Thank you for standing by. At this time, I would like to welcome everyone to the Gates Industrial Corporation Q4 2022 earnings 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 star one. Thank you. Rich Kwas, Vice President of Investor Relations, you may begin your conference. Good morning, and thank you for joining us on our fourth quarter and full year 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 fourth quarter 2022 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 two 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. We'll be attending several investor conferences over the next month, including the Citi Global Industrial Tech and Mobility Conference, the Barclays Industrial Select Conference, and the Evercore ISI Industrial Conference. We look forward to meeting with many of you. With that out of the way, I'll turn the call over to Ivo. Thank you, Rich. Good morning, everyone, and thank you for joining our call today. I would also like to take this opportunity and welcome Rich to our team. He, as you know, has taken the lead position in investor relations here at Gates. He's a seasoned professional with many years of experience on the sell side as well as in-house. With that, let's start on slide three of the presentation. Our global teams delivered mid-teen core growth in the fourth quarter. Underlying demand was stronger than expected in North America and EMEA, especially during the second half of the quarter, and more than offset the COVID-induced slowdown in China. Growth was relatively consistent across our channels. Importantly, our conversion of orders improved as supply chain inefficiencies eased in the latter part of the quarter, particularly in Europe. We exited the year in a more balanced position with supply meeting the underlying demand. The weaker dollar exchange rate at year-end and better fill rates of aged orders in Europe benefited revenues by approximately 250 basis points year-over-year and contributed to the elevated sequential revenue growth. We are pleased with the progress our teams have made to enhance order conversion and believe activity should be more normalized as 2023 evolves. Our profitability in the quarter improved nicely versus prior year, and the resulting margin expansion was consistent with the guidance provided in November. While volume growth contributed to margin performance, we incurred incremental costs to convert past due orders, which modestly impacted the profit flow through. Our global commercial teams continued to price effectively to preserve margin neutrality. Our improved performance helped generate a 34% incremental margin. Free cash generation was very strong in the quarter as anticipated. Free cash flow to adjusted net income was well in excess of 300% and benefited from the outlined margin improvement as well as higher working capital turns driven by inventory reductions. We are intently focused on increasing our working capital efficiency and boosting our free cash flow conversion as supply chain conditions moderate. Moving now to Slide four. Our total revenue was $893 million, which represents core growth of 16% versus the prior year period. Foreign currencies were approximately 6.5% headwind year-over-year. We experienced double-digit core growth in nearly all end markets, led by personal mobility, which grew 41%, followed by our energy and off-highway markets, which collectively grew approximately 20% year-over-year. In general, we saw stable demand trends with improvements in our fill rates as we moved through the second half of the quarter. Fourth quarter adjusted EBITDA was $166 million, which translated to an 18.6% adjusted EBITDA margin and an increase of 150 basis points year-over-year. We executed well and the overall operating environment became more constructive. While we are not completely past supply chain challenges, we are encouraged by the stabilization experienced in the fourth quarter. Adjusted earnings per share was $0.25. Our operating income was up significantly year-over-year, contributing approximately $0.10 per share. Tax headwinds of $0.15 per share more than offset the improvement. Please turn to slide five and our segment level highlights. The power transmission segment produced revenues of approximately $552 million in the quarter, driven by nearly 15% core growth year-over-year, offset by an 8% FX headwind. All end markets experienced healthy top line expansion. Similar to enterprise, personal mobility, off-highway, and energy were the leading growth engines for the segment. Our opportunity pipeline in personal mobility grew about 50% in 2022. We exited the year with solid margin expansion and price cost in balance. Our fluid power segment posted revenue of $341 million, including 18% core growth and negative FX impact of 3%. We realized solid growth in all end markets with automotive, off-highway, and energy being the outperformers. Our innovation efforts continue to pay dividends with new products contributing to fluid power segment core growth and share gain in 2022. As a result of investments made in 2018, our existing capacity is sufficient to support our growth aspirations via new product development and market expansion well into the future. Our segment profitability improved nicely, fueled by a 45% incremental margin on higher revenues and included improved price cost dynamics compared to the prior year period. I will now turn the call over to Brooks for additional color on the results. Brooks. Thank you, Ivo. Moving now to slide six and the regional breakdown of our core revenue performance. We experienced double-digit growth in all our major geographic markets with the exception of China. Our overall fourth quarter growth rate benefited from relative strength in North America and EMEA, our largest regions. In North America, we realized double-digit core growth in nearly all of our markets, led by automotive and off-highway, which each grew more than 20% year-over-year. The EMEA region delivered the strongest growth in the quarter, with core revenues increasing 22% year-over-year. The off-highway and energy end markets each grew by more than 30% year-over-year. Our personal mobility business grew nearly 80%, the highest quarterly growth rate we experienced in 2022. Overall growth was solid and aided by an improved supply of raw materials and some catch up to customer demand. Our China top line performance posted a year-over-year decline due to shutdowns related to rising COVID infections during the quarter. Our markets in South America and East Asia and India performed well, delivering accretive core growth rates. In aggregate, we were pleased with the growth trends and improvement in supply chain fundamentals. On slide seven, we show details on our cash flow performance and balance sheet. Our free cash flow was $226 million, which was 317% of our adjusted net income for the quarter. The stabilization of the supply chain and improved order conversion helps contribute to higher inventory turns year-over-year. Our net leverage declined to 2.8 x and represented a meaningful improvement relative to the third quarter. During the quarter, we strengthened our capital structure by paying off our ABL revolver and issuing a new dollar-denominated term loan with a maturity in 2029. This replaced an existing loan set to mature in March of 2024. We remain confident in our ability to further improve our balance sheet in the future. Moving now to slide eight and our full year guidance and views on the first quarter. For 2023, we are initiating guidance for core growth to be in the range of 1% - 5% year-over-year. Within that framework, we have factored flattish volume versus 2022. We continue to see solid demand trends in the early part of the year, providing near-term visibility. We anticipate our customers will rebalance their inventory levels in the latter part of the year because of improved supply chain reliability. Our initial 2023 adjusted EBITDA guidance is in the range of $700 million-$750 million. At the midpoint, this guidance implies about a 90 basis point increase in adjusted EBITDA margin year-over-year. Our adjusted earnings per share guidance is $1.13 to $1.23 per share. Improving working capital efficiency is a high priority for 2023, and we expect free cash flow to be approximately 100% of adjusted net income in the coming year. For the first quarter, we anticipate total revenues to be relatively flat and in a range of $880 million-$910 million. We expect positive core growth to be offset by unfavorable FX. Our core growth estimate includes headwinds from the suspension of our Russia business and China COVID impact. We expect our EBITDA margin to increase approximately 100-150 basis points year-over-year. On slide nine, we provide an adjusted earnings per share walk from fiscal year 2022 to 2023. Relative to 2022, our forecasted adjusted earnings per share is affected by non-operational items such as higher interest expense and a higher expected effective tax rate. Core growth and conversion should add about $0.06 per share. Productivity and an improved supply chain, which was a headwind in 2022, are expected to contribute nicely to our earnings growth in 2023. With that, I will turn it back over to Ivo. Thanks, Brooks. On slide 10, I would like to provide a brief summary view. Specifically, I would like to highlight the following points. We were pleased with our execution in the fourth quarter while managing through a challenging business environment. Our operating leverage on incremental sales improved to 34% and moved closer to our typical performance. Free cash flow generation was a quarterly record. We are encouraged by the slowly improving operating landscape and cautiously optimistic that it will continue to heal over the course of 2023. Our commercial team's efforts have been admirable. Price cost is in equilibrium on a bargain basis, and we intend to protect our margins should inflation trends escalate versus expectations during 2023. We anticipate customer inventories will begin to normalize as we move through the year. That said, we experienced solid order trends exiting Q4 and through January. We are cognizant of the risks in the global economy, pleased with our execution and optimistic about the prospects in 2023. Turning to slide 11. Before we take your questions, I would like to review the opportunities we are focused on to enhance our performance and drive shareholder returns as we pivot to the future. First, we are intently focused on several productivity measures, ranging from bolstering our supply chain to driving incremental efficiencies in our manufacturing operations. We are optimistic that we can continue to drive margin accretion across the enterprise with the improvement to reliability of raw material supply and the resulting effects it bears on our operational activities. Second, we are accelerating the reduction of complexity across our enterprise by streamlining our product portfolio and minimizing customer complexity below and above the line as part of our 80/20 initiative. In the second half of 2022, we initiated projects in our auto replacement business and have begun to see early returns from the deployment. We expect to implement 80/20 across the rest of our portfolio over the next couple of years. Third, we continue to invest aggressively in our highest growth areas. Our personal mobility revenue grew approximately 23% organically in 2022, and our opportunity pipeline is robust. We are expanding investments in new products and applications, especially in industrial verticals. As such, you should expect our automotive OEM revenue mix to get further diluted as we continue to execute on our selective participation strategy over the next few years without affecting the overall growth profile of the enterprise. Lastly, we are highly focused on delivering consistent free cash flow conversion in order to continue to improve our balance sheet. We believe a strong balance sheet is one of the primary avenues within our control to increase shareholder value. I'll finish by thanking our customers and suppliers for their partnership and our Global Gates Associates for their valuable effort and support. With that, I'll now turn the call back over to the operator to begin the Q&A. To ask a question, please press star one on your telephone keypad. The first question is from David Raso of Evercore ISI. Your line is open. Yes. Hi, thank you for the time. The comment about the rebalancing by your customers of, I think you mentioned as inventory, given the improving supply chain. Can you give us a little better sense of how you're quantifying that? It might even be, you know, where are inventory levels today at your customers versus where they'll probably wanna move down toward with a better supply chain. Dovetailing that answer into the cadence of the organic sales growth for the year would be a very, very helpful. Thank you. Good morning, David. Look, from the inventory perspective, I would say that presently we continue to see the inventory levels to be in line with the underlying market demand. We've seen, you know, pretty resilient strength in the overall markets, and we are very aware of the macro. We are very focused on staying and paying close attention to what's happening in the overall global macro. We are monitoring the POS reporting from our largest distributors very, very closely. Now, on the last call, I've indicated that we see somewhat uneven performance, particularly in the industrial replacement market. We spoke a little bit about Europe. We've seen a little bit of that unevenness in North America in Q4. You know, while, you know, in one month you may feel like you are finally starting to see some deceleration, the next month your order trends reaccelerate nicely. Presently, we feel comfortable with the level of inventories there in the channel, but we are very aware of the fact that as supply chain stabilizes, lead time starting to shrink, we believe that the inventory level in a channel will start to be reduced. You know, our view is that we are likely to see that in the second half of the year, and that is what we have, taken, into account, in our guidance. I'll turn it over to Brooks on the cadence of core growth. Yeah. You know, I think we have headwinds, you know, still in the first half, you know, relative to, you know, China and what's going on, and then we also have the lap over of the suspension of our Russia business. We continue to have some core growth headwinds in the first half. In the second half, as Ivo said, that's when we expect to see more of the rebalancing of inventory. I would expect the, you know, the core growth numbers to be relatively balanced through the year. You know, no big impact from one quarter to the next, but just different things that offset the, or different headwinds, that kind of hit the core growth number as we move through the year. That's helpful. Thank you very much. Your next question is from Michael Halloran of Baird. Your line is open. Good morning, everyone. Good morning, Mike. Maybe kind of start there, where you all left off. You know, I certainly understand the inventory commentary. Embedded in that, is there assumption that the underlying end market demand softens through the back half of the year, Ivo? In other words, are you guys just trying to take a little bit more of a conservative approach to what the end markets look like in the back half of the year, given lower visibility? Then maybe put that in the context of how you're thinking about backlog normalization timing? Yeah. Great, Mike. I think those are great questions. I mean, we have, you know, we have included in our appendix, our view on what we anticipate the global end market trends to be. You know, while we are, obviously we are, you know, reasonably constructive on things like energy and automotive replacement, for the obvious, for the obvious reasons, I mean, people are driving more, you know, low unemployment levels. People have, you know, plentiful of jobs. We, you know, we believe that those trends will... and very aged car fleets. We believe that, you know, that bodes really well for an end market like automotive replacement. You know, we have, you know, we have started to embed in particular, or maybe being a little conservative on the second half of the year, inventory activities. We believe that, you know, as the supply chains are improving, I think customer in a natural way are going to try to ensure that, you know, they deliver a decent cash flow. I think that that's been, you know, a tough spot in 2022 for everybody. You know, we are being pragmatic about what we anticipate in the second half. You know, I think that we are, you know, we are being, you know, reasonably open-minded about the end markets as well. Thanks for that. Follow-up question just on the margin side. Obviously, it's encouraging to hear that there's more stability emerging on the supply chain side. It seems like you're saying by the time you hit the back half of the year, closer to normal. Maybe just put that in context then on how you're thinking about the margin cadencing through the year. Obviously, there's gonna be some different dynamics on the volume side as you work through the year. Cumulatively, is the expectation for a little bit of a ramp through the year that maybe is a little bit better than the revenue trends might imply, given the supply chain piece, given some of the internal stuff you're working on? Maybe just some thoughts on the cadence in there. Yeah. Well, certainly I think the comps, as you move through the year-over-year, you know, Q1 is, you know, of 2022 was a little bit tougher. Then as you move through the year, you know, we had more of the headwinds in the second half of the year, you know, relative to some of the supply chain stuff. As we move through the year, you know, if you think about our full year guidance, you know, at the midpoint, you know, our gross margins, you know, will be up, you know, over 100 basis points. That'll be offset some by, you know, SG&A, which has some variable comp element to it, which kind of gets us to that, you know, midpoint number of, you know, 90- 100 basis points of improvement year-over-year. It's relatively balanced through the year, as we move through the year because the first quarter is the easiest comp for us. That kind of, you know, gives a little bit more weight to the first half. Then the comps relative to the supply chain issues give us a little bit more easier comp in the second half. It's relatively balanced through the year. Great. Really appreciate it, gentlemen. Thank you. Your next question is from Jerry Revich of Goldman Sachs. Your line is open. Yes. Hi, good morning, everyone. Nice quarter. I'm wondering if we could just talk about the acceleration that you saw in EMEA, in the quarter. Which end markets drove that? Is any of that momentum continuing into the first quarter? Yeah. Good morning, Jerry. Thank you. I mean, Europe was a very strong performance for us. You know, it was predominantly driven by energy, off- highway and personal mobility. You know, personal mobility up almost 80% year-over-year, off- highway kind of in the 40s. You know, all of our end markets, frankly, in Europe are very solid. Our overall auto business was up in the teens, you know, driven by automotive replacement, strength in automotive replacement. There isn't really, frankly any blemish in Europe. You know, it was a really terrific quarter. Now, auto benefited somewhat from some catch-up, as I had discussed on my prepared remarks. We, you know, we were able to secure a little more raw materials and that gave us the opportunity to catch up to some age backlog, particularly in the auto space, on the PT side. Just a terrific quarter that the team has executed really well and the end market demand remained very resilient. You know, maybe to spare you the follow-up question, I mean, January was quite strong as well. Super. Then in terms of the full year outlook, you know, Core M growth 3% at the midpoint, assuming flat volumes. Can you just say more about the pricing cadence? Because I think pricing alone should be high singles, you know, low doubles in the first half of 2023, which, you know, in and of itself would get you above the midpoint of that range of volumes are flat. Can you just unpack, you know, what's embedded in there a bit more, if you don't mind? Well, look, Jerry, you know, price is somewhat of a moving target, right? As you, as we see what's going on with inflation, as we see what's going on, you know, with our cost, you know, the material cost and the energy cost, freight cost, things like that. I think you're probably a little hot on the price side. Certainly we'll be a little bit higher on price in the first half of the year, as opposed to the second half. We also are seeing, you know, some signs of moderation of inflation, where it's not, you know, where it's not quite as steep a ramp as we have seen. We expect price to be lower in 2023, you know, than it was in 2022. I think you also have to remember that in the first half of 2022, we also have the China and the Russia headwinds that are gonna continue to be there, and that's gonna affect the, you know, the core growth some as well from a volume perspective. I would expect the price numbers to be lower than what you said. You can kind of do the math. If volume is flattish, then, you know, the price is kind of in that, you know, low to mid-single digit kind of range. Yeah. We'll take that over. Thank you. Appreciate the discussion. Yep. Your next question is from Julian Mitchell of Barclays. Your line is open. Hi. Good morning. just wondered if you could parse out a little bit the free cash flow guide. I think the guide embeds sort of net income not growing much in 2023, but free cash flow is up about $150 million and CapEx is up a bit. It looks like that free cash $150 is all working capital. You know, maybe any sense of. The main drivers within that, is it solely inventory coming down that much or something else? How do you think about the liquidation of the working capital through the year? Is it kind of similar to your customers whereby it's more of a second half phenomena? Look, I think on the net income side there, you know, there's some moving parts in 2022, particularly relative to tax cash versus GAAP tax. You gotta kinda strip that out. We certainly think we're gonna see improvement in working capital year-over-year, primarily driven by inventory. That's gonna drive a significant piece of it. Then, you know, you know, everything else is kind of, you know, flowing through, but tax is a big piece of it. The GAAP tax versus the cash tax in 2022 versus the GAAP tax and cash tax in 2023 is a big part of what's generating the. is a big part of what's generating the additional cash flow as we move from one year to the next, along with the inventory reduction. Is there any way of sort of quantifying at all, you know, of that $150 free cash increase? How much is that cash tax aspect? Well, I mean, cash tax is, from a percentage perspective, is relatively unchanged year-over-year. I mean, you look at our effective tax rate for 2022 was kind of mid-single digits, it's gonna get back up to, you know, kind of 22%-24% in 2023. You can kinda do the math on that. That's helpful. Thanks very much. I suppose, secondly, maybe one more for Ivo. When you're looking at China, you know, it was down for obvious reasons in Q4 and last year as a whole. Maybe help us understand how you're thinking about the volumes in China, the balance of the year. Is it sort of down again Q1, you know, up a bit Q2, and then sort of high single digit in the second half? Just wondered what you're, what you're seeing and assuming there. It's a great point, Julian. Obviously 2020, 2022 was very challenging in China with the second quarter shutdown, full shutdown in Shanghai, and then obviously the end of the year impact from first, you know, COVID restrictions and then reopening and the infections that rolled in. January was very tough in China. Firstly, the first couple of weeks still pretty significantly impacted by COVID, and then you rolled right into Lunar New Year. We have seen very little activity in January, but the activity is coming back. We anticipate that Q1 is still going to be down, I would say, you know, kind of in the high single digits year-on-year, maybe 10% just for, you know, for sake of conversation. Then we anticipate that you're gonna see a pretty strong rebound in Q2, predominantly because of the comps. Obviously, Q2 of last year was very weak, as I have indicated. You know, the comp is gonna be unusually hard in Q2 in China, but the second half of the year should, you know, normalize, volume-wise. You know, we actually anticipate that we will see a, you know, a positive impact from China for the year. You know, we really need to see February before we can start getting more confident about how that's going to develop. Yeah. Let me kind of follow up on one thing on the cash flow too. I think what you also have to remember is over the past couple of years, you know, we've seen a significant increase in working capital, and that's what's driven the cash conversion below 100. While we're gonna get better on working capital, certainly in 2023, I think just the fact that you're not increasing it as much as you have as the last couple of years is gonna drive, you know, the most significant part of that improvement in conversion. Great. Thank you. Yep. Your next question is from Andy Kaplowitz of Citigroup. Your line is open. Good morning, everyone. Morning, Andy. Morning. Ivo, last quarter you still sounded reasonably pessimistic about supply chain headwinds clearing quickly, especially in terms of polymer supply. Did polymers just start to clear up faster than you expected? I know you said that 2023 guidance bakes in gradually lessening supply chain inefficiencies and inflation, but is there a way to size the impact of these inefficiencies on you guys? I think last quarter you mentioned 300-350 basis points of headwind on the top line. What do you think that number came in at for Q4? Is there headwinds still for on 2023? Yeah, Andy, thank you for the question. Look, Q3 was a really challenged quarter. I mean, we have really suffered from the supply chain as we have outlined on that call. Q4 has gotten definitely better, we started very slow recovery of the raw material supply. October was very challenging still. October was more or less similar to what we have been seeing in Q3. As I said on 3 Q call, it's just look, our suppliers are actually able to make it more reliably, we were not able to get it into our factories. We were able to actually move the materials into the facilities in the second half of Q4, as we saw fit. It cost us a little bit of money, as I've indicated in the prepared remarks. The conversion flow through, margin improvement was slightly impacted by the movement. However, you know, we were able to get everything that we needed at that point in time. You know, that resulted in very strong performance, much more in line with the underlying market demand and what we have been able to do kind of, you know, in that, in that Q3. My anticipation, Andy, is that we are seeing improvements, gradual improvements in our suppliers' ability to make these highly engineered resins. We're still somewhat cautious about having a real predictability in the first half of the year, vis-a-vis getting it in the factories as we need to get them through the normal means of transportation. We still believe that there's gonna be some limited impact. While we believe it's significantly better, I just don't anticipate that we're gonna get normalized until we exit mid-year of 2023. That's helpful, Ivo. You mentioned in your 2023 PS walk that you have a sense of improvement from productivity and supply chain initiatives. Can you give more color into what your major initiatives are in these areas? Last quarter, you talked about a, I think, a $45 million footprint rationalization plan. I think you said it would have limited impact in 2023, with bigger impact in 2024. Is there any benefit from this plan in your walk, and could you elaborate a little more on what, you know, the plan might entail? Look, on the productivity improvements, you know, I'll come back to kind of the performance that we have seen in 2023. Obviously, when you are struggling getting enough raw materials to keep up your factories operating, it becomes very difficult to actually absorb all of the overhead in these facilities as you well know. More importantly, to be able to get any traction on your, you know, kind of standard normalized productivity programs that you have, Lean, Six Sigma, what, you know, whatever the flavor is that you like to call. We call it the GPS system here. We anticipate that as the factories start operating much more normally, we can get pretty aggressively back into the kind of a normalized rhythm of driving productivity as we have demonstrated that we do in the past. The headwind would give you actually the ability to kind of revitalize, if you would, your productivity efforts. We are quite optimistic. We have a strong pipeline of productivity projects in the book, and we are, you know, we are very intently holding our teams accountable and focused on executing on the biggest opportunities. I would say that, you know, nothing's really changed from what we said on Q3 call about restructuring. We still anticipate some cash to be consumed on restructuring programs, and the major benefits are not going to roll into our P&L from restructuring programs until 2024. Helpful. Thanks. Thank you. Thanks. Your next question is from Nigel Coe of Wolfe Research. Your line is open. Thanks. Good morning, everyone. Just wanna go back to 1Q, the guide for 1Q in a bit more detail. Maybe just looking at it from a sequential basis. Looks like sales are pretty flat at the midpoint, versus normal history, where we have a pretty pronounced uptick into 1Q with the, obviously the off-highway season. Maybe just talk about what you're planning for from a sequential basis. I mean, FX should also be a help as well. I'm just curious if maybe the good news on supply chain and that backlog conversion we saw in 4Q, whether that's the offset that I'm kinda asking about here. Good morning, Nigel. I think it's a great question. Look, you know, I would start with, as I've indicated, China down about 10%, and you have a full quarter of the Russia exit. You know, that's a, you know, rather substantial headwind on organic growth on the enterprise, that gets offset by the better performance and kind of the normalized seasonality that you would anticipate. You know, I would say that those are the two biggest headwinds that we are counting on in our guidance. You know, obviously if China, you know, suddenly gets dramatically better and we are under calling it, you know, we anticipate that the volume would get better. You know, I haven't seen it in January. you know, I think it's very difficult to predict that suddenly you're gonna see a V-shaped recovery in China. I would say that those are the two pragmatic issues. As I said, you know, we still, you know, we are still facing a little bit of supply chain issues, and we are probably a little bit gun-shy on being able to declare a victory on supply chain until we see that stability to become repeatable throughout, certainly, you know, a couple of the first quarters of 2023. Okay. Just to be clear, the Russia and China. I mean, maybe China's gonna be a little bit worse Q- over- Q, but Russia would've been an impact in 4Q as well, correct? Yes. Yes. Okay. As I said in my prepared remarks, Nigel, we had a really nice catch up to some past due orders. Yeah T hat we have delivered on in Europe in power transmission, and that's kind of what have given us a little bit of an outperformance in Europe in particular. While order flow remained very robust. The book-to-bill remain above one. You know, I would just caution to, you know, for everybody to extrapolate exactly what happened in Q4 in Europe because of the catch-up. Okay. No, that's very clear. My follow-up is really around capital deployment. I mean, if you get to that 100% plus conversion, you've got the, you know, kind of quote unquote, "problem" of capital deployment, which is a good problem to have. You know, in your plan, are you deploying capital? I mean, are you seeming delivering with the cash flow? Then do you see opportunities to maybe, you know, buy back stock during the year? Yeah. Hey, look, you know, we've made a commitment in the midterm to get to 1.5x leverage. You know, we were below three as we ended the year. We, you know, we want to continue to deliver the business. As we continue to generate cash, we're gonna lock in, you know, some of that lower leverage by continuing to pay down debt, you know, reducing GAAP interest, reducing cash interest, certainly over the short term. This business generates a lot of cash. You know, the capital allocation, you know, for us, we're always gonna look at different opportunities and, and figure out what is gonna pay back, you know, the shareholder the best. We do believe we need to continue to pay down debt though and reduce not only our leverage but our gross debt as well. I think in the short term, you know, that's what we're focused on. Okay. That's helpful. Thanks. Your next question is from Josh Pokrzywinski of Morgan Stanley. Your line is open. Hi. Good morning, guys. Morning. Morning. Morning, Josh. Yeah, just wondered if, I apologize if I missed it, but, Ivo, can you just walk us through, you know, what book-to-bill was? You mentioned strong orders I think a few times. You know, maybe just put a finer point on that and, you know, how you stand today on, you know, kind of the total past due backlog. You mentioned you worked that down. Just is any remaining and, you know, sort of what's the order of magnitude? Yeah. Great question. Thank you, Josh. Look, we've trimmed some of our past due backlog in the quarter, particularly in Europe, and we've taken a pretty nice chunk from the aged backlog there. You know, interestingly enough, in January, past due backlog started jumping back up on the strength of order flow. You know, Q4, our book-to-bill was approximately 1.05, so it remained above one. You know, we've eaten the past due backlog slightly down. It continues to remain elevated and, you know, we just got to see a better flow through of raw materials to ensure that we can keep up properly with not only with the flow of orders but also recover some of the aged backlog that we owe to our customers. Clearly as a book-to-bill business, not only we not like having aged backlog, but, you know, we really don't like to have an elevated backlog period. Both of these, you know, remain a reality still for us. We still have challenges to work through. Got it. That's helpful. Then I guess just on, you know, kind of the surge that you've seen in the fourth quarter, you know, the supply chain improvement, the solid orders, I'm just wondering if there's anything, you know, anecdotally or qualitatively, you know, you've had discussions with under your customers that, you know, some element of this is kind of the supply chain bullwhip effect, right? Like, you're able to get more product out the door, presumably your customers are as well. Like, is the strength that you're seeing on the order side sort of representative of, hey, everyone can get more supply, so they're, you know, pulling back, you know, pulling through, you know, more product through the supply chain as a whole, but, like, demand never really changed? Like, I guess, are you seeing, you know, any sort of demand volatility, you know, up or down, or is a lot of this just kinda dictated by what we've been through on supply chain? Again, hard to quantify, but, like, any comment there would be helpful. Yeah, you know, this is, this is really frankly the crux of the situation that I think we are all dealing with. I've spent quite a bit of time talking to our customers, particularly at this point in time with the, you know, the volatility and obviously watching the macros and watching all the indices that are out there and being very cognizant of, you know, of the trends that we are seeing. You know, the general feedback that I am receiving is reasonably positive. You know, the order trends at our customers still remain quite robust. You know, it is varied by the region. When, you know, we kind of talk about underlying, you know, market demand, you know, we just wanna make sure that folks understand that we're looking at it globally, not just from North America perspective. While you may have, you know, a very strong demand trends in ag, construction and on highway in North America, you know, that may not be the case in places like China, as an example, and those are large markets, right? At this point in time, I would say that, you know, we are very watchful at what is happening in the diversified industrial and the, you know, in the industrial replacement channel. Again, I've said it, you know, a couple of times, Josh, that, you know, that's choppy, it's uneven. You may have a weak month, and then you may have a very solid month. I am, you know, I'm just very, very focused on ensuring that we don't miss some trend line, and that, you know, we end up calling it wrongly. So far it's been reasonably positive, in general. Got it. Appreciate it, Ivo. Your next question is from Jeff Hammond of KeyBanc Capital Markets. Your line is open. Hey, good morning, guys. Good morning, Jeff. Morning. Really if I do the math, it seems like incremental margins are high 40s. Just wanted to, you know, understand, you know, really how much of that is around the confidence in, you know, this kind of supply chain issue getting better, versus something else in there. I think we had quantified maybe a $40 million or so headwind in 2022 from, you know, from the polymer issue, and I'm wondering if that is the right number and how much of that reverses, you know, in 2023 in the guide. Hey, yeah. As Ivo said, you know, you know, there were some encouraging signs, I think, as we worked through Q4, but we're not out of the woods yet. You know, if you, if you think about our margins as we move from 2022 to 2023, you know, core, you know, core growth at the midpoint, you know, is 3%. We would expect to see less fall through on that, as it's mostly, you know, price cost, and we've said that, you know, we're trying to maintain EBITDA margin neutrality as we move through. You know, we expect to see significant improvement, you know, from supply chain improvements and from the productivity initiatives that Ivo talked about. That'll be partially offset by some higher SG&A expenses related to variable comp. I think, you know, you're thinking about it the right way in terms of the gross margin improvement, not only from the supply chain improvements, but from productivity as well. That'll be partially offset by some higher SG&A as we move through the year. Okay. Just back on this, you know, the down low single digit for market for industrial, you know, the industrial and diversified industrial. I think you know, Ivo, you mentioned choppiness. Maybe just talk, one, about outgrowth and, two, you know, just if you're seeing it, you know, equally between the FP and PT side. Thanks. Look, Jeff, I think, you know, the best way to really reference it is just an uneven demand, right? Again, it's one month it may be down, next month it may be up. Up maybe more than down next time. Right now, what we see is that the sell-through from our customers remain very, very robust. I think that everybody is somewhat concerned about working capital. As people start getting more comfortable with lead times, I think that you will see some movements in order flow, not necessarily driven by weaker demand. Again, we have not seen weaker demand yet from the POS reports, but I think people are just making sure that on one side, they don't hold too much inventory, on the other side, they don't have too little. You know, there is a continuation of rebalancing what is happening in the market, in the channel. I would say that, you know, that's probably the one area that we are very, very intensely watching. But that being said, there's also an opportunity as people are getting more raw materials that also could result in higher demand generation because people are simply able to just get everything that they need, which wasn't the case throughout 2022. You know, we are reasonably, you know, we are reasonably balanced in our view as to what we anticipate throughout 2023, particularly in the industrial replacement market. While we don't want to call it down dramatically, we also don't want to be in a situation where we miss any potential uptick that may be should, you know, the market conditions remain robust. You know, there are lots of positives that, you know, that one should like, right? I mean, you have the infrastructure investment and, you know, you need lots of construction equipment. You're going to be building lots of industrial automation equipment, and those are all really good markets for Gates Corporation. We are, you know, we are optimistic about the underlying trend line, but we also want to be realistic about what is happening with, you know, ISM and, you know, with some of these indices that are being, you know, they're being reported on. That's kind of, you know, what I would say that, you know, our perception is. Just maybe speak to the outgrowth, you know, assumptions. You know, I know mobility has been something that you've called out, but, you know, Chain to Belt a big opportunity on the industrial side. Yeah. Thank you. Look, I mean, I'm not gonna spend much time on mobility, but I think this is a perfect example of how we are driving an organic evolution of our portfolio. Again, you know, I remind everybody that, you know, in kind of in 2019, it was kind of a $25 million business and, you know, we kind of exited the year kind of on a, you know, $200 million run rate. You know, growing at kind of 10x in three and a half years. We don't expect to be growing at 10x over the next three and a half years, but we are very optimistic about continuing to deliver kind of mid-20s growth rates in mobility and pretty quickly catching up to the size of our end market contribution, you know, that we generate in the auto OEM space as an example. Industrial Chain to Belt continues to build very strong pipeline of opportunities. You know, obviously, I've spoken about our fluid power business. Our innovation available capacity continues to give us an opportunity to outgrow the end markets. Those underlying markets, Jeff, are also very robust. You know, certainly in North America, ag, construction, heavy duty, very robust markets. You know, I've highlighted that, we've had a very strong growth in our automotive business with fluid power as well, and that's an area of where we participate with electrification. That's an area where, we predominantly participate in the replacement side of the business, with, fluid power. It's, you know, it's generally speaking, we are very confident about our ability to outgrow the market. You know, we've demonstrated over the last five years, three years and, you know, and certainly over the, you know, last two years that we are capable of outgrowing our our underlying end markets globally. We, you know, maybe a long-winded answer, but, you know, maybe, providing you a little more color. Very helpful. Thanks. Your next question is from Damian Karas of UBS. Your line is open. Hey, good morning, everyone. Good morning. Good morning. Good morning. I appreciate the underlying market assumptions that you've laid out for this year. Given that automotive is pretty significant for the business, could you perhaps just provide any further color on how you're thinking about the outlook for auto? I guess just any key assumptions, you know, maybe headwinds or tailwinds that are worth calling out. Yeah, it'd be really helpful if you just kind of give us a walk around the globe for auto and what you expect this year. Yeah. As you recall, our automotive OEM business is, you know, less than 10% of our revenue presently. Look, we anticipate that the overall production is gonna be, you know, slightly net positive. I, you know, I certainly don't fall into the category of individuals that will call a significant increase in auto OE output globally. You know, we are thinking more in line of maybe, you know, 2%-4%. You know, certainly some recovery in North America, where we have very little presence. You know, similarly, improved production output in Europe. You also have to take into an account some of the challenges that folks are going to have buying new automobiles when you take into account the increases in prices of new vehicles and frankly, the interest rates. While, you know, the car makers may be more capable of producing, will you see some decay of demand in the end market because of the affordability index? That I don't know, I'm not an economist, but our view is that globally, you should see auto OEM builds up kind of slow to mid-single digit. You know, a bigger business is an automotive replacement and, you know, frankly, we are, you know, we anticipate that we should see low single digit end market growth. Positive dynamics in North America, obviously, a very aged car fleet, high miles driven, high levels of employment bodes well for folks maintaining their vehicles. Very similar trend in Europe. People are certainly driving more miles. We believe that China is gonna rebound very strongly. I think you can see it in some of the reports already that people are starting to drive significantly more than frankly, they have driven over the last two to three years, at an expense of even public transportation. The setup for automotive replacement business is very strong for 2023 as the situation normalizes, particularly in the supply chain. This should be a net positive for Gates. Understood. Appreciate all that additional color. Then a follow-up call on the distribution, inventory normalization that you're expecting later this year. Sorry if I missed it, but could you quantify how much of a headwind you've baked into guidance related to that? Is that something that would likely bleed into 2024 or do you view it as more of a, you know, swift, transient adjustment? Yeah, Damian, I think it's very difficult to forecast firstly when and or if it's going to occur. Is it going to occur in second half, or is it gonna spill into 2024? You know, I, you know, again, I will repeat that, you know, we are very, very intently focused on monitoring all the trends. We certainly are very focused on monitoring our POS. The POS trends remain positive, but we are, you know, we are being cautious with our approach for the year. Certainly, you know, one should anticipate that as the supply chains normalize, you probably should anticipate that folks will be optimizing their working capital levels. You know, to us, we have embedded our view in our guidance and, you know, I'll probably just leave it at that. Great. Thank you. Thank you. Your last question is from Deane Dray of RBC Capital Markets. Your line is open. Thank you. Good morning, everyone. Special welcome to Rich. Thanks, Deane. Good morning, Deane. Morning. Hey, covered a lot of ground here. Just a couple quick ones. First, Ivo, you didn't mention it, but was hoping you have good news about your operations in Turkey with the impact of the earthquake? Yes. Thank you for asking. Obviously, our prayers are with the folks in Turkey. Devastating event. We are very fortunate, all of our operations are not in the impacted area. We actually in Izmir, which is a reasonable distance away from the epicenter of the earthquake. None of our facilities nor our suppliers have been impacted. Thank you very much for raising that and asking that question, Deane. Good. That's great to hear. Thank you. Then just lastly, you mentioned share gains in Fluid Power. Just broadly, can you talk about the contribution from new products and what's embedded in the guide? Yes. As we, you know, as we have discussed, you know, we continue to drive our contribution of new products as a percent of revenue up. We have exited 2022 in Fluid Power with over 25% of vitality in Fluid Power. As you well recall, we have highlighted that our aspiration is to get kind of to 20% NPI vitality by 2023 across our portfolio. We certainly surpassed that objective in Fluid Power. You know, maybe the follow-on question is so where you went in Power Transmission. In PT, we're kind of in the mid-teens, so we still have ways to go in PT. As I've highlighted in the past, we are now very laser-focused on revitalizing our portfolio in PT and, you know, we're making good progress on that as well. Thank you. Thanks, Deane. Thank you. There are no further questions at this time. I will now turn the call over to Ivo Jurek for closing remarks. Thank you very much for joining us for our Q4 2022 earnings call, and we look forward to seeing some of our shareholders during the next couple of conferences in Miami. We welcome to any follow-up questions as the time progresses. Thank you, and we will speak with you on our next call. This concludes today's conference call. Thank you for your participation. You may now disconnect.