Good to go. All right. Good afternoon, everyone. Welcome to the Fireside Chat with Gates Corporation here. I'm Clay Williams from Goldman Sachs. And with us from Gates are Brooks Mallard, Executive Vice President and Chief Financial Officer, and Rich Kwas, Vice President of Investor Relations and Strategy. Brooks, Rich, thanks for joining us today. Absolutely. Yeah. So to get us started, we'll dig in on the 2026 targets. On last quarter's call, you outlined how you expect to arrive at your midterm Adjusted EBITDA margin target. Could you refresh us on your plan to get within the target Adjusted EBITDA margin range and how you've been able to expand margins in the negative volume environment we've been in? Yeah. So when our capital markets day back in Q1 of 2024, we were coming off a challenging 2023. We were right at under 21% EBITDA margins. And we'd just come through kind of the post-COVID challenges around material availability and things like that. And we put together a walk that included a path for us to get to 24.5% midpoint EBITDA margins. And about 100 to 150 of that was coming from volume, market recovery, and a CAGR of about 3%-5% per year. And so what's happened over the course of the past couple of years is actually we've seen about 5 to 600 points of volume headwind related to some of the end markets like agriculture and oil and gas and things that have been struggling a little bit. But we've still been able to expand margins. And our current midpoint for 2025 is 22.5% EBITDA. So that's 150+ basis points of improvement. And most of the improvement that we've gotten so far has really been through our material cost-out program. And so as we came through kind of the post-COVID material inflation issues, we put together a program to really focus on taking material costs out because that's really a volume-agnostic kind of endeavor. And that's driven most of our improvement and driven us to the higher margins and where we are today. As we look forward, we still have $40 million of restructuring, about half of which is going to start hitting in the back half of 2026, which is going to put us at about 23.5% EBITDA margins for the back half of 2026. And then we still have another $20 million of restructuring cost out, which is currently in the plans, but we haven't announced the timing of that yet. So we feel like, again, kind of the volume stays the same. We're going to get some uplift from mobility, which is growing nicely again. We expect that to grow 30% CAGR over the medium term, get a little bit of data center growth. We feel like the 24+% margin targets are well within reach over the course of the next 12-18 months. And so we would say while we haven't achieved some of the volume-related margin improvements, we've more than offset that. If you look at what we said at the Capital Markets Day, in a volume-agnostic environment, we needed to get through the end of 2026 and see the full benefit of all of our restructuring to get to that 24%. We felt like we were right where we're supposed to be. In fact, probably overcome some pretty significant margin headwinds in the meantime. Super interesting. Maybe to dig in on some of those cost-out programs, I think over the next couple of quarters, you're executing an ERP conversion and some footprint optimization in Europe. Can you just refresh us on the process? I think you guys did something similar here in North America. I'm just curious how the company's experience going through this? Right. Well, the footprint optimization is mostly North America. That's the continuation of the program in North America. And really, the interesting thing about that is when we initially started our footprint optimization program, it was really built more around labor availability. Because what we had found was it was difficult for us in some of our locations to flex labor through the cycle. So it was difficult to flex labor up, costly to flex labor down based on the volume through the cycle. And so we were looking to optimize our footprint where there was more labor availability. At the same time as we did this, we were looking to recapitalize on some of our assets, put in some more efficient capacity, and then also take some cost out, both through fixed cost reduction and through lower cost of manufacturing, primarily with labor. We've been working on that here for the past 18-2 4 months. We kind of had to take a pause when some of the tariff and global trade policy uncertainty was going on to make sure that we had all of our bases covered from a supply chain and from a manufacturing perspective. We kicked it back in after we got some certainty there. We expect that to, like I said, contribute about $5 million a quarter, year over year, each quarter from the back half of 2026 to the first half of 2027. On the ERP, we've been slowly upgrading our systems capability in Asia. We implemented the finance module of SAP in Europe about three years ago. We've been working on that for quite some time. And then we've been working on this larger implementation for Europe to replace an antiquated system that's kind of out of service. And then that's going to hit in the first half of 2026, primarily in Q1. So we've got. I've been through a lot of implementations myself. I've done implementations in my prior roles. Our CEO has done implementations. We have a strong group of individuals that have all been through this before. We've done ERP implementations before. They just weren't of this size. And we've also done a significant amount of testing and day-in-the-life testing and different things like that. So we feel confident that we're going to be able to launch this in Q1 with a minimum of impact. Having said that, we wanted to make sure that all of our investors and everyone externally understood what we were doing. We wanted to ring-fence, "Hey, we're going to make sure we take care of the customer. We're going to make sure we get this launched properly." We wanted to put some numbers out there in terms of one-time headwinds that we expect to see in the first half of 2026. Yeah. Great to hear. And then where does that put us on the timeline? I I know the targets in 2027. I think most of these will take through most of 2026, some into 2027. What's beyond the next stage for us? Right. Well, the quicker we can get a little bit of help from the markets, the better we're going to be from an EBITDA margin perspective. Like I said before, we expect to be at 23.5% in the back half of 2026. And we still got $20 million of savings to go with respect to our footprint optimization program, stuff that we haven't announced yet. So depending on when that hits, we would expect sometime in 2027 to get to the run rate of 24+% EBITDA. Speaking on margins, regarding tariffs, you've noted you'd be pricing dollar-neutral versus margin-neutral to cover tariff costs. How big of a headwind are tariffs as they stand now to that second-half run rate of 23.5% in 2026? Yeah. So tariff, most of tariffs we offset with price. Some we did with operational improvements. It's about a 30-40 basis point headwind, which really started in Q4. We didn't really implement the pricing impacts until kind of later in Q3 because we didn't have certainty on exactly how much we needed to raise prices based on what tariffs were going to be in play. So you should expect kind of 30-40 basis points per quarter until we lap that in Q3 of 2026. Having said that, we've got other things we're doing from a productivity perspective. We still think we're going to be able to get material cost out. That's going to be additive. If we get some help from volume, that's going to be additive. So there's some offsets to that 30-40 basis points of profitability improvement. From a dollar's perspective, we're whole. It's not going to impact us from an EBITDA dollar's perspective. But from an EBITDA percentage perspective, 30-40 basis points. Yeah. So turning to some of the growth opportunities, particularly data centers are really exciting. One, can we just talk a little bit about the data center opportunities besides the content opportunity at $100,000 per megawatt and a total global liquid cooling TAM of about $2 billion? We'd just love to dive into product. Anything you guys can share with the growth of the TAM? Yeah, Clay. So as we look at our portfolio, we do hose, hose assemblies, and data center water pumps. And we're really focused on the liquid cooling opportunity. As many of you know, up to now, more or less, it's been primarily an air-cooled phenomenon. And this is transitioning quickly to liquid cool. And so we're in good position to support the needs of our customers. And importantly, we're ubiquitous with regards to supplying customers. We're going everywhere from hyperscalers down to service contractors in terms of support of these various products to build out the liquid cooling system. So as you mentioned, we recently increased our total addressable market at $2+ billion. We were a little bit kind of more in the range of $1.5 billion-$2 billion previously. So we've increased that. And as you mentioned, it's over $100,000 per megawatt in terms of the content opportunity. So we've done a really nice job over the last year getting specified with the various constituencies, the customers, etc., in the market. And so we continue to build that out. Back in the second quarter, we talked about winning a hose assembly business with a hyperscaler. That is now what's interesting there is that was going to start here in the fourth quarter. Now it's been pushed into 2026 because of their cooling needs. They need more extensive cooling needs. They need a bigger capability, a bigger hose to support their needs, so they've reevaluated what they need, and so we're specified and we'll support that as we get into 2026, but we're broadening the product suite. We were at the Supercomputing event a few weeks ago, and some of you in the audience were there, and we continued to broaden out the hose and hose assembly capability. We've been introducing a new suite of couplings, quick disconnect, universal disconnect, so these are opportunities in terms of broadening out the product suite to support the needs of our customers, and then the water pump, we already have the smallest footprint for our water pump. As the flow needs for the customers for the data centers continue to increase, we're going to be in a position to support greater flow needs for that. And we're in the midst of working on a new water pump that will be even more powerful and provide more flow capacity than what we have on the market today. And so that'll be coming here, hopefully, in the not-too-distant future. So we feel really good about the position we're in. And to level set everybody, this is a less than $10 million business for us right now. We're targeting $100-$200 million by 2028. So we expect that there'll be nice growth next year in 2026. But we do think the bulk of that will come in 2027 and 2028 in terms of getting to the $100-$200 million target. So we feel really good. And then a quick follow-up on some of those products you talked about. One, how would you view the competitive landscape for these projects? Is there lots of companies competing, or are they pretty concentrated? And two, are these typically sold as à la carte to the provider, or is it more part of a bundled solution? Well, I mean, on the last part, we can do both. So I think based on what the customer needs are, we can sell a solution set or we can sell components. So again, we're flexible on that front. In a lot of cases, we're providing design services almost to these customers to help figure out the best solution for them. So we think that's a competitive advantage for us. From a competitive set, there's some different both the product lines in terms of what we focus on between water pumps and hose assemblies. There's a slightly different set of customers. We think we're in a good position from being a global player with global scale, global manufacturing capacity to support the key customers in the space. I think to your point, there are regional players out there and smaller competitors. But ultimately, at the end of the day, given the mission-critical nature of this business and the needs of the customers, we feel we're in a strong position to support it. Is there any replacement cycle opportunity with these products? I'd assume they get worn out being in the data centers given the runtime that they have. Yeah. So we think there is. It's early, though, as we've discussed. Liquid cooling is just really getting underway in earnest here in terms of the build-out. So we think there's going to be a replacement piece. We did not include that in our $2 billion plus TAM, though. So that's upside potential as we look out the next few years in terms of expanding the addressable market. Yeah. And just to gauge the cadence of the growth, maybe to help us, when in the data center construction lifecycle are you guys typically being brought into it? Is it from announcing a data center and first? Yeah. We're towards the back end of things, so typically, we will get pulled in towards the end. You obviously have to be specified with the customer, etc., so you have to be on, kind of think of it as like the menu. You have to be able to be selected, but we're getting pulled in, so as these projects get completed, closer to completion, we're going to get pulled in. Yeah. And then to turn now to capital deployment, you guys have done both on M&A opportunities. Is there possibilities here in this end market or other white spaces you guys see for potential acquisitions? I'd say we're going to be close to home in terms of what we do. As you've seen recently, there's been some data center transactions out there at pretty lofty multiples. I think we're going. That's not an area that necessarily we're going to be overly focused on. I think of it as being close to home, mission-critical stuff with high replacement coverage, and stuff that I think would be additive, ideally additive to our top line that we can get some synergies out of. But we were very specific on the last quarter call about talking about bolt-on. So we really intend this to be digestible and something that makes sense to our investor constituency. Beyond M&A, how do you view the remaining capital allocation priorities? Yeah, so look, if you go back to 2020, we were 4.8 times levered then, right? At the end of Q3, we were two times levered on our way to being below two, right? We're very close to our midterm target, which was one and a half to two, being below two being kind of the key metric there. Over that time period, we paid down close to $675 million of debt. We also bought back almost $625 million worth of stock at prices significantly less than they are today. We helped facilitate Blackstone and their exit from the company to where it's fully traded and fully liquid on the New York Stock Exchange now. Over that course of five years, we delivered over half a turn a year, plus we bought back significant almost 15% of our outstanding stock. And so that's worked very well for the company. We're going to be able to add M&A onto that. But we still feel our stock's undervalued. We just got an additional $300 million of buyback authorization from the board at the end of Q3. We plan on deploying that. We still want to continue to pay down some debt. That helps us preserve dry powder in case we do do M&A. It gives us a little bit of cash benefit from a cash flow and earnings per share perspective. But the key is we've been very, I think, very pragmatic stewards of our capital. Both buying back stock is, I think, a great way to return capital to shareholders. We think there's some M&A out there that really makes sense from a strategic perspective that will be a great return to shareholders. And then, continuing to deliver the business and lock in some of the cash that we generate and lowering our leverage and lowering our overall debt is something we want to continue to do as well. So, all three of those actions, we think, will continue to be a very nice return of capital to our shareholders. Gotcha. So I want to turn to some of the end markets. Volumes, like you said, have been weak. PMI continues to be weak. What gives you some of the optimism that at least may be approaching flat to potential growth in 2026? And then conversely, where do we still see even more continued signs of weakness? Yeah. So let me start on one side of the business, and I'll let him finish on the other side since that's a fairly long question. We participate in a lot of end markets. From an automotive perspective, the automotive replacement business, when we first went public back in 2018, we went through the first trade war. Then we went through COVID. Then we went through kind of all the material shortages, the Russia-Ukraine war, which caused some material shortages around petroleum-based products and things like that. And so there was some stocking, some destocking, different things in the automotive replacement business, and a business that historically has not been very cyclical was cyclical for three or four years. Over the past couple of years, as the operating environment has evened out, and even in the face of some of the global trade policy uncertainty that we saw in 2025, the business has started to act as it has historically. So it's a consumer cyclical kind of business. We're going to be able to get price every year. We think we've got opportunity to grow share both in our mature markets like North America and EMEA. And we think we've got opportunity to grow in emerging markets like we have in China so we can continue to grow in emerging markets like Brazil and India and things like that. And that's over 35% of our business. And we think that we ought to be able to grow that over the long term, kind of in that low to mid-single digit, right? And so then the flip side of that is automotive OEM, right? Well, we've continued to be selective in how we participate, balanced in our approach in terms of going after internal combustion kind of continuation programs versus new EV programs. But we're going to continue to be very selective in how we participate, kind of de-emphasize the automotive OEM business. And then lastly, kind of similar, at least in terms of being mobile, our mobility business, right? Our mobility business started off growing very significantly, went through kind of has gone through an inventory balancing both at the retailer and at the manufacturer over the past six quarters. And now we've started growing again kind of how we thought we would, which is kind of this 30% CAGR over the midterm, right? And we want to grow that business to, we would say, $300-400 million. $300 million. Yeah, $300 million business over the course of the next two to three years. And we've got the confidence that we're going to be able to do that. We've said we want to that we're going to grow it at a 30% CAGR over the midterm. We're winning programs. The programs are coming through. You're seeing it in our growth rates. I think Europe grew 75% in Q3, which is our biggest market. And so we've got confidence that when you look at that mobility business, that that's going to add 100 basis points of core growth to the overall enterprise, right, over the midterm. And so you get that. You get your replacement business in that low single digits growth rate as well. And you've got a nice base of core growth that you can build off of if you can get some help from the industrial end markets. I'll let Rich cover that. Yeah. And so we outlined a few weeks ago on a slide kind of initial views on 2026. And I'd say if you were to look at the markets where there's been some various levels of pressure, the ones where we're more optimistic on flipping to positive next year are that diversified industrial end market, which is about 20% of our sales, and then the construction end markets, which we saw growth on a year-over-year basis in the third quarter. And so as we get into 2026, we feel more confident. We're getting higher levels of confidence that we're going to see growth in construction. And so that's part of our industrial off-road, which is in total about 20%. And construction within that's a little more than half of that. So those two markets, diversified industrial and construction, are a pretty meaningful percentage of our end market base. And so we think that those flip to positive. We think there's still some struggles in certain industrial markets. For example, oil and gas, Brooks has mentioned, is kind of with $60 oil or less, still going to be a struggle. We think ag is going to be still going to be some pressure into 2026, at least into the first half. We think there's going to be some level of stability as we get through the balance of the year, particularly in North America, but still going to be a bit of a struggle. And I think most of you saw kind of how John Deere guided for large ag for 2026 a week or so ago. So still some pressure point there. I'd say commercial truck, which is high single digits as a percentage of sales. There's some inventory destock. The order rates are still under pressure here, as you saw from yesterday in North America, but you do see, I think, that inventory will start to get right sizes to go through the first half, and we think that it looks like the emissions standards for 2027 look like they're going to hold in, so there's likely to be some level of prebuy that starts to emerge in 2026 in North America, and also, I just also mentioned that's not entirely, that exposure is not entirely North America. We have a good exposure in the European market there as well. So I think that covers. I don't know if I'm missing anything else. I think. I've got a couple of quick follow-ups there, especially about those 26 targets. I think you mentioned in diversified industrials where you see potential for growth. Even outside data center, I think in the slide you have positive inflection in general manufacturing. I'm just curious if there's any end markets or verticals there where you're seeing the upside there. It's more so that that market has been flat to down slightly for us for the last several quarters. And you just haven't seen the inventory build up at the distribution level. There just hasn't been enough confidence. But we think that's going to start to turn in 2026. So that gives us some confidence. We feel like we're at a level where any sort of greater confidence is going to lead to some inventory build that's going to help support growth. Yeah. And then on the mobility business, the growth there, doubling that business by 2028, really exciting. How is the margins on that business versus Gates average? Yeah. They're at fleet average or accretive, right, depending on what they are, right? And the great thing about the mobility business is there's really two growth vectors, right? One is, as the total mobility market, which you think about bikes and scooters and e-bikes and electric mountain bikes and commuter bikes and all this, as that goes more and more electrical, that is our sweet spot in terms of the Gates belt drive system and all the components that go into that. And so that's the preferred option for a lot of manufacturers out there. It's smoother shifting, doesn't require as much maintenance, doesn't require oil and all that kind of stuff. And so that's one part of it. The other part of it is, as that business matures, we continue to get to cost points that are more and more competitive with chain drive systems. You think chain has been on bicycles since there were bicycles, right? They've had all this time to work on their cost positioning. We've only been in this business eight or 10 years. Every year we keep improving our cost positioning, improving our cost positioning. You add more volume to it, that helps improve your cost positioning. We've gotten very cost competitive. When you're at the high end, like very expensive bikes, cost is not that big of a deal. As you get more to the midpoint, that cost competitiveness is more of a big deal. We feel like we're there. I mean, we're very competitive in the midpoint of electric bikes and some of the mountain bikes and things like that. We're going to keep working on that to keep expanding our competitiveness across the entire market. That's how we continue to grow. Even if the market doesn't grow, as we continue to improve our cost positioning and our competitiveness, we continue to take more of the market. Then move maybe to more of a regional perspective. In particular, China. It seems like demand has been pretty stable there for you guys in 2025. Curious how it's going there, maybe both industrial and auto? China has been seeing some growth this year, not massive, but solid growth this year, and it's really been driven by more of the industrial markets. I'd say our auto channel there has been solid, but industrial, we've seen pockets of decent growth in the industrial markets there, and that also goes for East Asia and India, which is a confluence of different jurisdictions there. The one that I'd say is got to watch for the next few years, and we're starting to see it now, is the automotive aftermarket in India. It's really it's still a relatively small base, but it's starting to grow nicely this year, and we expect that to continue. The age of the vehicle park there is expanding, and the actual vehicle park is growing there as they move more middle class, middle class starts to permeate there. That's a nice opportunity over the next five years or so. We kind of have the same playbook there as we have in the Chinese market, where we've done a nice job growing the auto replacement business. That market there is now crossed into kind of closer to the seven-year average age, which is the start of our sweet spot. Yeah. Where is India at from their average age in car park? I know it's a little bit less than that, so it's not quite at the sweet spot, but it's moving in that direction, and the vehicle park continues to grow. And the other thing is we've put some resources in terms of coverage and product coverage, commercial coverage that's helping as well. All right. Super interesting. And then moving on to your distribution network, what are the most meaningful opportunities moving forward if you guys are making major improvements there? Are there geographies where you have meaningful white space for expanding the distribution? Yeah. Well, look, I think there's different avenues of industrial distribution in North America we could take. I mean, there's the rental market, which is expanding pretty dramatically in terms of renting equipment and then the maintenance of that equipment. And so we feel like the rental market is a place where we can expand. The HVAC distribution market, our belts and hoses are used in different aspects of that market. And so making sure we have a good footprint there. I think broader, more general industrial distributors is another avenue. And so we feel like we've got some pretty good coverage now, but we think there's some existing alternative distribution opportunities to really expand our coverage in different verticals, which can help us as well. Yeah. And then we're running close on time here. I got a question on. You brought it up, but on electric vehicles, I'm just curious. You're still being selective on the first fit. Curious about the aftermarket opportunity there on EVs as it relates to ICE vehicles. Yeah. I mean, so we have, we're supporting the aftermarket today. I'd say the key message there is that the average age in North America is, I think, under five years still. So we're still not in that replacement cycle. But we've got a business that's growing exponentially off a low base with some of the more aged vehicles out there. And so we're going to have the coverage to support the aftermarket going forward. We're just in early stages. I think as we get into the next decade, 2030 and beyond, that's going to start to be more relevant. Okay. And then maybe one last one here. I'll come back to some of the end markets. I was curious on channel inventory. You talked a little bit there, but I'm just curious where we sit from there. I know there's been some destocking, especially on the first fit side. Just curious on the aftermarket side how channel inventories are. Yeah. I mean, we feel like they're pretty stable. We haven't seen a lot of, I think, here recently, a lot of stocking or destocking. I think people have heard different things about prebuys in front of tariffs and things like that. And we really haven't seen that kind of noise in our distribution network. I think when you get to the end of the year, it becomes more difficult to discern. I mean, you have different customers who may be buying a little bit more for one reason or buying a little bit less for one reason or something like that. So the year-end, it can kind of be a little bit difficult to tell what's going on. But I think over the course of the year, channel inventories have been look, volumes have been relatively muted. So I think channel inventories are kind of average to kind of lower. So there hasn't been any restocking. There has been probably some selective destocking along the way where people have just carried a little bit less inventory because of less volumes. And then, quite frankly, we've had pretty good service levels. And so we can count on the service being there. Yeah. I mean, one last one for me, and then just on the margin targets, you talked about them being volume agnostic. In a scenario where we get some positive volume, what are you guys targeting for incremental margins on? Yeah. So as you look forward, and so I'm going to try to be as transparent as I can in this so nobody misunderstands, right? I mean, we have the operational initiatives, the cost-out initiatives on material and restructuring and things like that. And those are all going to be additive to incrementals. But when we think about incrementals on pure volume, we kind of think of it in a 35% range, right? So kind of gross margin, less than variable SG&A, less than reinvestment in SG&A. Now, if you think over the next 12-18 months, those numbers are going to be 45% plus incrementals, depending on how much cost savings we have flowing through. So we're going to see outsized incremental fall-through on volumes when they come through as we get to that 24% target. And that's just kind of the math of, "Hey, look, we've got a lot of cost savings projects running through." That on top of the volume impact is going to drive those outsized incrementals. That's really starting with Q3 next year because we have some headwinds in the first half that we're incurring. Right. All right. Great. I think we are out of time, Brooks, Rich. Thanks so much for joining us. Thanks for having us. Appreciate it. Appreciate it.