All right. Good morning, everyone. Continuing with day two of our conference. My name is Brad Hewitt, pitching for Nigel here. We have Gates Corporation. Very pleased to have the CFO, Brooks Mallard, here with us. Thanks for joining us, Brooks. Thanks for having us. I guess maybe in the interest of time, we'll just kind of jump into questions. I'm curious, just kind of state of the union, how things are tracking in Q2 relative to the guidance of flattish, about 1.5% positive organic in Q1. Just curious, any thoughts on Q2 trends today? Yeah. If you think about Q1, it came in obviously better than we thought. I think automotive replacement was good, which we thought it would be. A lot of that was driven by our new kind of the final quarter load-in of the new big customer in North America, retail customer that we have in North America. Mobility came in strong. We continue to see that recover from the inventory buildup that we had over the past six quarters or so, six or seven quarters. We saw mobility come in very strong, up double digits. China and Asia in general came in with positive forward growth. Continue to see the industrial recovery there. Also, the automotive replacement business has been good, particularly in China. EMEA was only down 1% in Q1, I think largely on the back of the improvement in mobility. That's where a big part of our mobility business is, with e-bikes and things like that. And then when you think about the things that have been real headwinds over the past, gosh, two to three years, really, ag and construction, as they continue to take inventories out, those were not as bad as they have been. Those were kind of down mid-single digits. And so kind of you think about how does that play into what we got guided for Q2 and kind of how things are progressing. Things are progressing kind of how we thought they would. Our guidance was fairly tempered after a pretty good Q1 at flattish. There is a lot of things going on in the world, right? We are trying to be pragmatic in our view of things. We continue to think that automotive replacement and mobility are going to be the strength of the business as we move through the year. We have tempered expectations around industrial recovery, right? There is also some pragmatism in terms of how tariffs and global trade are going to play out, right? Things are largely aligned with how we thought they would be from a second quarter perspective. That would be great. Maybe can you talk about maybe by geography or by segment, kind of how you see the current trends and how you see the growth playing out throughout the year? Yeah. As I said, I think automotive replacement, we think should be positive. For North America, we'll continue to have kind of year-over-year tailwinds with the new customer. We did not really start shipping the new customer until Q4 of 2024. For the first three quarters, we should have positive year-over-year comps from that customer. In addition, I think globally, the automotive replacement business just has more wind in its sails. Interest rates are high. Replacement car sales, used car sales are strong. Prices are high. We think that is going to be good kind of globally, right? Mobility, we think that is going to be good kind of globally. I think from an industrial perspective, that is where we are really waiting to see kind of how do a lot of this global trade stuff play out? How do the tariffs play out? When do you start to see PMIs start to inflect positively for some meaningful period of time, right? Which kind of drives, which really drives factory activity, not just in terms of consumables at factories, but also drives factory activity in terms of throughput, right? You kind of get a double benefit there when you see the inflection. It's been three years of tough times on the PMI. That's kind of in a nutshell how we're looking at the year. I would say from a regional perspective, I'd say North America, like I said, we're going to have the automotive replacement tailwinds with our new customer for three quarters. I think the industrial side is going to be tougher. We'll see how that plays out. In Europe, they're going to have the tailwinds of mobility. I think that's going to be helpful there. We've had a couple of quarters of poor growth in East Asia, India, and China. In Asia overall, we've had a couple of quarters of positive poor growth. We're starting to kind of see the industrial turn a little bit there. It gives us a little bit of, I think, a little bit of confidence, a little bit of hope that maybe you're starting to see some green shoots from an industrial perspective since it typically will start in Asia and hopefully spread to the rest of the world. Great. Maybe in terms of China, you did about 3.5% organic growth in Q1. You guys sound more optimistic on China than a lot of the companies we cover. Just curious if you could talk about kind of what you are seeing there in China and what has been driving the strength there. Yeah. It is interesting. Our automotive replacement franchise, we have grown from a relatively small business back at the turn of the decade, 2020, to really being one of the biggest parts of the business in China. We have done that with a lot of hard work and effort. We have grown that into a very profitable, very nice chunk of business over there. We have that as a baseline. Even as automotive OEM has been down, we have been able to grow China through that automotive replacement business, which is very different than automotive OEM, right? What is interesting too is we are seeing a little bit stronger OEM business on the industrial side of China. I think that's, again, given us a we're not ready to kind of come swimming out of the Gates, but it gives us a little bit of confidence that we're in the right markets, we're with the right customers, we're in the right verticals, and we're starting to see some of that growth come through in China as China kind of stimulates its economy and gets its industrial economy going again, that we're in the right places there. We feel pretty good about that. Now, as we think about the phasing of organic growth throughout the year, at the midpoint, it looks like you're guiding to about 1.5 percentage points of growth organically for the year. Flattish in Q2, that would imply something less than 1% for the first half, kind of accelerating in the second half. Maybe walk us through the moving pieces there. Yeah. I've talked about some of it already. Look, I think we really saw the bottoming out of the industrial side of things in 2023, particularly in the back half of 2023. Some of that is going to be comparable, right? It's just going to be easier comps. Mobility, I think, will continue to be strong. In full transparency, we did add about $40 million of price in relative to tariffs, mostly in the back half of the year, and we didn't change our guidance. We took that out of volume. I would say we took a pragmatic view that, "Hey, look, we're going to put the price through to offset the tariffs, but let's not, let's eyes wide open," right? There's probably going to be a little bit of demand headwind associated with that as well. A little bit more price in the back half, a little bit less volume than originally anticipated. We do expect industrial to be a little bit better in the second half as we come up against a little bit easier comps. We do start to see, hopefully, a little bit of green shoots continuing to come through. Okay. And then maybe in terms of inventory levels, I guess, are you still seeing destocking, maybe in ag and construction? How do you think about the phasing there? Yeah. I would say that the destocking is not done yet, but I think the biggest chunk of that probably is through the system, right? We saw, I think, certainly on the mobility side, with the growth we've seen over the past couple of quarters, we're pretty comfortable that except for maybe some very specific niches in the mobility business, that's largely through. That destocking is done. Ag and construction, probably more done than not done. I think on the distribution side of the business, replacement side of the business, you kind of see some pauses and starts in terms of sell in versus sell out, but over time, it's largely aligned. We feel pretty comfortable about the inventory levels from a distribution perspective. Okay. Maybe going back to your earlier comment about the $40 million of price that you put in the guide related to the tariff offset, implicitly, you removed $40 million of volumes from the guide. How do you think about price elasticity for your portfolio, kind of historically speaking? Yeah. Look, I mean, two-thirds of our business is through distribution, right? Our distribution partners, typically, first of all, when you push price increases through, and we've done a tremendous amount of pricing over the course of 2022 and 2023 with all the inflation, right? Because a lot of that inflation was kind of very polymer-based and resin-based and metals-based. That is a big part of our cost of goods manufacturing. We pushed that price through. We were doing quarterly price increases kind of through the course of 2022 and 2023. We know how to do it. We can get them through fairly quickly. Distribution typically likes the price increase to come in unit price increase. That makes it easier for them to push the price increase through their system. We feel pretty confident that we can get price where we need to get price when you're having cost increases, which is what these tariffs are, even though we're trying our best operationally to offset what we can, right? We have $50 million of cost increases. We've targeted $10 million that we're going to do ourselves in terms of operational efficiencies and things we're going to change in our supply chain to offset $10 million of it, and then $40 million of it is going through on price. Having said all that, we're really moving toward more of a value-based pricing model, a strategic pricing model kind of based on our 80/20 operating model, where we're really trying to value-base, because we make hundreds of thousands of SKUs, right? We're making SKUs for machinery and equipment and automotive autos and things like that that are 15, 20, 25 years old. We have a long tail of SKUs that we make. What we're trying to do is make sure we strategically price and value-price the long tail of things, which costs us more money to make, smaller production runs, things like that. Then value-price the A items, things with more velocity, value-price them as well, and be less peanut butter in our approach to overall pricing. To kind of summarize that, we feel really good about our ability to push pricing through as needed for material cost increases, tariff cost increases, things like that. Having said that, we're working with our distribution partners to value-price our products, give them the best opportunity to sell through to the end user, ultimately, at the end of the day. Okay. As we think about kind of the current tariff regime where there have been some rollbacks on the tariff rates, how do you think about the stickiness of price? And then also, I think, I mean, you're talking about a little bit of margin dilution on the tariff price cost equation for this year, but how do you think about, as we get into next year, how does that evolve towards maybe more of a margin-neutral approach? How do you think about that? Yeah. Look, I think to kind of go back to the beginning, right? We waited as long as we could to see what the ultimate outcome of global trade policy, tariff impact, different things like that. We waited as long as we could, and we went through iteration after iteration of what is the cost impact going to be overall, and where can we move things around and do different things. We finally got to the point where we said, "Hey, look, this is the best information we have. These are the price increases we are going to roll out with." We communicated those to all of our customers, and we explained to them, to our distribution partners and everything, what we were going to do. Of course, right after that, they come back and roll back the retaliatory tariffs with China, right? Look, we're in communication with our distribution partners. We're going to continue to take a pragmatic approach. We don't know what the future holds. We'll continue to play that month by month, quarter by quarter to make sure that we treat our distribution partners fairly and that we get back to what we originally committed to our investors to, which is we're going to be dollar neutral overall, right? That means there's going to be some puts and takes. That means there's going to be some negotiations and different things like that. We're extremely confident that we'll be dollar neutral from an overall tariff perspective. I think longer term, we're going to be able to do more stuff operationally based on how things turn out from a global trade policy and a global tariff policy perspective. We've always been very much an in-region, for-region manufacturing strategy. That's been the core of our manufacturing strategy. There are definitely levers we can pull to improve our in-region, for-region manufacturing capabilities and help offset whatever headwinds we may see from global trade policy and/or tariffs. I would say that that's probably going to give us some opportunity as we move through the year, both from a footprint optimization perspective and a supply chain optimization perspective, to offset some of that margin dilution that we're seeing from a price cost perspective as we move through 2026. We're still committed to our 24% + EBITDA target as we exit 2026. We feel pretty confident in our ability to move things around and optimize things to achieve those targets. In terms of that $10 million of operational initiatives that you're talking about for 2025, how much of that is already encapsulated in that 2026 outlook, or is this kind of incremental above and beyond? Yeah. Look, I would say it's probably more, I think it's probably more offset to headwinds. I would say what we're doing is saying, "Hey, look, we've got some unanticipated headwinds related to kind of what the optimal cost structure might otherwise be that are related to tariffs and some of these global trade policies and things like that." We think we see enough opportunity to offset that and maintain, like I said, we've got, I think, 50 bps of margin dilution that we're going to see here related to the tariffs in the back half of the year. We're going to be able to offset that as we move forward. I'd say it's more of a, is it incremental? Yeah, it's incremental, but it's incremental that's going to offset some of the headwinds that we didn't see coming. Okay. Great. Maybe we'll pause there and see if there's any questions in the audience. All right. We'll keep going then. In terms of kind of the EBITDA guidance for the year, $735 million-$795 million, so 40-50 basis points year-over-year. Any thoughts on kind of how that margin expansion looks by segment? Yeah. Look, I mean, we do not really guide by segment. I can tell you that different segments have a little bit different kind of headwinds and tailwinds. I would say that when you think about China as an example, China has more of a power transmission business. They are going to have a little bit more headwinds in terms of some of the tariff stuff that they need to work on and things like that. On the flip side, the mobility business is largely power transmission. The AR business that we have won in North America, majority of that is power transmission. That is kind of driving some upside there. When you think about opportunity set on the data center side, that is going to be relatively small this year, but as it goes forward, we expect it to be bigger. I'm sure you'll ask me about that here soon. That's largely going to be on the fluid power side. I would say the fluid power side may be less impacted by some of the tariffs. I think both of them have puts and takes. When we began the year, it was largely immaterial in terms of margin improvement one versus the other year-over-year. That was actually my next question on data center. I think it's maybe can you just remind us what kind of percentage of revenue? I think it's kind of in the low single digit zone. How do you see that progressing over the next three to five years? It's important to remember we're really at the kind of end of individual data center build-out. One of the last things they do is put the cooling element in after they build it out. We're making data center sales today, right? We've got data center hose that we're selling. We're working with hyperscalers. We're working with installers. We're working with contractors, designers, all through kind of the whole data center value stream. We're working with really all of them in terms of electronic water pumps, which we've talked about quite a bit, the new hose that we've—we had existing hose that was already being used in SuperComputers and data centers, the new hose products that we're bringing out, as well as couplings and things like that. I would say, look, it's going to be relatively de minimis this year in terms of kind of year-over-year. The more people we talk to, the more negotiations we have, the more quotes we're putting out, the more things kind of move along. I would say we put a target out there of $100 million-$200 million of additional incremental revenue over the next couple of years, so say by 2027. I think, if anything, we're more confident in delivering that number than we were kind of when this thing first kicked off, when it started moving from air-cooled to liquid-cooled data centers. I think we're feeling more confident about delivering that number than we did at the beginning because we're just seeing such a huge universe of opportunity out there. As you think about the data center opportunity, I mean, is that something you guys are going to attack mostly organically, or could there be some inorganic opportunities there? Yeah. I mean, look, we've got all the products and the technology to do it organically, right, and the capacity, right? The electronic water pump, we designed that as both automotive OEM for the electric vehicle market and the replacement market, right? We designed that from the ground up. We just learned that we could scale it at multiple different wattages and kind of pumping capacities. It is this very small package that you can actually put in line with the hoses in the data center racks as opposed to having a big pump sitting over here. The hose, we've already been doing data center hoses for years. All that is organic. We've got the capacity to deliver that $100 million-$200 million that we think without adding any material capital investment or anything like that. Having said that, if opportunities come along to expand our total available market relative to data centers from an M&A perspective, we feel good about where our balance sheet is if the opportunities come along to accelerate that. That is certainly something we would look at. In terms of the balance sheet and capital allocation, I think you're a little over two turns of net leverage today with a goal of one to two times. How do you think about the balance between debt reduction, buybacks, and M&A? Look, we did a lot of work last year on our whole debt stack. We refinanced our whole debt stack. We got a 50 bps reduction in our overall term loan in Q4 of last year when rates were down. We do not have any maturities, meaningful maturities until 2029. We feel really good about kind of where our debt stands and our ability to grow earnings to drive the multiple, the EBITDA leverage relative to debt, the net debt EBITDA leverage. Having said that, we really want to get our total gross debt below $2 billion. We are going to pay down some debt here over the next few quarters. Having said that, we still think our stock is undervalued. For us, it's always a calculation of, okay, from an earnings per share accretion from a cash flow perspective, what do we think the best thing for our investors is? We'll continue to do that math. I mean, when our stock went down kind of recently, we were kind of all in on, okay, it's weighted more heavily towards stock buyback, right, from an accretion perspective than debt paydown. Since the stock's recovered, it's gotten a little bit more in balance. The great thing is both of those are pretty good return alternatives for our investors and almost entirely risk-free. It's good to have risk-free alternatives that you know are going to drive the stock value. You know we're going to create wealth for our investors. We'll take a balanced approach. I think if you look over the past three or three and a half years, we've been about 55% stock buyback versus 45% debt paydown from a capital allocation perspective. We'll continue to be in balance like that, both from a capital, both from a stock buyback and from a debt paydown perspective. Okay. Great. As you think about M&A, I know the activity there has been a little bit lower, kind of going back to the IPO in 2018. How do you think about the pipeline of opportunities and kind of your interest in M&A and what are you seeing out there? Yeah. Look, I think from a balance sheet perspective, we've actually got the balance sheet now where we can go do M&A, right? That's something that two years ago, three years ago, four years ago, a year ago, probably could not say, right? Now, it has to be the multiples have to line up. Interest rates are still pretty elevated, right? The cost of money is higher. I'd say probably the biggest thing for us is our stock, we think, is still undervalued. If we're trading at, let's say, 9 times, and we go out and acquire a company and we have to pay 11 or 12 times, right, that's a tough putt to get your IRR where you need to get it, right? You're going to have to have a lot of synergies to drive that. Look, we've got a lot of great internal opportunities to continue to drive EBITDA, to continue to drive our multiple. We're going to be focused on that. Having said that, we do have a nice pipeline of opportunities that are out there. If the right opportunity presented itself and we make the math work from a multiple perspective and a synergies perspective, it's something we would look at. We have about two minutes left. Let's see if there's any questions from the audience. All right. I guess we'll keep going here. I guess maybe just to that point on the pipeline, any thoughts on kind of how that pipeline has trended over time or maybe how it looks across the segments? Yeah. I mean, I would say, I mean, we've got a pipeline that kind of hits all the different things, the segments, geographies, things like that. I mean, there are certain strategic things that we obviously would like to look at. There are certain parts of the business we'd like to expand more geographically, probably. I think probably the bigger thing for us overall is we want to do something out of the gate that strategically our investors would look at and go, "Wow, that makes a lot of sense. I get that," right? We do not want to do something out of the gate where people are scratching their heads and going, "I'm not sure why they're doing that," right? I think also we want to do something meaningful, right? Something that's going to move the needle and kind of scale us up because that's one of the things we want to do with M&A is scale up, continue to grow the business overall. As opposed to kind of being segment or geography specific, what we really wanted to do is when people look at our strategy, when they kind of go back and look at our investor days and different things like that, when we do an acquisition, they look at it, "That makes 100% sense. I get it." We also want them to look at it and go, "Okay, well, that moves the needle and that moves them up kind of up the chain in terms of the overall size and scale of the organization," which, quite frankly, will attract more investors and kind of make it better for everybody, right? Excellent. Can you think of an example over the last three or four years of something that might have transacted that could have something like it's just hard to sort of envision what you're talking about with? I mean, I'm reluctant to kind of specifically cite what other companies have done because I'm not sure the outcome is something we want to imitate. I will say this. There are certainly companies, I think, that are out there that you kind of look in our peer group and our universe that are transactable that kind of line up with our margin profile, maybe a little bit more OEM-centric than distribution-centric like we are, which is not necessarily a bad thing, right, if you're able to have that market profile. Yes, there are things I could think of. Like I said, I'm kind of reluctant to talk about that here. Replacement. Yeah. Yeah. Look, I think. Subsystem than just a. Look, I think for us, the critical, the replacement side is an important piece of it, right, because you want kind of an ongoing, you want an ongoing revenue stream, right? When we think about our products, what we think about is something that's critical to function, non-discretionary in nature. You need these products to run whatever it is you're running, right? You can't say, "Well, we'll put that off till next year. We need it now." I would say the other thing is, I don't know, I would say one of the things we like about our business is not only is it non-discretionary, it's not really huge dollar value in terms of a per unit sale, right? It's like if you need a belt for your car and it's $15 or $20, there's no questions asked, right? If you need a belt for your combine harvester, if you need a new hose assembly for your combine harvester, and it is a $500,000 combine harvester and it is a $100 assembly, that is a no-brainer, right? We kind of want to make sure that those characteristics are also, and not everything in an acquisition that we do, but a lot of it, right? It is things that are critical to function, non-discretionary in nature, and something that is not going to give people pause to think about when they purchase it. Is that helpful? I think we're out of time. So we'll have to draw the line there. Thanks, Brooks. Thanks very much. Appreciate it. This presentation has now finished. Please check back shortly for the.