We'll get started here. My name is Adam Seiden. I'm the U.S. Machinery and Construction Head here at Barclays. Joining us at this session is the team from Cummins. We have with us Jeff Wiltrout from the strategy team, Cummins strategy leader, as well as Chris Clulow, who most of you guys know from the Investor Relations side. Apologies for the delay. It's kind of like, you know, an airport. Everything starts picking up on each other as the day goes on. You know, maybe just some ground rules for you guys. We're gonna do a fireside chat up here. We'll then shift to the audience response questions. There's some gadgets on the desk. You guys should be pretty familiar with that by now. We'll leave some time for Q&A if you have at the end, if we could. With that, guys, thanks so much for being here. Yep. Thanks for having us. Thanks for having us. Appreciate it. Jeff, I really want to take advantage of you being here and talking to us because Cummins is definitely a transitioning portfolio. You know, and the company is obviously, you know, focused around the engines business. What I guess my first question is, having been through the ins and outs of the portfolio, what do you think is the most, you know, undervalued or underappreciated part of the portfolio? Yeah, thanks. It's a good question, and one we think a lot about obviously. There's a couple things we like to remind ourselves, make sure we're optimizing, and also convey to others. One piece is the nature of our distribution business and our channel. The sales and service network that enables us to sell our product, service our product, deepen our relationships with both our OEM customers, but also as much, if not more importantly, the end-use customers that are using the equipment on the field is a big part of our value proposition and unique for us relative to many people in our space. Of course, there's an ongoing debate around just kind of the valuation of our New Power business unit and the investments we're making there that we're very optimistic about, that we always try and remind, reinforce, and highlight. We think that's got a lot of opportunity and growth potential. Got it. You know, look, even in the past year, you know, Cummins as an organization has done quite a bit. You know, Meritor, Jake Brake, you know, Siemens, just to name a couple of them. You know, how effectively do you think the, you know, the Cummins team was able to manage that integration between all those individual parts there? You know, how When you're, when you're taking on a bunch of those assets, how does that shift some of the time that the management team could spend, you know, on focusing on integrating versus managing the business? Yeah, sure. You're right. It has been a lot. Is a lot. A lot to go execute, no doubt. All those acquisitions had different profiles as well. Obviously, you know, Jacobs is in the engine space, technology. We're heavily familiar with, a supplier to us that we knew quite well. Siemens was more of these newer motors and inverters, kind of in the New Power space. Obviously, Meritor, big multi-billion dollar acquisition. It took very different forms. I feel quite happy, comfortable with the work our integration team and business teams have done to integrate all those acquisitions to deliver on the value that we expected to be delivering on. In terms of, you know, management attention and distraction, I mean, we, I think, have a pretty clear set of priorities for this year, the next couple of years to go deliver on, one of which is the set of integration and execution activities to get those right. Delivering the new engine platforms we have on our way, investing and scaling up our electrolyzer business. Like, we have the aiming points that are pretty critical and fundamental to us executing on our near-term strategy. It's a lot to do, of course, but I feel like we're well-equipped and appropriately focused to go deliver on the promise of those key items that unlock what we think is the value here in the medium and long term. Got it. You know, having, I'm sure, done the diligence on plenty of items over time here, you know, how much time does Cummins spend, you know, on the supply chain or preexisting, you know, arrangements and contracts with the customers? A lot. As much as we can, of course. I mean, I think for us, and again, it does vary a little bit, deal by deal. Certainly when we're looking at spaces in the newer technology domain, we of course spend a lot of time making sure we understand the nature of customer contracts in particular and the obligations and anything there. That's a key emphasis for us. You know, the supply base, again, depends. A lot of these are contracts that we are able to get in and get familiar with pretty quickly because they're not entirely dissimilar from a lot of our own relationships experience. We know that pretty well with things like, even though it may be different components, that tends not to be terribly dissimilar. That tends to be a more confirmatory diligence exercise to make sure we understand the nature of the contracts, but usually those look pretty familiar to us. It is in some of the customer spaces, especially in some of these newer technology areas, that we spend a deeper amount of time make sure we understand exactly what's in there and what we're signing up for, or what the company we are targeting has signed up for. You know, there was a period of time where there was a wave of new announcements of new business that you guys, being Cummins, had won. Daimler, Isuzu, Hino, a bunch. You know, I think Hino was supposed to ramp this year. You know, Isuzu may already be happening. You know, where Daimler is a bit longer term, but you can do it better than I can. How should we think about the flow of all, you know, the individual partnerships and new businesses ramping up? Yeah. Yeah, I can take that one. Yeah, I think it is underway. In North America, we're in process. We have Hino in, have Isuzu in on the medium duty side. By the end of 2024, we'll have the rest of the Daimler business, bringing us up to a good share, I'll say, put that, of the business. In the latter part of the decade, we pick up the business for Daimler in Europe, Southeast Asia and then South America. All told, it's about 80,000-100,000 units, about a $2 billion boost to our revenue. The timing is a little, I guess, we have the timing locked in by the end of the decade, but some of that is pulling forward with when we can accommodate it into our plants. That's a key piece, is we're not building out a lot of new capital for this. It is utilizing the capital we already have in place, and so that we can do that and generate strong margins. Got it. just to put a fine point on that, the $2 billion, that is cumulative across all of them? Correct. Okay. Got it. Since we've been in Miami, you know, the company made some news about Atmus. Clearly it looks like the process is underway with filtration or at least more publicly now underway. You know, just I guess from what you guys comment from a Cummins perspective, you know, any sense around the timing, first half, second half? Yeah, maybe start there and I'll have a couple more. Yeah, sure. W e obviously have done all the work we feel like we need to do to prepare to move this, this business and, and, uh, next, uh, plan towards the IPO, move that forward. Obviously, the, the S-1, the public filing here this week reinforces that. And as such, we're looking forward to be prepared to move forward in the first half of the year if the market conditions support that. And that's the big if, of course. B ut we are staying kind of ready to move forward and, and the leadership team down there is as well and, and is looking forward to starting to get their story out and publicized and get ready for that next phase. Yes, ideally it's coming up pretty quickly, but again, this is now subject to timing and market conditions as much as anything else. Got it. Just historically speaking on that business, I was a little surprised about the off-highway/on-highway split. There was a bit more off-highway than I would have thought in there. You know, is that been consistent over time where, you know, you see a similar makeup? Yeah, I can take it. Yeah. It has been fairly consistent over time. I think in the off-highway space from a filtration perspective, they're just harder duty cycles and that's where you're going to have to work through or, uncertain fuel for fuel filters and so forth. That's where it drives a lot of that, and they can just consume a lot. Got it. You know, within there, you know, it talks about, you know, 70% of sales that are tied to, you know, a bunch of household names, you know, in the industry and so forth. You know, if you think more to the components business as a whole, you know, is it generally similar sort of, you know, concentration amongst, you know, those key customers and so forth on the components side? Is it split different 'cause the on-highway/off-highway mix? Yeah, it is split differently for the on and off-highway, so there is a little bit different. Filtration is probably the most global of it and from a distribution perspective as well. Because the products are used everywhere, particularly the off-highway products, you get to the high horsepower space. That equipment in mining, oil and gas, marine is used everywhere. Got it. Maybe shifting to Meritor. If we think about Meritor, there was some margin improvement quarter-on-quarter versus where you are. You, the company is projecting further margin improvement into 2023. Just curious, you know, the significant drivers behind that margin growth and your level of confidence that you'll be able to see that recognized in next year. Yeah. I'll start and you add. You know, a lot of as folks will have heard as we've talked to that is, as we closed on Meritor in August, those first several months, there was a lot of activity and work to do specifically aimed at pricing and doing some catch-up work over based on the, you know, inflationary cost increases that Meritor was seeing. So huge amount of energy in September, October, November to the balance of the year to basically drive that pricing. That would be the single biggest driver that kind of gets us back to a run rate earnings profile much closer to what they were doing pre-acquisition. Of course, to supplement and complement that, we are starting to execute on the synergy delivery that we have publicly announced and committed to, and that continues to go well. You know, the first pass of that has gone smoothly and is in line with what we expected. Now we're of course into the secondary elements that require a little bit more time and energy to unlock, but that's exactly where we're at right now and still feel quite confident that we, you know, over the next three years will deliver that number we've publicly committed to, and as such, start to move that Meritor earnings profile closer towards what our components business unit runs at over those next three years. That's perfect. Yeah. Excellent. Continuing on with the transition, the engines and so forth. If you think about the fuel-agnostic engine, you know, it's a step forward, of course, for, you know, the Cummins powertrain platform. You know, there's been some news around PACCAR and so forth around there, but, you know, how big of an opportunity it could that be and, you know, what's the timing on it? More to bring it back home to this year, you know, what's the CapEx requirement that's gonna be involved to standing that up? Yeah. Yeah. It's certainly a big investment. This is where essentially we're renewing our whole lineup for the engine business, a 6.7 L, a 10 L, a 15 L as we go forward towards EPA 2027. This is our fuel-agnostic engine has the same bottom end of the engine and then different top ends, depending on whether it's diesel, natural gas, hydrogen, really, propane, gasoline, anything you can really burn. I think that's a step forward. We get economies of scale, same fit in the trucks. The OEMs very much like it. I think there's been a lot of positive momentum in the natural gas space where people are seeing that. You know, you can see renewable natural gas, which you can argue is a negative carbon footprint, utilized in that space. We're really gaining good momentum there. The investments we've shown, you can see it in our R&D numbers and our capital numbers for this year, we're committed. We're in for 2027. We'll be there. I think it's gonna be a big ask for everybody to get to the same space. I think it's made us even more competitive in the space, particularly in the gaseous fuels, which we think has a lot of opportunity to grow first into natural gas and then eventually into hydrogen internal combustion before moving on to the New Power eventually. Got it. Continuing along here, there's a lot to talk about on the transition here. Now let's go to electrolyzers. In our round robin, you know, electrolyzers, I think you spoke to a tripling, right? Off of a low-- It's a very low base. Clearly, take that into account. you know, that could be a nice size growth opportunity, of course, with you as well, and you have very good technology around it. you know, just, you know, thinking about how big of a step forward you could see in that backlog by the, you know, the end of this year, and then more from like a profitability side for New Power, how important is electrolyzer to getting to that break even by 2027? Yeah, I can start that one. I think the momentum on the demand is definitely there. E ven before the Inflation Reduction Act, the momentum in North America was strong. Same in Europe is starting to free capital to actually get the cash to the projects. We're continuing to build that backlog and probably have this similar exponential pace that we're seeing now. Really the focus in that business is building capacity. We announced four capacity expansions last year, in Europe and North America, and we still have some more to come in China. We're really focused on that with both internally and then with our suppliers and building that out. It's already starting to progress where it's forming-- The market is, I would say, cleaning up to a few big, big competitors, and forming up into a good economic market. Like the demand is very strong. Demand is outstripping supply, so that leads up to, you know, generating good margins. Cummins average margins is where we project in the long term. That's the first New Power market that's gonna move before battery electric, before e-axle, before fuel cell, that'll help us get to that 2027 break even point. It's a key piece of that puzzle. That's fair. Before we transition into a bit more of the topical stuff around Power Systems and so forth, I just wanna move to the audience response questions here for a second. This is the same slide that's been up our whole time here, so I'm trusting it's ready. There it is. Perfect. Do you currently own the stock? Yes, overweight, market weight, underweight, or no? In terms of shareholders. All right. Moving to the next one here. What is your general bias towards the stock right now? Positive, negative, or neutral? There's our countdown. All right. Relatively evenly split. A bit more positive. Moving to the next question. In your opinion, through cycle EPS growth for Cummins will be above peers, in line, or below? There it is. If you just entered, enter again. Thank you. In line with peers. Moving to the next question. In your opinion, what should Cummins do with excess cash, both on M&A, larger M&A, repos, divvies, debt paid out, internal investment? To bring this back home for Mark. I was gonna say. I don't think you're gonna sway him on this one, but okay. I don't know if t hat's helpful. Yeah, I don't know what we're gonna take from that. Well, there's always next year. You're saying generate more cash. Yes. Yeah. That's it. Have more of it. Yeah. Okay. Got it. Yeah. moving to the next slide, please. Or question, sorry. In your opinion, on what multiple of 2023 earnings should Cummins trade? Less than 10x, all the way up to higher than 21x. Again, standardized ranges for this conference. I suspect the split might not be as even on this one as the last one. It may not. Probably not. It may not. Okay. So, 13x- 15 x rules the day. Moving to the next question. What do you see as the most significant share price headwind facing Cummins? Core growth, margin performance, capital deployment, or execution of strategy? All right, now re-enter if you haven't already answered. Okay. A bit split between core growth and execution of strategy. The last one, which is new for this year. Does ESG play an active role in your investment decision relating to the company? Yes, ESG is positive. Yes, it's negative. No, it doesn't play a role or just no. Once that timer starts, guys. There you go. Now you can answer. All right. No, it doesn't play a role in our assessment of the company. Interesting. Again, for context, I feel like a broken record now, having done this a few sessions now. It feels this is pretty much the standard answer. We can almost have this up on every single company across the board. All right. You know, I feel good enough now, you know, a day and a half into this thing that I can say that. Yeah. You know, maybe, you know, Jeff, I wanted to touch on, you spent a good amount of time, you know, in Power Systems along those lines there. You know, first, I'm curious, you know, how does that business compete for capital versus the rest of the overall portfolio? Yeah. That's a good question. I would say we don't feel like tend to drive too much capital deployment significantly one way or the other. I mean, Power Systems has its own return thresholds and profile. We expect them to generate a return on certainly the internal capital deployment we're making in that business around the R&D capital investments and the like. From a strategic and inorganic perspective, obviously, you know, that is an area we have traditionally and will continue to look for adjacencies and interesting things that might be additive to that portfolio and also generate the return. You know, when we think about investments like obviously Meritor, we're much more focused to the on-highway trucking space. We've had a whole bunch of conversations, analysis, and engagement around areas that would be in and around the power system space. That is at a Cummins-wide level, obviously a decision we make and a prioritization call that we do. I mean, it's not as if we are saying, you know, choke off power systems in exchange for investment elsewhere. We think it has the return profile, the growth opportunity to justify an appropriate level of capital to help support that growth. Yeah, I think that's right. The one thing I'd add is, you know, we're starting to finally get some questions on Power Systems because for a long time it was just kind of bumping along. I think in the third quarter last year turned the corner on profitability, a corner we hope to continue to keep turning and raising our profitability in that space. The markets are quite strong now, and they tend to stay strong for a number of quarters. We're good. Maybe on that note, Chris, could you help us think about, you know, this business now with your 2023 guidance is going to hit new highs on margins. You know, going back a bit, at least from in the current iteration of the segment. You know, could you help us think about how much, you know, the business has changed versus like the 2018 peak? You know, how much cost has been taken out, and ultimately is there room for higher margins from where we are, where you guys got it to already now for 2023? I think we do see a path to higher margins. I think we have turned a corner. Largely it was driven by pricing. You know, I think they're long lead time products, so we were maybe lagging a little bit behind on pricing, which we hit in the third quarter, continue to hit through 2023. From the cost side, I think there's some opportunity. Jenny Bush, who ran our North America distribution, that kind of transformation, was able to generate about 200 basis points of margin improvement in North America. I think she's taken some of those tools and some of those keys and seeing what can we drive in Power Systems to generate better margins. Very hopeful there. That's good. Just one quick one before the last one would be, if you think about, you know, if you think about power gen, right? Data centers has been a very strong growth area for you. I think there was a couple of, you know, head scratching when we heard you guys talking pretty positive, still. Not because the market hasn't been positive. It has. Just there's been some more cautious commentary out there on those builds. Just curious how you, how you see that playing out? Is there more of a first half lead versus second half lead? Yeah. We've had this conversation feels like every year for the last several on when the data center market's gonna stop building and stuff. We just have not seen it yet. I would say my short answer is no, not really. I mean, I think we expect to see pretty consistent growth. It has regional dynamics that vary as you go around the world, by and large, we expect to see a continuation of some of the... I mean, not massive growth, but pretty reasonable growth in that segment here through this year and beyond. All right. I lied. I have one more because people will shoot me if I don't answer. Ask this, China as a whole. Yeah. What are we thinking on China? I'll just give it to you there. Yeah. I'd say, we see as kind of a slow, steady recovery is in our guide. I would say what we're doing is preparing for a faster one. You know, we're from a capacity standpoint, working with our suppliers if it bounces fast. We don't expect it to do something like it did in 2020, but we're gonna be prepared if it does. I would say we kind of have a clear field now that we've moved past the COVID spikes, the in the regulations, and the market is clear of NS5 vehicles. Now we have NS6 coming in. I think we're in a really good competitive space and the fundamentals are strong in the market. It's just when does consumer confidence start bouncing? Got it. You guys saw the response on the responses on capital allocation. It was a bit evenly split on that one. I guess maybe to wrap up here, Jeff, how active are you gonna be over the next year or two? Well, I mean, to the other question, our focus right now is execution. Like, we feel like we have made the right set of investments for the near term that put us in a really solid position. We are working to continue to make sure we're in the right capital position to be active when it's attractive and when we need to be. Certainly, the near term emphasis is on making the most and unlocking the value associated with the investments we've made, both inorganically with the deals we alluded to earlier, as well as the investments we discussed on the engine platforms and the electrolyzer business. That is our near-term focus because we think that sets us up quite effectively for the balance of this decade. We'll kind of reset and reevaluate where we may get more active as we get into the back half of this year and into next year. Perfect. All right. Well, join me in thanking the Cummins team for being here. Really appreciate it. Thank you. Thank you. Thanks, Adam.