of movements in currency rates (5.8) (5.7) (11.5) Core revenue for
Slide 19: Reconciliations – Adjusted EBITDA and Net Leverage
RECONCILIATIONS – ADJUSTED EBITDA AND NET LEVERAGE 19 (USD in millions) (1) During the three months and year ended December 30, Q4 2023 Q4 2022 FY 2023 FY 2022 2023, inventory impairments and adjustments included $1.1 Reconciliation to Adjusted EBITDA million and $7.3 million, respectively, for the
Slide 20: Reconciliations – Segment Adjusted EBITDA Margin
RECONCILIATIONS – SEGMENT ADJUSTED EBITDA MARGIN 20 (USD in millions) QTD Q4 2023 QTD Q4 2022 Change FY 2023 FY 2022 Change Reconciliation to Adjusted EBITDA Margin Power Transmission Net Sales $ 532.8 $ 552.6 $ (19.8) $ 2,191.2 $ 2,173.7 $ 17.5 Power Transmission Adjusted EBITDA $ 117.4 $ 101.9 $ 1
Slide 21: Reconciliations – Adjusted Net Income
RECONCILIATIONS – ADJUSTED NET INCOME 21 (1) During the three months and year ended (USD in millions, except share numbers and per share amounts) Q4 2023 Q4 2022 FY 2023 FY 2022 December 30, 2023, inventory impairments and adjustments included $1.1 million and $7.3 Reconciliation to Adjusted Net Inc
Slide 22: Reconciliations – Free Cash Flow & Free Cash Flow Conversion
RECONCILIATIONS – FREE CASH FLOW & FREE CASH FLOW 22 CONVERSION (USD in millions) Q4 2023 Q4 2022 FY 2023 FY 2022 Reconciliation of Free Cash Flow Net Cash Provided By Operating Activities $ 189.3 $ 247.0 $ 481.0 $ 265.8 (1) Capital Expenditures (24.2) (21.3) (71.4) (87.0) Free Cash Flow $ 165.1 $ 2
Slide 23: Reconciliations – Return on Invested Capital (ROIC)
RECONCILIATIONS – RETURN ON INVESTED CAPITAL (ROIC) 23 (USD in millions) LTM Q4 2023 LTM Q4 2022 Return On Invested Capital (ROIC) LTM Adjusted EBITDA $ 747.0 $ 680.6 LTM Total depreciation and amortization (217.5) (217.2) LTM Amortization of intangible assets arising from the 2014 acquisition of Ga