Thank you for standing by. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gates Industrial Corporation Q2 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Bill Waelke, Head of Investor Relations, you may begin your conference. Thank you for joining us this morning on our second quarter 2022 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our second quarter results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the investor relations section of our website. Please refer now to slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements. With that, I'll turn things over to Ivo. Thank you, Bill. Good morning, everyone, and thank you for joining our call today. I'll begin on slide 3 of the presentation. I'm pleased with our team's performance, which represents solid improvement from the first quarter in a very inconsistent operating environment. Underlying demand trends for our products are consistent across most of our markets, and our backlog continues to grow, with our book-to-bill remaining above one. We generated near record quarterly revenue despite the COVID lockdowns in China, the suspension of our business in Russia, and incremental FX headwinds. These results are compared against the best quarter in the company's history in Q2 of last year. Our profitability continued its trajectory of improvement as anticipated. While we have not seen inflation meaningfully abate, the significant pricing actions we have taken are gaining momentum and allowing us to be in a positive price cost position. We continue to successfully navigate ever-changing operational dynamics. Raw material availability has improved. However, we continue to face inconsistent supply of certain petrochemicals we use across key product lines. Although we have seen some easing in container prices and port congestion, the reliability of intra-region freight and logistics is still spotty. We are comfortable with managing through these external challenges and have a number of initiatives underway to mitigate the impact of these issues as the year progresses. With respect to our business in China, exiting June, we began to see a recovery from the significant impact of the COVID lockdowns. However, we expect it will take additional time for our customers and the local supply base to ramp up their operations towards more normal levels. We anticipate this recovery will steadily continue, but at somewhat lower pace than what we experienced coming out of the initial COVID lockdowns in 2020. Outside of the specific headwinds in China and Russia, we have not seen a degradation of business activity. We are experiencing more significant FX headwinds and anticipate the operating challenges outside of our direct control will persist through the balance of the year beyond our prior expectations. This updated view is reflected in our revised full-year outlook. Our business is sound and our team's solid execution is focused on managing through the present operating environment to meet the end market demand and support our customers' critical needs while delivering the continued sequential revenue growth and margin expansion we expect in the second half of the year. Moving now to slide 4. Our total revenue was $907 million, with core growth of 3.6%, offset by a 4.5% FX headwind. Core growth was led by the industrial end market, where our initiatives are focused on capitalizing on secular tailwinds. Our mobility business delivered another quarter of solid growth, as did our diversified industrial end market, where our products that drive efficiency improvement in fixed industrial applications are captured. Rounding out our top performing end markets were off-highway, which benefited from strong growth in agricultural applications, and energy, driven by increased activity in North America and Middle East. Second quarter adjusted EBITDA was $180 million, or a margin of 19.9%, representing sequential improvement of 230 basis points. This improvement was driven primarily by more favorable pricing, offsetting the negative impact from China and Russia, as well as operational inefficiencies from challenges associated with raw material availability. Adjusted earnings per share were $0.32 in the quarter, representing sequential growth of 23%, primarily driven by higher operating income. Moving to slide 5 and our segment level results. Our Power Transmission segment had revenue of $543 million in the quarter, including a core revenue decline of 2% and negative FX impact of 5%. The segment was impacted disproportionately by its much higher exposure to China and Russia, as well as a limited availability of a certain engineered compounds used in products of this segment. Looking at the segment in total, our mobility business saw the strongest growth, followed by its diversified industrial end market. As a result of the strong progress we have made with our growth initiatives over the past several years, we are bumping up against some capacity limitations in certain product lines. The targeted investments we are making to address these limitations are ramping up, and we expect them to come online in the second half of this year. Our Fluid Power segment had revenue of $364 million in the quarter, including core growth of 14% and negative FX impact of 3%. We saw a solid performance across the board with double-digit core growth in all end markets. Our strongest performance came in our automotive replacement business, which boasted core growth in the low 20s. All of our industrial end markets saw similar growth rates in the low teens to mid-teens, benefiting from supportive demand across the industrial complex. Our new products also continue to perform well, with core growth of over 40%, not all of which is incremental and includes the replacement of legacy products, but at a more favorable margin. With respect to profitability, our Power Transmission segment was impacted primarily by its exposure to China, Russia, and raw material shortages. Despite the difficult operating environment and inefficiencies associated with the ramp-up of targeted capacity in support of our growth, the segment saw sequential margin expansion of 130 basis points. Our Fluid Power segment generated strong margins in the quarter with much less exposure to China and Russia, as well as fewer material availability challenges. It converted its higher revenue growth into sequential and year-over-year margin expansion of 390 and 110 basis points, respectively. In both segments, we manage pricing actions across all regions and channels in response to the significant inflation we experience. We expect the pricing momentum to continue and contribute to further sequential margin expansion in the second half. I'll now turn the call over to Brooks for additional color on our results. Brooks? Thank you, Ivo. Moving now to slide six and the regional breakdown of our core revenue performance. Overall core growth was 3.6% despite the headwinds from China COVID lockdowns, Russia, and continued material supply challenges. Improved pricing performance in every region and execution on our growth initiatives in the Americas and EMEA were the primary drivers of our revenue growth. In North America, core revenue growth represented substantial acceleration from Q1. The growth was broad-based, with double-digit growth in all end markets compared to the prior year. Our mobility, energy, and off-highway end markets had the highest growth rates, all in the mid-teens to 20% range. From a channel perspective, we saw the largest growth in sales to OEM customers. Though order rates remained strong, supply chain headwinds did prevent backlog reduction and additional sales volume in Q2. Our core growth in EMEA was 0.4%, with a strong pricing performance offset by significant revenue headwinds from Russia and specific petroleum-based material shortages. We had double-digit core growth in nearly all industrial end markets, led by diversified industrial, mobility, and off-highway, which more than offset a modest decline in automotive first fit. Excluding Russia, growth was also balanced across the first fit and replacement channels. As we communicated on our last earnings call, it was a difficult operating environment in the second quarter for our business in China as a result of the strict COVID lockdowns. The lockdowns, which overall created dislocation in both demand and the supply chain, resulted in a core revenue decline of 31%. One of our production facilities in Shanghai was completely shut down for approximately 6 weeks, while others in the surrounding areas were impacted by the severely reduced movement of materials and finished goods. As the COVID lockdowns began to ease in June, our business slowly started to recover. The recovery continued in July, and while we expect it to steadily improve, it will likely happen at a rate below what we previously anticipated. Our businesses in South America and East Asia and India had varied performance in the quarter. South America had another strong quarter with core growth of 18%. We saw good performance across all end markets led by on-highway, off-highway, and diversified industrial. In East Asian and India, demand remained steady, and we saw solid growth in our auto replacement business and in the on-highway end market. Given the specific regional challenges, we're pleased with our performance overall. The regional dynamics remain fluid, and we are focused on maximizing our operational flexibility to meet the end market demand. Moving now to slide 7 and some details on key balance sheet and cash flow items. Our LTM free cash flow of $108 million was impacted by higher investment in working capital, primarily inventory, to mitigate the impact of supply chain and logistics reliability challenges. We're also being negatively impacted by higher cash taxes and temporary delays in collecting certain VAT receivables, partially due to changes in the regulatory environment. We expect all these items to normalize and improve cash flow in the second half of 2022. Our net leverage at the end of the quarter was 3.3 times, compared to 3.2 times at the end of Q1. The slight increase was driven primarily by lower LTM free cash flow and adjusted EBITDA. We had a solid 18.1% return on invested capital, with a year-over-year decrease driven primarily by lower LTM operating income. Moving now to slide 8 and our full-year guidance. We are increasing the bottom end of the range of our core revenue outlook. The demand environment continues to be constructive and we have additional capacity coming online to support growth in key end markets. We are updating our outlook to reflect the impact of FX and a slower rate of improvement in China, as well as material availability and logistics challenges that we now expect to continue for the remainder of the year. A lower overall tax rate and minority interest are expected to partially offset these impacts. We are reducing our 2022 full year adjusted EBITDA guidance range to $705 million-$755 million and our full year adjusted earnings per share range to $1.15-$1.25 per share. For the second half, we expect more muted seasonality between Q3 and Q4, with the quarters looking similar in terms of overall sales and margins. We expect margins to continue to improve sequentially in the back half of the year as additional pricing and sales volumes materialize, resulting in a second half adjusted EBITDA margin in the range of 100-175 basis points higher than Q2. With respect to free cash flow, we expect improved profitability and reduced investment in inventory to drive good cash flow generation in the second half. However, we anticipate exiting the year with elevated levels of inventory to minimize further disruptions from material availability and supply chain challenges. As a result, we have updated our guidance accordingly. We are pleased with the progress we've made with pricing to address the impact of inflation. Although mindful of the potential for higher energy costs, believe we are still on track to achieve price cost margin neutrality by the end of the year. With that, I will turn it back over to Ivo for some final thoughts. Thanks, Brooks. Moving now to the summary on slide nine and a few key takeaways. I would like to wrap up by recognizing the determination and perseverance of our Gates associates around the world, whose efforts drove our solid performance on the highly challenging macro conditions. While we expect the operating environment to remain volatile in the near term due to geopolitical events, inflation, and poor reliability of supply chain globally, we have a strong management team in place to navigate in an uncertain market. Our business model is resilient and focused on delivering mission-critical, highly engineered solutions to our customers. Throughout the past several years, we've stayed committed to investing in innovation and our growth initiatives, which are contributing to the strong order flow we are seeing. We expect our pricing momentum to continue and anticipate benefiting from the targeted capacity we are in process of ramping up. Whatever market volatility we experience in the coming quarters, we are confident we are well-positioned to take advantage of fast-growing market opportunities for our advanced products and solutions and deliver on our midterm growth strategy. With that, I will now turn the call back over to the operator to begin the Q&A. To ask a question, please press star one. Please limit yourself to one question and one follow-up. The first question is from Jerry Revich of Goldman Sachs. Please go ahead. Your line is open. Yes. Hi. Good morning, everyone. Good morning, Jerry. I'm wondering if you just put a finer point on how the year-over-year cadence is tracking for your business in China. I know you mentioned it's below your prior expectations, and it's rising sequentially. What about year-over-year? You know, what does your guidance assume is the fourth quarter exit rate for the lines of business in China? Thanks. Yes. Jerry, as you know, as we have indicated, China was pretty tough, right down mid-30s%, a little worse than what we anticipated when we entered the quarter. We anticipated that we'll see maybe a month of shutdown in Shanghai, and then things start reopening. Clearly, that did not occur. Shanghai was shut down nearly through the month of June, significantly impacting the business activities there and across China as well. However, we did exit Q2 in a much better cadence than what we have experienced in April, May, and June. It was progressively better. Clearly, July has come in significantly better as well than June. We have seen the progressive recovery, a really nice progressive recovery. you know, we just are being realistic that we don't feel that it will be as sharp of a snap back as what we have seen in 2020 when China just snapped back very, very sharply. From our perspective, we anticipate that, you know, we anticipate that we will be probably somewhere in the high single digits down in Q3 and, kind of, low single digit to flattish exiting Q4 in China. Got it. Appreciate the color. Then, you know, given that dynamic and all the moving pieces this year, I'm wondering if you expect your fourth quarter EBITDA margins to be the highest of the year, which I think would be different than normal seasonality, but given that production cadence as well as price cost, it sounds like that might be the case this year. Could you just comment on that, please? Yeah. Hey, Jerry, this is Brooks. Look, I think that's pretty close. I mean, as you know, the way we're looking at it, we think we're gonna have more muted seasonality. You know, typically you do see a little bit of a tick down in Q4, but given the capacity we've got coming online and the additional pricing that's gonna ramp through the year, we think it's gonna be more sequentially even. I would say that's probably correct. You know, it's pretty close to Q3, if not, maybe a little bit slightly up as we exit the year. When you compare to how we exited the year in 2021, right, in significantly better shape, price, cost, repair, basically done. Then now just, you know, getting after repairing the margin impact of some of these supply chain challenges and things like that. We feel pretty good about where we're gonna be when we exit the year. Appreciate it. Thanks. Your next question is from Mike Halloran of Baird. Please go ahead. Your line is open. Yeah. Good morning, everyone. Good morning. Kind of working off that last question there then, you know, demand seems fine across most of the verticals. Obviously, you got some China pressures. You've got some capacity coming on. At what point do you think you're gonna start working your backlog down and start moving towards whatever that more new normal looks like? Yeah, Mike, look, we've anticipated in our previous guidance that that's gonna start happening kind of in Q3. We now believe that we should start seeing backlog coming down kind of towards the end of Q3 into Q4. The incremental capacity that's coming on stream is basically installed, and we are now just ramping that capacity up. We're also working on a number of different alternatives to our particularly predominantly Power Transmission supply chain issues and raw material availability issues. As you can probably appreciate, the conflict in Ukraine and Russia has significantly impacted further the availability of petrochemicals. That's, you know, something that we are dealing with. Although we are not buying anything from there, the world's capacity, whatever minuscule capacity was available in the front half of the year has completely evaporated, and things became even more complex. We have a line of sight on alternative solutions, and we believe that we should start seeing backlog coming down as we exit 2022. Thanks for that. On the demand side, you know, you listened to the commentary and, you know, again, excluding the challenges regionally in China and the Russia side of things, it sounds like you're pretty confident in what the current demand trajectory looks like. Maybe just some thoughts by end market as you're thinking about back half the year into 2023, if there's any sign of cracks emerging somewhere, or is there acceleration potential in other parts of the portfolio? Just some puts and takes as you think about your demand. Yeah. Look, you know, obviously, the known challenge is, right, China. I'm not gonna spend lots of time on it. We have delineated that issue, despite the fact that it's very challenging. Again, it is getting progressively better. Europe is impacted predominantly for us presently through the loss of revenue that we have had in Russia. All the industrial markets seem to be in a reasonably good shape. That being said, you know, we are being cognizant of the fact that everybody's being nervous. You know, the situation with the supply of gas for industrial activities in Europe is something that, you know, we are thinking through and any potential impact either on supply or on demand. So far, you know, Europe is in a good shape. North America is very robust for us as, you know, as the numbers indicated coming out of Q2. We have a significant amount of opportunities to be able to maintain a reasonably good trajectory of growth in North America. I can tell you, I'm still receiving more calls about supply availability than anything else, even as we speak. I would say that, you know, an incredible strength we see in mobility and still diversified industrial. Those two end markets are real standouts for us. You know, both on the mobility side, not only is our backlog growing frankly quite exponentially, but we see an incredible amount of design win activities. Yes, we are very cautious about what's ahead, and I think that you know, we try to balance the caution in our prepared remarks, but we also are balancing that with you know, a reasonably good situation that we see still with present level of demand for our products. Thanks for that, Ivo. Appreciate it. Your next question is from Josh Pokrzywinski from Morgan Stanley. Please go ahead. Your line is open. Hi. Good morning, guys. Good morning. Morning, Josh. Ivo, on some of these temporary costs that are kind of getting in the way, you know, things like expedited freight, you know, if you were to add up all of those, what do you think the impact is now? Then how do you see this progressing over the next, you know, kind of several months, quarters, you know, whatever timeframe you have visibility over? Here's the way I would frame it. The costs I would say are, you know, multiple, right? There's the freight cost. There's the cost of having, you know, your factory in place and ready to go, but the material doesn't get there, so you have these operating variances and things like that. The way that I'll frame it up is You know, as we progress through the year, and we get to the end of the year, and you can kinda see where our margins are going, you know, you can do the math yourself, and you look at how we exit the year. You know, when we think about getting back to, you know, where we wanna be from a margin perspective in the short term, right? We've got a medium-term goal of 24%, but you know, first you got to get to 22 and then 23. When you think about the difference, kind of how we exit the year, and where we wanna get to, is primarily those operating variances, and then on top of that, kind of the additional missed volume, by not being able to get that product out the door. As we exit the year, you know, price cost in very good shape, and then we just gotta get back to those other couple of pieces, and we'll be, you know, we'll be back where we wanna be from a margin perspective. Got it. Then in terms of, you know, kind of the broader ecosystem that you guys are operating in with some of your OEM customers, and it doesn't just have to be auto OEM. I'm guessing that you guys are not the ones kind of holding up the process. Any sense for what their inventory of your stuff would look like? Or if they're giving you any information about, you know, kind of where, you know, some of the bottlenecks are. I guess, you know, the point here being, if those guys do start to see a slowdown, are they sitting on more of your inventory and maybe there's a bit more risk there? I don't know if that's imminent, but, you know, just trying to gauge where you guys are fitting in that production schedule. Yeah, Josh, I can tell you with certainty, maybe that's the only certainty that I have today, that our OEM customers across the spectrum, from automotive to every industrial customer that we service, have no inventory of our products. If you wanted to buy several of our commodities today, frankly, it would take you a very long time to get them. There are cases where we are actually holding our customers up with their ability to finish their products. I mean, our demand across a good amount of our portfolio is very solid, but we're also balancing the issues that I have described in my opening remarks associated with the availability of a couple of these resins, the highly engineered compounds that we use in numerous applications, particularly in Power Transmission. There are also some Fluid Power product lines, particularly in Engine Cooling and Battery Cooling, that, you know, we are not as current as we would like to be. We're doing everything that we can to support our customers' most critical needs, but I would say that presently inventory across the OEMs is not an issue that I am worried about at all. Got it. Very helpful. Appreciate it. Your next question is from Jeff Hammond of KeyBanc. Please go ahead. Your line is open. Hey, good morning, guys. Good morning, Jeff. Morning. Just wanted to try to size out a little bit this $50 million EBITDA reduction. You know, it's core growth's unchanged, but just how much is FX impact? How much is, you know, either price cost taking longer or expedited freight supply chain? You know, I don't know if there's a mixed dynamic around, you know, China versus, you know, the offsets to the slower China. Look, it's about 40% FX, and the rest of it is the combination of supply chain challenges, you know, slower improvement in China and the other things that Ivo has talked about. About 60% of it is operational. All the different things we talked about 40% of it is FX. Okay, helpful. Just back to, you know, Josh's question around, you know, just are you seeing any, you know, share shifts around, you know, having availability or all your competitors are kind of in the same boat? Right now, Jeff, I would say that the industry is in a reasonably same shape. You know, our Fluid Power, obviously, segment is performing extremely well, and we do have some availability across Fluid Power, just not in some of the, you know, some of the secularly attractive lines that we are, you know, we are facing some constraints. I think it's predominantly Power Transmission. I think everybody is struggling there. We feel very confident about our ability to not only maintain, but to expand our market share, particularly as capacity will come online. I would note, Jeff, that the amount of designing activity that we see across both of the segments is very, very strong. Maybe stronger than we have seen in a couple of years. We feel pretty good about, you know, what the future holds, not ignoring the facts about the, you know, the uncertainty from the macroeconomics. Okay. Perfect. Thanks, Ivo. Thank you. Your next question is from Julian Mitchell of Barclays. Please go ahead. Your line is open. Hi. Good morning. Thank you. I just wanted to focus on the organic sales guide. I think you did about 4% growth in the first half and in the second quarter. Just wondering Q2, how much of that 4% was price. Then the second half you're saying will grow sort of low double digit organically. Maybe help us understand sort of the price versus volume within that, please? Yeah. Look, you know, our price was a little north of 10% in Q2. And then we had all the headwinds that were really driving the offset of that, which was the volume piece. You know, you had the China lockdowns, you had the full-on Russia impact, and then you had the supply chain, you know, issues that we talked about, which really impacted us. That was offset by some more, you know, some actual secular organic growth that we had. I mean, that's really the number. If you took the, you know, the total core growth and took the 10, a little bit over 10% off of it, that would give you the volume piece. All those headwinds that we talked about more than outstrip that volume piece that we talked about. Sorry, in the second half you've got low double-digit core growth guide. Is that kind of 10 points of price and then 2 points of volume, something like that? No, we don't have as much price in the second half as we do in the first half. I would say it's certainly less than that. Okay, there's some volume growth dialed into the second half organic growth guide. Yes, there is. I mean, there's some small piece. Remember, right, we've got backlog reduction, and then we've got you kinda got normal seasonality, and then you got the year-over-year impact that you're gonna get from Russia and things like that. You kinda add all that up, and we have a little bit of volume growth, and then most of it being price. Actually, probably maybe more flattish on volume. Flattish to a little bit up. Okay. Thank you. Just my second question around the free cash flow. You know, it sounds like the inventories are gonna stay high through year-end. But I think you need, I don't know, something like $350 million of free cash flow in the second half, you know, after minus $120 million in the first. I don't think the earnings is having a huge step up half on half. Just trying to understand that, you know, that swing in free cash flow of, you know, $500 million or something. Where is it coming from if it isn't inventory liquidation? Yeah, well, look. When you liquidate inventory, does that carry a big sort of gross margin headwind? Normally, when companies bring down inventory dramatically, you get a gross margin headwind. Do you think you'll see the same? No. Well first of all, I'm not sure that profitability comment is 100% correct. We are gonna see improved profitability in the second half versus the first half. There's really, you know, four things that are gonna drive the improvement in cash flow. You have to remember that we have pretty seasonal operating working capital normally through the business, right? We have a buildup of working capital and then a bleed off of working capital. There's four things that are gonna drive it, right? One is improved profitability. One is the collection of some of these bad receivables that I talked about in my prepared remarks. The normal seasonality on working capital and then the inventory reduction to more normalized levels. If you add all those up, you know, that's really how you get there. Got it. As the inventory comes down, the fourth lever you mentioned, does that have any gross margin impact or? No, I think our inventory has been more. I mean, the inventory reductions we're gonna see are gonna be more around raw material and how much WIP we hold in the business and not quite as much on the finished goods side. We're not overly concerned about that as we work through the back half of the year. You know, remember, we've still got a lot of pass-through backlog, and we're trying to be as efficient as we can in terms of you know, what we build and how we build it and get it out the door. Perfect. Thank you, Brooks. Your next question is from David Raso of Evercore ISI. Please go ahead. Your line is open. Hi. Good morning. Thanks for taking my question. I apologize if I missed this. What is the total revenue growth guide for the year? 7.5% organic. What's the currency now, and what was it, the drag in the guide? Hold on just a second. Let me grab it here. For the full year, we're looking at FX kind of in the 3%-4% range. Yeah, headwind. Okay. Yeah, I'm just trying to figure then if- Closer, closer to 4, actually. Yeah. Yeah. I mean, basically, if it's 3.5 or 4, it's still sort of, hey, we took out $50 million of revs and took out $50 million of EBITDA. I guess what I'm trying to figure. The second quarter, you actually operated pretty well with a lot of the same negative dynamics you're speaking of for second half being in place. Is it more a function of it doesn't get worse in the second half, it's just not allowing you to improve in the second half the way you previously expected? Just to be clear, 'cause again, the second quarter, you operated relatively well. Yeah. Is that all this is? It's nothing getting worse, it's just not allowing you the sequential improvement that you expected. Yeah, no, I think it's right. I mean, if you look at our guide, we're getting better in the second half. We're just not getting as- I'm talking the change in the guide, though. Like, basically to take out. Yeah 50 revs and 50- Yeah EBITDA is a pretty dramatic decremental. The issues that are causing it were in place in 2Q, and you actually operated okay. Well, yeah, but we're getting better. Remember, we're gonna see 100-175 basis points of incremental margin improvement in the back half versus Q2. Okay? So we are getting better from Q2. Now, what changed from the guide was, you know, the China COVID lockdowns are gonna be more exacerbated. But, probably the bigger issue, definitely the bigger issue is the impact of the raw material shortages and then the supply chain issues, you know, on our operating reliability and our operating efficiency. That's really what changed from the guide. But let's not lose sight of the fact that, you know, that we are calling for 100-175 basis points of profitability improvement over Q2. Yeah, no, I appreciate that. Given you raised the core revenue guide, it still seems like you're getting the material at least enough to raise the guide on organic. It's just costing you more to get it. Is that the idea, right? That's why the decremental is so bad on the revenue change. It's so high. Yeah. Well, I would say that, you know, there's a pricing element in there too, right? It's not just the volume piece. There's a pricing element in there too. Yeah, it's costing us more to, I think, make it. I think the operational impact of some of these supply chain efficiency issues are greater than anticipated. When it comes to the additional capacity, I'm sorry, can you give us a little more color on how much is being added and where? I know, like I shouldn't ask the question, I guess. Does it help at all with the key polymer availability and the cost to produce with the new capacity coming on? Or is this more of a, "No, we still need the rest of the supply chain to do their part, but when they can, we'll have incremental capacity to ramp up. There are a couple of things, David, about the incremental capacity. First and foremost, it's an incremental capacity that's gonna give us an opportunity to fulfill the order flows that we are seeing for particularly mobility, industrial chain-to-belt, and several of our industrial and automotive specialty belt lines. That's where the capacity is coming in. Those specialty belt lines, the last piece, is also going to give us an opportunity to ultimately, sometimes in the future, be in a position to potentially do some restructuring activities with less efficient operations. We're kind of adding two pieces of capacity. One is incremental capacity that's gonna give you simply growth, and the other one that's gonna give you, over a longer term, an opportunity to produce a product more efficiently. It's such a high margin capacity coming on, given the type of products that you just discussed, what's coming on stream? It's an accretive margin capacity that is coming online, yes. Yeah. It sounds like. That being said. older, inefficient costs. Can you quantify a little bit what the impact might be? Just a sense of is this adding an extra 5%, 10% of capacity across the whole company, be it in high margin products, but like a revenue thought process? Yeah. I would probably tell you that somewhere maybe in the, you know, 5% ±. That's probably the right number to think about that. Okay. Thank you. You know, coming back to your original question about the polymer. The issue with the polymer is not something that we manufacture. This is a raw material input that is highly engineered that is in an extremely constrained supply. Two things are happening. Number one, the price continues to escalate for the polymer, you know, traditional supply and demand type of situation. Two, there's just simply not enough of it around the world, taking into account how much capacity came offline through the conflict in Russia and Ukraine. That is an issue that we are trying to address. We have a line of sight of being able to address it. We are doing a couple of things. One, we are qualifying other sources, of course, that we have long-term partnerships with. And two, we are also engineering alternatives around that raw material supply. We believe that we should be in a position to start seeing some level of relief in Q4, particularly through that engineered solution. You know, we're just taking into account everything that's happening in the world. You know, we have not really been able to depend on lots of certainty over the last 12-18 months. We just wanna be realistic about our ability to ramp everything up and be in a position to take advantage of both the incremental capacity on one side and the solution to that raw material input. Your next question is from Deane Dray of RBC Capital Markets. Please go ahead, your line is open. Thank you. Good morning, everyone. Good morning, Deane. Hey, just wanna follow up on that, where we left off there. It relates to Josh's question too, where Ivo, you said that you've had some challenges with being able to supply some of the OEMs. Is that related to this raw material availability of these resins? And have you just left the OEMs in a lurch, or are they getting sourcing elsewhere? Is there any market share loss or everyone's in the same boat, can't produce that particular product? Deane Dray, everybody's in the same boat because this is a you know a reasonably common polymer that is used in the products that are impacted. I think that the OEMs are you know they're getting what they need, but they're getting it you know similarly to kind of what we are getting our raw material. It's just tough to be timely, and it's tough to you know fulfill perhaps all of the demand that they would like to if they were interested in building a little bit of a buffer. There's just no ability to build any buffer because the raw material is just simply not available. I would, you know, tell you that we have not certainly been notified nor have we seen any loss of market share through an order flow. I apologize, but kind of the front end of that question escapes me. Nope. You addressed that, Ivo. Second question for Europe, are you factoring in any risk of energy rationing in any of your manufacturing plants? Deane, we are pretty forward-looking about our ability to look at alternatives to the energy that we use, particularly natural gas. So we are putting contingency plans in place to be able to continue to operate our facilities in a, you know, reasonably constrained environment from that energy input. So, you know, we feel okay about having that alternative, but obviously, you know, time will tell how severe it may be. We have, I think, taken a pragmatic view of what it will do to Europe in the second half. Got it. Just last one for Brooks on guiding to the low end of the previous CapEx range. Is there anything that's been pushed out on particular projects? Anything you can share there? Thanks. No, nothing's been pushed out or anything like that. It's, you know, just a matter of getting projects done and completed, so. Deane, I would probably add that, you know, similar to your ability to secure raw materials, it is as difficult to secure some components of key capital equipment to be able to complete these projects. Lots of these projects are stretching out, and I, you know, would say that it's one of the headaches that you have if you have been adding capacity presently in this environment. There's just a level of uncertainty, you know, with, you know, being able to get some of these key critical components, whether or not you can get, you know, variable speed drives or, you know, controllers and so on and so forth. All of that has an impact, not just on your ability to produce products, but also on your ability to produce some of these larger capital projects. Yeah. Okay. We've heard a number of companies say exactly that, Ivo. That's completely understandable that also gets reflected in, you know, lower CapEx. I appreciate that color. Thank you. Your next question is from Andy Kaplowitz of Citigroup. Please go ahead. Your line is open. Good morning, everyone. Morning, Andy. Ivo, could you talk about the resiliency that you expect of personal mobility and diversified industrials? As we know you've been focused on investing in those businesses. Obviously, you told us they've been strong, but do you have any concerns about personal mobility's exposure to consumers? Then as you go out into 2023, are these end markets for Gates going to be big enough, where assuming they hold up, they can materially improve the trajectory of Gates organic growth? Yeah. Look, I mean, I think that personal mobility, right, yeah, I mean, you can take two takes on it. Well, you know, consumer gets impacted and, you know, then, you know, could that impact the business? Our view is that, probably not, because there's such a early stage of penetrating those markets with belts that replace chains. As the electrification of personal mobility scales up, you know, we just see a very robust demand for, you know, for a decade plus that could represent an opportunity for us to offset maybe some other headwinds that you may have in more challenged economic environments. You know, business is starting to get, you know, pretty meaningful. Obviously, you know, three years or so it was, you know, less than $20 million and, you know, it's going to approach $200 million in, you know, in 2022, and it could be bigger if we had a supply. We just, you know, as we discussed, trying to ramp up that supply as soon as we can, and the backlog is very robust, particularly on the mobility, and it's quite substantial. We're very excited about what can happen there. You know, we believe that a similar opportunity exists in industrial chain-to-belt, particularly as folks are much more focused on efficiency in operating industrial assets. We all have to do better reducing CO2 footprint. You know, that bodes well for, you know, for this initiative for Gates Corporation for a very, very long time. Although I can't, you know, I can't clearly be able to tell you what will happen in 2023 vis-à-vis macroeconomics and, you know, all of the end market demand, you know, we continue to be focused on executing what is within our control, keep making investments in both new product development, new product launches and capacity expansion in support of these more secularly impacted opportunities for us. We believe that that's a great future that lies for us well, you know, into the end of this decade. Very helpful, Ivo. I think you mentioned auto replacement in the low 20% growth range is obviously still quite strong. You can talk about what you're seeing in that business, and then with the understanding that auto first fit continues to be smaller part of your sales. Maybe you could talk about your expectations now, given the still pretty difficult auto production environment. Look, the auto replacement in the twenties that I mentioned was in the Fluid Power segment of our business, Andy. It's in, you know, A, on the Engine Cooling side, kind of the Battery Cooling side, you know, the electrification piece that we have spoken about in the past. That's an area that has grown very fast for us. On the automotive first fit. Look, the automotive first fit, you know, I think that as you recall, I've been very negative on auto first fit because we just didn't believe that there is an opportunity to recover that quickly from the supply chain shortages. You know, we remain very, you know, cautiously, maybe cautiously negative. We believe that it will take much more time for the supply chain to heal for the automotive OEMs. They are making calls every day about what vehicles they're gonna build. You know, we don't anticipate a very significant increase in volume growth in the second half of this year. That being said, you know, they're just not building lots of cars. What will happen if the economy flip-flops upside down? You know, is there kind of the traditional significant downside to it? You know, I would say that probably not so. I think that you will see maybe more muted impact on the auto OEM side than maybe historically. You know, it's a tale of two stories. You know, we believe that there's not an upside in the second half for auto OEM. We also believe that it's probably not a dramatic downside, even as you extrapolate what potentially the economy may look like in 2023. AR staying very good. You know, unfortunately, I mean, most of our business in Russia was AR. So from comps perspective, you know, comps are very difficult when you know, when you take into account the Russia situation. But outside of Russia, the business continues to do quite well. Appreciate it, Ivo. Your next question is from Nigel Coe of Wolfe Research. Please go ahead. Your line is open. Thanks. Good morning, everyone. Good morning, Nigel. Yeah. Good morning. You know, we've sort of really attacked the second half guide, I guess. You know, we've gone through it in a lot of detail. Just, you know, obviously, I think we're forecasting. This is a question for Brooks. Roughly level sales in dollar terms versus second quarter, and typically we see a drop-down seasonally, you know, quite significant drop-down in the second half of the year. I'm guessing China is part of that. But also, you know, the, you talk about shipping backlog. I don't know if you've given the dollar backlog number, Brooks, but if you could just maybe just give us a little bit of color in terms of where that backlog sits today versus normal levels, that'd be helpful. Nigel, you know, the backlog is at all-time high. I will say unfortunately, because as you know, we are a book and ship business, not a backlog business, but the backlog is over $100 million. Just for reference, it's kind of 2x what it was during the peak of 2018. We've built quite a bit of backlog. Lots of the backlog is coming from Personal Mobility and lots of the backlog is, you know, coming in from some of the, you know, more constrained lines, some of them in hydraulics, and some of them in Engine Cooling. It's very robust and, you know, I cannot tell you that I am looking extremely towards the day that the backlog drops, and I will not look at that as a negative. I'll actually look at that as a incredibly positive situation because we will be more in balance with the underlying market demand. Yeah. The one thing I'll remind you of too is we are gonna get significant pricing tailwinds, you know, in the second half versus the first half, as well as all the pricing that we've put in place comes online. That's gonna be a benefit as well. Higher dollar price, but lower year-over-year price because of comps. Okay, I understand that. Just a quick one for you, Ivo, on, you know, Europe with the potential for gas rationing. I'm just wondering, you know, how are your customers, you know, thinking about that or preparing for that? You know, I don't know if it's eventuality or potential. Is there any pre-production going on, you know, ahead of that, or is it just a case of, you know, let's see what happens? What do you see now there? I wouldn't say it is just a let's see what happens. You know, I think that there is a tremendous amount of anxiety, Nigel. I think that, you know, everybody's thinking about how they will operate should that eventuality come to fruition. Just like what we are doing, right? I mean, we are looking at what optionality we have for our industrial assets. You know, we do have some optionality in some of the larger plants, and we are enacting on those contingency plans. I just think that the problem that you are facing right now is there's just simply no capacity. Even if you were willing to carry more inventory, it is very difficult to be able to build that inventory up ahead of, you know, any potential disruptions. I, you know, I wish that, you know, I could give you a better answer than that, but I just don't see any buildup. Certainly, I see no buildup in the OEMs, and I do not see buildup in the replacement channels presently. No, that's very helpful. Thanks, Ivo. Your next question is from Jamie Cook of Credit Suisse. Please go ahead. Your line is open. Hi, good morning. Just quick follow-up. Can you comment on whether the cadence of sales changed, you know, throughout the quarter and sort of trends that you're seeing in July? I know you said China. You You commented on China. You know, some of your peers noted that Europe got better, snapped back in July, so what you're seeing in, you know, basically in July. Just a clarification just on Julian's question on the cash flow. Sorry. Where exactly do you expect inventory levels to be as we exit the year? Thanks. Yes. Look, China, much better. You know, Europe, we actually had a pretty solid performance in Europe, absent Russia, in second quarter. You know, we kind of maintained the purview that it's more of a status quo. Nothing is going off the rails. You know, I cannot also tell you that anything is, you know, snapping back because we just didn't see a significant decay. I mean, you know, absent of Russia, I mean, our business in Europe was kind of high single digits in Q2, which is pretty good. Did that continue into July? Because other people were saying that July, you know, were mentioning strength in July, so I'm just trying to figure out how the trend is post the quarter. Yeah. Jamie, as I said, I mean, I think that it's kind of a status quo for us. It's, you know, it remains, you know, very positive still. I mean, I think positive, I would say. No change to trajectory in Europe. Of course, China is changing trajectory, so China is, you know, healing. Again, we, you know, we haven't put lots of backend recovery in China, but there, you know, there is potentially a situation out there that, you know, China could perform a little bit better than, you know, what we anticipate, absent of any additional incremental shutdowns that they could potentially instill. The answer, you know, to inventory, you know, we believe we will start eating into our inventory as we exit 2022. Again, we are not baking in any dramatic change in our finished goods inventory, but we start seeing that we will exit at a lower point than we have been operating over the last 18 months. You know, we are again not taking any production offline. We can't do that at this point in time. Demand continues to exceed our ability to supply, but we are balancing what we make. We are balancing the use of more of the WIP that we have on hand and the raw material that we have been able to secure so that net effect is a lower inventory level. Yeah. Just a little bit more color on that. You know, we'll be down year-over-year, you know, fairly significantly, but we won't be back to our normal inventory levels. We'll still be carrying elevated levels of inventory over what we normally would. Okay. Thank you. That's helpful. Yep. There are no further questions at this time. I will now turn the call over to Bill Waelke for closing remarks. Thank you everyone for your time and interest. As always, the team here is available for any follow-up questions or discussion. Otherwise, we look forward to updating you again after the third quarter. Have a good day. This concludes today's conference call. Thank you for your participation. You may now disconnect.