Gates Industrial Corporation Q1 2026 Earnings Call - ERP Transition Costs Offset by Strong Order Growth and Data Center Momentum

Christopher Snyder, Analyst, Morgan Stanley1: Good morning, and welcome everyone to the Gates Industrial Corporation first quarter 2026 earnings call. Today’s conference is being recorded. 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 the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Rich Kwas, Senior Vice President, Investor Relations. Please go ahead.

Christopher Snyder, Analyst, Morgan Stanley2: Greetings, and thank you for joining us on our first quarter 2026 earnings call. I’ll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our first quarter results. Copy of the release is available on our website at investors.gates.com. Our call this morning is being webcasted and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the investor relations section of our website.

Please refer now to slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we’ve described in our most recent annual report on Form 10-K and in other filings we make with the SEC, including our annual report on Form 10-K that was filed in February 2026. We disclaim any obligation to update these forward-looking statements. We’ll be attending several conferences over the coming weeks and look forward to meeting with many of you. Before we start, please note all comparisons are against the prior year period, unless stated otherwise.

Now I’ll turn the call over to Ivo.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Thank you, Rich. Good morning, everyone. We appreciate your participation on our call today. I will start on slide 3 with a brief recap of the first quarter. Our team executed well on our business priorities during the first quarter, navigating successfully through a fair level of business transition. In particular, our Europe team successfully implemented a new ERP system and achieved higher efficiency rates as the quarter progressed. Exiting the quarter, our Europe business has stabilized and was delivering revenues on par with prior 3 ERP implementation periods, although with still somewhat above normal operating costs. We anticipate our operational efficiency in Europe to stabilize further during the second quarter. On a global basis, our sales dollars and margin rate were broadly consistent with expectations we have outlined in February.

Excluding the impact of the anticipated headwinds from the ERP transition and the 2 fewer working days that affected the first 2 months of the quarter, overall demand trends improved during the quarter. Core sales growth approximated mid-single digits year-over-year in March. We finished the quarter with a book-to-bill solidly above 1. As we sit here today, and based on our present run rates, we feel good about our core sales growth prospects for the year, absent of any additional potential escalation of the conflict in the Middle East. In addition, we do not anticipate any material financial impact from the recent revisions in Section 232 tariffs. As such, we are reiterating our 2026 financial guidance. Please turn to slide 4. Our first quarter sales were $851 million, representing a core sales decrease of 2.9%.

Relative to our core sales guidance provided in February, we experienced some small incremental distribution inefficiencies associated with the ERP transition, which led to a build of past due backlog as we exited the quarter. Brooks will go into more detail later on the call. The European ERP transition and fewer working days relative to a prior year period combined represented approximately a 600 basis points headwind to our core sales. Entering 2026, we experienced a positive inflection in industrial OEM orders, and that trend has continued. Adjusted EBITDA was $177 million, in line with expectations, resulting in an Adjusted EBITDA margin of 20.8%, down 130 basis points year-over-year.

The decrease was primarily driven by inefficiencies related to the ERP transition and the impact of having two fewer working days compared to prior year period. Our Adjusted gross margin was 40.5%, down approximately 20 basis points. Our Adjusted EPS was $0.35 and down slightly. The fewer working days in a quarter and ERP transition combined to represent a $0.07 headwind to Adjusted EPS. Operational performance and a lower Adjusted tax rate were modest benefits. On slide 5, I will cover segment highlights. All year-over-year comparisons were substantially impacted by the ERP conversion as well as the fewer working days. Looking past these items, we saw a very solid trend across both of our segments with noted underperformance in commercial on highway production, common to both.

In the Power Transmission segment, we generated revenues of $533 million in the quarter, a decrease of approximately 2.5% on a core basis, primarily driven by the fewer working days and ERP transition in Europe. The Power Transmission segment realized accelerating order trends during March. Personal Mobility expanded 6% and our growth rate was affected by project timing as well as the ERP transition in Europe, the region with the largest exposure to Personal Mobility. We anticipate a return to our normalized levels in Personal Mobility starting in Q2. The construction end market continued to improve and the ag market is recovering. In the Fluid Power segment, our sales were $318 million with a decrease in core sales of approximately 3.5%.

Fewer working days and the Europe ERP implementation again contributed to the decline. We realized strong double-digit growth in APAC during the quarter. Broadly, order intake was strong exiting the quarter. I would note that the commercial on highway was relatively weak in a quarter. That said, North American orders have inflected positively to start 2026. Our data center business continues to perform in line with our expectations, and revenue grew approximately 700% from a low base in the prior year period. I’ll now pass the call over to Brooks for further comments on our results.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Thank you, Ivo. I’ll begin on slide 6 and discuss our core sales performance by region. In the Americas, core sales declined approximately 2.6% in the first quarter. 2 fewer working days in our first quarter relative to the prior year period had an unfavorable impact on growth. North America core sales were down a little less than 2%. Excluding the working days impact, North America core sales would have increased compared to the prior year. In EMEA, core sales declined approximately 8.5% year-over-year, most of which was incurred in February. While production outpaced targets, finished goods shipping lagged production output in February and through the first part of March. This led to slightly lower than expected revenues of around $4 million and higher pass-through backlog than normal as we exited Q1.

Overall, we were pleased with our improvement through the quarter. We delivered positive core growth in EMEA in March, and that trend has continued through the early stages of Q2. We expect to further improve our distribution efficiencies through the second quarter and exit at normalized levels of shipping output and pass through backlog. Our APAC region grew almost 4%. Industrial OEM and auto aftermarket both grew nicely and fueled the performance. Slide 7 shows the components of our year-over-year change to adjusted earnings per share. On a combined basis, the temporary headwinds of the ERP transition and fewer working days represented a $0.07 headwind to adjusted earnings per share. Underlying operating performance contributed $0.02 per share. Other items, including a lower tax rate and share count, represented a $0.02 benefit. Slide 8 provides an overview of our free cash flow and balance sheet position.

Over the last 12 months, we delivered free cash flow conversion of approximately 101%. Stronger operating cash flow drove positive free cash flow for the quarter. We continued to strengthen the balance sheet, exiting the quarter with net leverage at 1.9 times, representing an improvement of approximately 0.4 turns compared to the first quarter of 2025. Our capital allocation approach remains balanced, and we repurchased additional shares in the first quarter. In late February, we received a credit rating upgrade from Moody’s to Baa2 from Baa3. Our return on invested capital remains strong while incurring margin headwinds associated with the ERP transition and continuing to make investments in our key process and growth initiatives. Turning to slide 9, we have reiterated our full year 2026 financial guidance. We anticipate core growth to improve over the course of the year.

For the second quarter, we are guiding revenues to a range of $905 million-$945 million. At the midpoint, core growth is estimated to be approximately 3.5% year-over-year. We project Adjusted EBITDA margin to decline 30 basis points compared to the prior year period, influenced by temporary impacts from the ERP transition and our footprint optimization projects, which we expect to benefit Adjusted EBITDA margin performance in the second half of this year. I’ll now turn it back to Ivo for closing thoughts.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Thanks, Brooks. On slide 10, let me summarize our key messages. First, our team executed well and showed a great degree of resiliency during a period of significant business transition. We delivered slightly better Adjusted EBITDA margin than expected and solid free cash flow on a seasonal basis. Our European business is operating as expected post the ERP transition, and our team is highly focused on driving incremental efficiencies with the new system in place. We have shifted our operational focus to optimizing customer service fill rates to pre-ERP implementation levels, which were at world-class. Second, we continue to see improving demand trends across most of our end markets. Industrial OEM orders are gaining momentum, and we experienced good demand trends in April. In EMEA, our revenue is trending nicely above expectations to start the quarter.

As such, we have good confidence in achieving our core revenue growth guidance with where we sit today. Third, we believe our business is in a strong position. We are executing on our footprint optimization projects and anticipate achieving an Adjusted EBITDA margin approaching 23.5% in the second half of the year. In addition, our balance sheet is in a strong shape. We announced a small acquisition today, acquiring Timken’s industrial belt business, which we expect to close in the third quarter. The acquisition augments our Power Transmission position in North America and should supplement growth moving forward. We intend to remain opportunistic, deploying capital to enhance shareholder returns. Before taking your questions, I want to thank all of our global Gates associates for their diligence and effort supporting our customers’ needs and executing on our strategic goals.

With that, I will now turn the call back to the operator for Q&A.

Christopher Snyder, Analyst, Morgan Stanley1: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to 1 question and 1 follow-up to allow everyone an opportunity to ask a question. We’ll take our first question from Michael Halloran at Baird.

Michael Halloran, Analyst, Baird: Hey, morning, everyone.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Morning.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Morning.

Michael Halloran, Analyst, Baird: Hey, maybe we just start where you were leaving off there a little bit, Ivo. It sounds like growth, core growth would have been positive in the quarter excluding the ERP and some of the days issues. Feels like the trajectory is what you’re wanting to see exiting 1Q into 2Q holistically. Maybe just confidence in the sustainability as we sit here today, any areas of concern, what are your customers saying? Just kind of generically help us understand how you think this tracks through the year.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah, Mike, good morning, and thank you for the question. Look, we actually had a terrific quarter, you know, taking into account the quantified issues that we have highlighted on our Q3 earnings call last year, outlining that we have a major ERP upgrade that we are going to do on basically 24% of the global company’s revenues in a big bang type event. We have executed in an amazing way. I’m super proud of our Europe team. They have done a fantastic job, and the business performed as we have anticipated. The business continues to behave in a very strong fashion.

Net of the two less selling days and the ERP, we would have been basically up 300 basis points on core, which is right in line with what we have expected for the year and is basically trending towards the midpoint of our annual guidance. April, we have exited in a very strong position as well. The order flow is very solid. We have highlighted on last couple of calls that we have seen a very nice inflection in the industrial OEM order flow that remained throughout Q1 and into April. As far as I see it today, I feel quite confidently that we are in a very good position to be able to achieve our annual guidance.

You know, we’ve actually put the business in a position to be able to do really well as, you know, as the revenue generation capabilities and the end market stabilize. We’re in a very good shape.

Michael Halloran, Analyst, Baird: Yeah, that makes a lot of sense. You know, maybe just the Timken Belts purchase. Why does it make sense now? What capabilities does it add that you lacked before? Any sense of size, revenue, profitability, any of that?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Look, it was very opportunistic. We were approached some time ago about the opportunity to acquire an asset that frankly, you know, when you talk about, you know, around, you know, the edges of what you do, this is right front and center of what we do, right? This is highly complementary in nature for us. The business has evolved. I think that there have been some, you know, some highlights about what that business was about 10 years ago. I think the business has gone through some transitions. You know, we are buying assets in a facility in Mexico that is gonna be highly complementary for us. You know, the size, you know, we think that, you know, that business can kind of add maybe $5 million a month in annualized revenue.

You know, it’s, you know, it’s highly complementary, and I believe that it will be very accretive to us as we embed it into our operations. It has the opportunity to continue to accelerate our growth rate.

Michael Halloran, Analyst, Baird: Makes a lot of sense. Appreciate it. Thank you.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Thanks, Mike.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll move to our next question from Jeffrey Hammond at KeyBanc Capital Markets.

David Tarantino, Analyst, KeyBanc Capital Markets: Hey, morning. This is David Tarantino on for Jeff.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Hey, David.

Maybe could you give us a little color on kinda the margin trends if you kinda back out the ERP transition? Maybe give us some color on price costs relative to the increased inputs, particularly around any kind of oil derivative impacts and, or any tariff impacts you expect moving forward. It looks like the year’s kinda playing out in line with expectations overall.

All right, David, that’s a lot to unpack, get ready. First let’s start with the, you know, with the headwinds, the margin headwinds. As I look at Q1 conservatively, I would say we had at least 200 basis points of EBITDA margin headwinds. At least half of that was associated with the ERP transition in Europe. That’s a combination of lower sales as we talked about, and then the impact of, you know, higher, you know, temporary SG&A costs as we move through the hypercare phase of that go live. You know, those costs are temporary. They’ll come out as we exit Q2.

Then, you know, the other half is, you know, a combination of the, you know, footprint optimization kinda cost out that we talked about in the first half of the year, as well as the impact of less days, right? Just kind of the leverage part of the less days. So you kinda take that into account, you know, we’re, you know, kinda pushing up toward 23% EBITDA, you know, from a, you know, one-off perspective. Then I look at Q2, you know, the midpoint we’re at 22.2% I think, 22.3, 22.2. I see we still have about 100, you know, basis points of headwind. Again, about half of that coming from ERP, almost entirely coming from hypercare and increased SG&A.

The rest really coming around the footprint and cost actions. You know, this should be complete by the end of Q2. Again, you know, before we start to get any of the savings or anything, you know, we’re approaching 23%. As I look at those two, you know, kind of two data points, I look at the 23.5% that Ivo talked about in the back half of the year, boy, I mean, we feel pretty good. We feel pretty good getting through the ERP transition, exiting the way we did, eking out a little core growth in EMEA, then kind of looking at the rest of the business and starting to get a little bit of growth there. We feel pretty good about things.

From a tariff perspective, we don’t really expect any impact from the Section 232 stuff. You know, most of ours was classified as automotive, that really doesn’t impact us at all. We have a little bit of headwinds, maybe 20 basis points of kind of dilution as we price for tariffs. We’re not even counting that though in any of our numbers. You know, we’re gonna get to where we need to get irrespective of that. When you think about what’s going on in the Middle East and the cost of oil, how that kind of impacts, you know, through the enterprise, you know, obviously that’s gonna impact things like resins and polymers and compounds. It’s gonna impact things that have high energy use like aluminum and steel.

You’re seeing those go up. Then there’s, you know, ripple effects through the rest of, you know, through the rest of the P&L. When it comes to pricing for inflation, we’re very confident on that, right? We’ve always been able to price for inflation. You know, we’re getting out ahead of that. We learned some, you know, some lessons as we, as we think back, you know, post-COVID and the Russia-Ukraine conflict, and we’re really focused on surety of supply for our customer. In addition, you know, we’ve done a lot of work around our supply base, so supplier development, alternative materials, different things like that.

We feel like we’re in a very solid position in terms of making sure we can take care of our customers, you know, get surety of supply, you know, not have any kind of interruptions in the business. Also, as I said, you know, we know we can price for, we can price for inflation, and we will make sure we take care of that. In addition, you know, we’re sticking by our guidance in the second half, and we feel pretty good about it. Okay.

David Tarantino, Analyst, KeyBanc Capital Markets: Great. Yeah, that’s really helpful. Maybe following up on the demand trends, could you just give us a little bit more color on the underlying demand trends relative to the strong order take you highlighted? How do the current customer conversations track with that initial end market framework you guys provided last quarter?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: I don’t think that anything really has fundamentally changed. If there was a change, I would say maybe the particularly North America on highway order flow has gotten better than where it was kind of exiting 2025. Outside of that, you know, we see pretty solid demand trends across the portfolio. You know, we see good behavior in automotive aftermarket. We feel well about industrial off highway. Obviously commercial construction has been quite strong. Ag’s been recovering very nicely. Energy and resources have stabilized, so that’s kind of more still neutral around the edges, but we anticipated there may be an inflection take into account what’s happening in the Middle East. Diversified industrial is in a good place. You know, auto is soft.

Auto always soft, but it’s such a small part of our business, and it is right where we anticipated. When I take a look at where we sit, you know, we feel very confidently that the midpoint of our guide for the year is super achievable.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll take our next question from Nigel Coe at Wolfe Research.

Christopher Snyder, Analyst, Morgan Stanley0: Thanks. Good morning. By the way, congratulations on the deal. I think this is your first deal as a public company, right, Ivo?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: It is. Thank you, Nigel. You know, it’s a really nice tuck-in transaction that, you know, it’s not even middle of the fairway, I mean, in the middle of your household.

Christopher Snyder, Analyst, Morgan Stanley0: It does seem like hand in glove. Maybe just a bit more details on what you’re seeing, you know, sort of through April. Number one, given the short cycle nature of your product, I’m just trying to understand why the push from the ERP transition. Just wanna understand how you’re recovering those sales, ’cause I think, you know, we tend to think of a short cycle as sort of like, you know, one and done, it’s lost, doesn’t recover. Just kinda wanna understand that. It sounds like you’re seeing, you know, recovery in industrial OEM. You mentioned on highway as an area of recovery as well. I’m just wondering if some of the strength you’re seeing is really being driven by some of this heavy industry recovery.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. Thank you. A lot to unpack. Why do we feel that we’re gonna recover the sales in Europe? Because the way to think about it, Nigel, is that we went live basically in the first week of February. You have to back flush the system, so no matter what you do, you kind of lose one week of, you know, one week of activity, you fire back your assets, and you restart them. You know, everything was going the way that we’ve anticipated. It just took us, probably think about it as one more day to ungum our distribution centers, we’ve just simply run out of calendar in March. Europe revenue in March was on par with prior year pre-ERP implementation, they were fully recovered.

In the month of April, at the beginning of April, they’ve recovered the revenue from Q1. Our Europe business was up almost double digits in the month of April. They’ve had, you know, full recovery. They are performing well. We have, you know, we are doing a really good job. The team is just executing in a world-class level. I feel quite well that, you know, that we, you know, we have recovered completely and not really lost any revenue. You know, one day, and that was nicely recovered.

When it comes to these demand trends, I believe that what you see on the heavier industry is more in line with that underlying economy around, you know, the large projects that are coming out of ground around the data centers and, you know, power gen and power infrastructure and, you know, you need lots of construction equipment, earthmoving equipment, and so on and so forth. We’ve, you know, we’ve anticipated that those businesses were quite weak for an extended period of time, and I think that, you know, you and I discussed that on our Q3 earnings, that, you know, the outlook has been stabilizing and, you know, we are now starting to actually see the outlook turn, you know, nicely positive.

You know, PMI is above 50 and, you know, that’s good for kind of the overall underlying trend. Look, I’m not, you know, I’m not prepared to declare victory in here, but I feel pretty, you know, I feel pretty positively about the demand trends.

Christopher Snyder, Analyst, Morgan Stanley0: Well, ISM 52.6, I think this morning, so for 4th month above 50, so it’s a bit of a trend now. Thanks for that, Ivo. Then going back to the previous question about the inflation recovery, is there more price coming into 2Q versus 1Q? Then, Brooks, this selling day headwind in 1Q, does that come back in 4Q? Do we have some tailwind in the back half of the year?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: We have an extra day in Q4. That’s, you know, you know, as we kind of move through the year, you’ll, whenever we actually talk about Q4, you’ll see it a little bit higher. It’ll be ’cause of that extra day.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: You know, from a pricing perspective, you might see a little leak into the end of Q2, but that’s mostly gonna be a second half event. That’ll evolve over Q2, and we’ll give more guidance as we see how things evolve and we start to roll out our Q3 guidance after this quarter.

Christopher Snyder, Analyst, Morgan Stanley0: That’s great. Thanks, guys.

Christopher Snyder, Analyst, Morgan Stanley2: Thanks, Basil.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll take our next question from Julian Mitchell at Barclays.

Julian Mitchell, Analyst, Barclays: Hi. Good morning. Just trying to understand the sort of ERP catch-up. I think you had 3% sort of underlying growth ex ERP in 1Q, and then you’re guiding for around that rate for Q2, and I think for the second half as well. Just wondered if you might have some ERP catch-up that would push up that underlying growth in the balance of the year from the 3% you did in 1Q, particularly as your order trends seem pretty good and you had a good book-to-bill. I’m just trying to square those things. I guess I’d say if you’re running at 3% every quarter underlying, but then you should get a catch-up from ERP and the orders seem better, why is it 3% every quarter through the year?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Look, Julian, a good question, right? The ERP catch-up, where I was talking about the ERP catch-up, we basically were about a day worse than what we’ve anticipated. You know, we’ve lost 7 working days. Excuse me. The order trends are very, very solid. You know, we are early in the year. I, you know, I don’t think that it is prudent to be making any adjustments to guidance this early in the year. Of course, when you take a look at the order trends, you would. I think that you probably hear it from our responses, we feel a lot more positively around where we sit for the year. It is, you know, it’s quite early in the year.

You know, we will execute on what’s within our control and manage our revenue generation to deliver on the guidance that we have put forward that is to be done.

Julian Mitchell, Analyst, Barclays: Got it. Just my follow-up around price versus volumes in the revenue line. Maybe I missed it, but did you mention what price was in first quarter? Then I think for the year as a whole, you’d guided 1.5 points of price. Is that still the case or there’s a bit extra now because of the higher cost inflation?

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Yeah. As I said before, Julian, you know, we’re kind of seeing how things evolve. You know, we’ve begun to roll out some price increases. We’re looking at the impact of some other things. You know, there will definitely be an evolution of price versus volume as we work our way through the second quarter. You know, this is all relatively, you know, kind of late breaking. We’re still kind of working through, you know, some of the numbers. You know, I would say, you know, stay tuned for the second half of the year. We reiterated our guide.

We feel comfortable with our numbers, both from a top line and a profitability perspective, and we’ll update you on the components of it as we work through, you know, how all this oil increase in cost impacts our numbers. Okay.

Julian Mitchell, Analyst, Barclays: Got it. In the first quarter sort of reported price was, what, a point and a half or something?

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Little bit. Little bit higher.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. A little bit higher. I mean, we have a little bit more tariff pricing in the first half of this year ’cause we kicked that off in the third quarter of last year. It’s a little bit more in the original numbers, a little bit more price heavy in the first half related to tariffs.

Julian Mitchell, Analyst, Barclays: Great. Thank you.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Mm-hmm.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll move to our next question from Andrew Kaplowitz at Citigroup.

Andrew Kaplowitz, Analyst, Citigroup: Good morning, everyone.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Morning, Andrew Kaplowitz.

Andrew Kaplowitz, Analyst, Citigroup: You know, Ivo Jurek, I think you said Personal Mobility up 6% in Q1. I know affected by ERP. I know you’ve talked about Personal Mobility growing sort of that high 20%-30% over the next few years. I think you said Q2 return to more normalized growth run rates in Personal Mobility. maybe just update us, is that the case? Can you get back to those rates? Do you still expect 2026 to grow at that sort of normalized high growth rate in Personal Mobility?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Thank you, Andy. Absolutely. We, you know, we’ve had some delays with couple of projects that were supposed to ramp up in Q1. They are ramping up in Q2. The ERP was an outsized impact because a very significant amount of our revenue base is euro-based. That, you know, that drove a pretty, you know, pretty meaningful impact to the Q1 growth rate. You know, as I indicated in the prepared remarks, we certainly believe that the business is gonna grow and deliver that mid-20s growth rate as we have committed in our original guidance.

Andrew Kaplowitz, Analyst, Citigroup: Okay. I think I have to ask you about that other big growth driver, data centers. I mean, I think you said up 700% off a low base. I don’t know. That probably puts you at, what, like, $10 million for the quarter, maybe a little bit more, you tell me. Is there a way to more directly refine what 2026 could look like? You know, obviously, we’re all wondering how you fare versus that $100 million-$200 million rate by 2028. How’s the progress versus that?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: You know, we feel very good about where we sit today. I mean, our order intake and billings are strong in data centers indicating, you know, a really nice acceleration of penetration. I mean, obviously it is from a small base last year, but we’ve started to accelerate our revenue gen and order intake in Q4. You know, we continue to develop a much more wholesome understanding of the infrastructure partners and the semiconductor partners, cooling technology and their needs. You know, we continue to drive and tailor our technology for those needs. We are launching new products.

Those products, we believe, put us at the forefront of the incremental improvements that are needed to facilitate much, much better liquid cooling flow rates to improve the efficiency from the existing infrastructure and be, you know, kind of a leading-edge supplier, kind of on the next generation of the chips that are, you know, they’re now being developed. You know, we are kind of building and the kind of the traditional approach that I have probably demonstrated over the last 10 years. We go after an application that is exciting and emerging. We develop that highly specialized knowledge, we tailor our products that will offer differentiated performance, we build a, you know, sustainable, durable revenue stream on a forward-going basis. I think that our, you know, our data continues to demonstrate that we’re on that trajectory.

You know, I’ve committed to you all and to our shareholders kind of $100 million-$200 million of revenue by 2028, and I believe that we’re on that trajectory.

Andrew Kaplowitz, Analyst, Citigroup: Bottom line, on track toward that goal in Q1, is how you’d characterize it?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Correct.

Andrew Kaplowitz, Analyst, Citigroup: Okay.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: That is correct.

Andrew Kaplowitz, Analyst, Citigroup: Thank you.

Christopher Snyder, Analyst, Morgan Stanley2: Thanks, Andrew Kaplowitz.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll go next to Deane Dray at RBC Capital Markets.

Deane Dray, Analyst, RBC Capital Markets: Thank you. Good morning, everyone.

Christopher Snyder, Analyst, Morgan Stanley2: Morning, Deane.

Morning, Deane.

Deane Dray, Analyst, RBC Capital Markets: Hey, love to circle back on the Timken deal, and congrats. Ivo, can you just give us some color strategically what this brings to Gates? You know, is this a product line extension? Because if I look at the SKUs, they’re awfully similar. You know, maybe it’s, you know, some on the sports equipment side. Does it bring any new distribution partners maybe to the table? I like seeing the manufacturing facility coming in, but maybe if we could start there. Thanks.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah, good morning, Deane. Those are all really good questions. I mean, I would think about it more as kind of a industry consolidation more than anything else. I mean, as you know, Gates is the global leading supplier of all types of belts in, you know, all sorts of different applications. You know, this was just another competitor for us that was small, and I think that Timken felt that that was not, you know, at the front and center of what, you know, they wanted to focus on on forward-going basis. You know, it is something that is additive to us more across the customer base.

I think that, you know, the technologies and the type of applications that they participated in and that business participates in is, you know, very, you know, it’s complementary and it’s not, you know, something that is super new. We will be switching a whole bunch of the portfolio into Gates constructions and, you know, the factory is nice to have. I, I think that you should just think about it more as a kind of industry consolidation than anything else. You know, they have some good folks there that that’s always nice to bring into our, you know, into our family and we welcome the employees to Gates, to Gates organization with open arms. We just think that it’s a, it’s a good transaction.

It’s, you know, it’s right at the core of what we do and, you know, we feel that we are the right owner and a good steward of that business on a forward-going basis.

Deane Dray, Analyst, RBC Capital Markets: Yeah, that’s really good to hear. I know we don’t have the terms, based upon the seller’s previous comments about margins, it looks like this is coming in well below the Power Transmission margins for Gates. That would suggest there’s some nice accretion opportunity. Can you give any color or context there?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah, look, I mean, I think that the business is certainly coming in kind of below what our, you know, what our North America, you know, Power Transmission fleet average is. Lots of that business is frankly OEM business, so in just a natural way that’s got a little bit lower margins. For us, again, you know, this is, this is kind of core of what we do. We believe that we have a significant opportunity to drive margins to be at, you know, at a company fleet average.

That would, you know, that would just indicate that, you know, there’s a very nice opportunity to improve profitability on that asset, and it should be a very good transaction for us once we, you know, have the opportunity to integrate it in and start, you know, running it under the Gates Operating System and, you know, frankly drive the margins to where they should be.

Deane Dray, Analyst, RBC Capital Markets: All good to hear. Thank you.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Thanks, Deane.

Christopher Snyder, Analyst, Morgan Stanley2: Thanks.

Our next question comes from Christopher Snyder at Morgan Stanley.

Christopher Snyder, Analyst, Morgan Stanley: Thank you. I wanted to follow up on some of the commentary on the ERP disruption and potential catch up. I guess if we assume, you know, the ERP was a 3-point headwind in the quarter, I guess it would imply about $25 million-$30 million impact. I think, Ivo, you said that Europe has fully caught up on the lost revenue in April. I just want to make sure I’m understanding that right. Like, was Europe a subsegment of that $25 million-$30 million? Just trying to understand how much catch up there really was there in April. Thank you.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. Chris, thanks for the question. Let me just clarify. You know, we’ve, we came about $5 million light to the midpoint that we have guided on Q1. My comment has been more around the $5 million that we’ve, we came a little bit light on in Q1 that we have fully recovered, not the incremental, you know, $25 million that you are stipulating. You know, that is, you know, something that we anticipate we will recover as the year progresses.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Right. That was built into our original guidance, right? Ivo was bridging the gap on Q1 versus the balance of the year.

Christopher Snyder, Analyst, Morgan Stanley: Got it. Thank you. It felt like the 25 to 30 was a lot, I appreciate that clarification. Thank you. If I could just follow up on data center. You know, it’s, you know, very nascent for you guys now. I guess my question is this just a nascent market since it’s tied to liquid cooling, which is still in the very early stages? Is there already an established player that’s out there in the market that you guys have to go and take share from? Because I think it’s understandable why you guys have a right to win there. Also just the question is, if this market’s already developing, you know, why aren’t you guys meaningful share already? Correct me if you already are meaningful share.

Thank you.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. Look, I think it is a nascent market, right? I mean, I think that, you know, we all started to talk about liquid cooling much more profoundly in about 12 months ago. We, you know, we have started to quantify our growth rates in that market, you know, pretty meaningfully in the second half of the year. I think that our order intake does indicate that we are taking a fair share of that revenue. There are well-established players, you know, just like Gates is an established player, that will be, you know, competing for the available infrastructure build-out.

There’s so many projects that in our view, there will be room for more players to come in and for everybody to have plenty of opportunity to build strong, solid revenue stream as this business becomes mainstream. My sense is, you know, we’ve, you know, we didn’t just kind of come up, you know, with 2028 as some, you know, some random date. I mean, we feel that by 2028 this should become, this should transition from emerging applications to mainstream, where all data centers will be liquid cooled.

Christopher Snyder, Analyst, Morgan Stanley: Thank you, Ivo. Appreciate that.

Christopher Snyder, Analyst, Morgan Stanley2: Thanks, Chris.

Christopher Snyder, Analyst, Morgan Stanley1: Next, we’ll move to David Raso at Evercore ISI.

David Raso, Analyst, Evercore ISI: Hi. Thank you for the time. With the second half of the year implying organics around 4.5%, I’m curious, the order strength that you’ve mentioned multiple times for March and April, can you give us a sense of what the order growth is trending right now year-over-year?

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Yeah. Obviously order growth is outpacing core growth, certainly in Q1 as we saw backlog build across the business, and that’s, I think it’s an indication of the industrial OEM strength that Ivo talked about. That’s really as we’ve been going through a little bit of a trough that we’ve seen on the industrial side, the strength in the industrial OEM business has given us pretty good confidence. We had backlog build in Q1. We saw strength in April, which is why we highlighted that. Orders are on pace to support our core growth number right now.

I’d say also, you know, remember that the 2nd half of the year, you know, there is that extra day that we have in the 2nd half of the year that kind of offsets the 2 days in the, in the 1st quarter. That gives you a little bit higher growth rate in the 2nd half. Then also, you know, there’s some, there’s some catch up throughout the year on the EMEA side. When we look at it kind of from an overall perspective, we feel like it’s pretty evenly paced throughout the year from a core growth perspective.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: David, what I.

David Raso, Analyst, Evercore ISI: Your organic growth.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: What I would remind everybody is.

David Raso, Analyst, Evercore ISI: Sorry. Go ahead.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. I’m sorry. What I would remind also everybody is that, you know, prior year comparisons are a little more difficult too, right? Because we had that big step up in AR business of the channel win that we had.

David Raso, Analyst, Evercore ISI: The first half.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah, in the first half. Actually, you know, the underlying performance in Q1 was quite good, you know?

David Raso, Analyst, Evercore ISI: Well, that’s what I was just wondering about. Are we really seeing orders running above that second half organic growth rate? It’s just the tone.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Well.

David Raso, Analyst, Evercore ISI: that you had in the bullet. Just trying to set that up.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Yeah, I think when you look at the one-offs that I talked about in terms of, you know, the extra day, you look at the order rate right now, and you look at the trend and kinda, and what we’ve guided to for Q2, again, we feel pretty confident in our guide and we feel good about, you know, where we stand from an orders perspective and a sales perspective.

David Raso, Analyst, Evercore ISI: lastly-

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: It’s early in the year as well, right, David? It’s very early in the year.

David Raso, Analyst, Evercore ISI: Yeah. I appreciate that. I think if I heard you correctly about the second quarter, while the guide for the margins around, I think, 22.2%, do you feel there’s still about 100 basis points in there of, I guess, ERP drag, if I heard correctly? Is that the right way to think of it?

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Well, obviously.

David Raso, Analyst, Evercore ISI: Yeah, please go ahead.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Yeah, it’s, it’s about half ERP and half footprint optimization, you know, cost out. It’s kinda similar to what it was in Q1, but it’s, you know, half. We put, you know, you progress from, you know, 20.8 to 22.2, you still have 100 bips of headwind. You, you know, you’re kinda knocking on 23% from an EBITDA perspective, you know, when you adjust for the one-off. When, you know, again, you know, if you talk about the 23.5% target in the second half of the year, we feel pretty good about that.

David Raso, Analyst, Evercore ISI: All right. I appreciate the time. Thank you.

Christopher Snyder, Analyst, Morgan Stanley2: Thank you. Yep.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll move to our next question from Jerry Revich at Wells Fargo.

Jerry Revich, Analyst, Wells Fargo: Yes. Hi. Good morning, everyone.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Hey, Jerry.

Jerry Revich, Analyst, Wells Fargo: Ivo Brooks. I’m wondering if you could just talk about the difference in demand cadence you’re seeing on the replacement market by end market, if you have that type of visibility. We were surprised to hear from somebody else in the supply chain that parts demand in truck applications was really soft in the first quarter. I’m wondering if you’re seeing that or if you have that level of granularity and visibility and any other replacement demand trends that you can talk about in terms of cadence would be helpful.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. You know, we don’t really break out our replacement channels by end market. What I will tell you is that the aftermarket in Q1 was, you know, quite healthy, absent of the two things that we have listed. It was running at a trend line. I wouldn’t, you know, I would not be able to tell you that there was something out of ordinary that was not behaving well. You know, our aftermarket is actually quite okay. You know, when I take a look at POS, the POS data was very healthy, so there wasn’t any indication of somebody trying to pull demand forward. We didn’t see that. I mean, the sales out kind of outpaced our sales in slightly. You know, everything is what I see, a normal operating conditions.

I wouldn’t call that as, you know, this extraordinarily, out of line, on a positive or that it is negative at all. I think it’s behaving the way that we anticipated.

Jerry Revich, Analyst, Wells Fargo: Super. Separately, nice to see the transaction announced this morning. Can you talk about, as you look at the M&A pipeline, are there additional opportunities that we should be thinking about over the next 12 to 18 months? You know, what’s the range of capital if you do have an active pipeline, what’s the range of capital that you think you could deploy beyond the announcement today?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Look, we have a very healthy balance sheet. I spent years on trying to get this balance sheet to be durable. We are right in line with what we have committed, you know, in our last CMD. We feel that we have a ton of capacity. I think that we are operating the business quite well. We’re driving profitability forward. We believe that there are many opportunities presently. Our, you know, our pipeline is very robust. We are doing presently a ton of work on number of assets that would be highly accretive to what we do. Again, front and center to our portfolio, we are really not looking anything that would be, you know, an extension or a third leg.

We don’t believe that, you know, that is the most meaningful way to add to our scale. We will talk to you as these things develop further. You know, I would say, yeah, there’s a very good likelihood of more announcements coming certainly within this calendar year.

Jerry Revich, Analyst, Wells Fargo: Thank you.

Christopher Snyder, Analyst, Morgan Stanley1: We’ll take our next question from Tami Luhby at JP Morgan.

Christopher Snyder, Analyst, Morgan Stanley3: Hello, everyone.

Brooks Mallard, Chief Financial Officer, Gates Industrial Corporation: Hi, Tami.

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Good morning.

Christopher Snyder, Analyst, Morgan Stanley3: Thank you. Could you share your perspective on business opportunities for Gates and robotics, especially humanoid applications? Based on your discussion with the customers, and your technology services, what is Gates’ potential in this space? There are any specific technology services you see as a key differentiators?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. Good morning. Yes, we do see opportunities. There are some nice opportunities that we already participate on today. You know, we have a very nice small scale business in China in particular and in Japan in robotics. I would not be in a position, frankly, to tell you today whether or not there’s some humanoid opportunities very specifically, but we do have a very nice robotics Power Transmission business with small belts that, you know, them perhaps more cost efficient than the alternative technologies. We believe that it’s gonna be a small accretive end market as it develops on forward going basis.

Christopher Snyder, Analyst, Morgan Stanley3: Thank you. Just follow up on the Timken’s acquisitions, could you talk about expected impact on a net leverage following these acquisitions, and how should we think about the capital allocations strategies, including the balance sheet, please?

Ivo Jurek, Chief Executive Officer, Gates Industrial Corporation: Yeah. It’s immaterial. I mean, it was a, you know, super, you know, positive, purchase price, opportunistic purchase price that we’ve, you know, that we’ve acquired this business. It will be not meaningful on our net leverage.

Christopher Snyder, Analyst, Morgan Stanley3: Thank you.

Christopher Snyder, Analyst, Morgan Stanley2: Thanks, Tami.

Christopher Snyder, Analyst, Morgan Stanley1: That concludes our Q&A session. I will now turn the conference back over to Rich for closing remarks.

Christopher Snyder, Analyst, Morgan Stanley2: All right. Thanks everybody for participating. If you have any further questions, feel free to reach out to me. Otherwise, have a great weekend. Take care.

Christopher Snyder, Analyst, Morgan Stanley1: This concludes today’s conference call. Thank you for your participation. You may now disconnect.