Gates Industrial at 18th Annual Conference: Cautious Optimism and Strategic Focus

On Wednesday, 21 May 2025, Gates Industrial Corporation (NYSE:GTES) presented at the 18th Annual Global Transportation & Industrials Conference. CFO Brooks Mallard outlined a strategic overview that highlighted robust performance in key sectors like automotive replacement and mobility, while also addressing challenges such as tariff impacts and global uncertainties. The company maintains a cautiously optimistic outlook, balancing growth strategies with operational efficiencies.

Key Takeaways

• Q1 results surpassed expectations, driven by strong automotive replacement and mobility sectors.
• Gates aims for $100 to $200 million in additional revenue from data centers by 2027.
• The company is committed to achieving a 24% plus EBITDAR target by 2026.
• Tariff impacts are being mitigated through strategic pricing and operational efficiencies.
• Capital allocation focuses on debt reduction, stock buybacks, and strategic M&A.

Financial Results

• Q1 exceeded expectations with notable contributions from automotive replacement and mobility sectors.
• EMEA saw a slight decline of 1% in Q1, attributed to improvements in the mobility sector.
• Organic growth in China reached 3.5% in Q1.
• Q2 is expected to remain stable with a flattish outlook.
• Full-year organic growth is projected at approximately 1.5%.
• Price increases of $40 million have been implemented to counter tariff impacts, although they may lead to some volume reduction.
• The company targets 50 basis points of margin dilution due to tariffs in the latter half of the year.

Operational Updates

• Automotive replacement and mobility sectors are projected to be strong throughout the year.
• Industrial recovery remains slow due to global trade uncertainties and tariffs.
• Destocking in agriculture and construction is nearing completion.
• Gates is implementing a value-based pricing model and aims for $10 million in operational efficiencies to offset tariff impacts in 2025.
• The company is targeting $100 to $200 million in incremental revenue from data centers by 2027.
• Recent debt refinancing has reduced the term loan rate by 50 basis points in Q4.

Future Outlook

• The automotive replacement sector is expected to thrive, supported by new North American customers and robust used car sales.
• The mobility sector is anticipated to remain strong globally.
• Industrial recovery is dependent on positive PMI changes and the resolution of global trade issues.
• Gates plans to increase in-region manufacturing to mitigate tariff impacts and maintain dollar neutrality.
• The company is focused on strategic M&A opportunities that align with its vision and offer meaningful scale.

Q&A Highlights

• The impact of tariffs was addressed, with a commitment to remain dollar neutral through operational efficiencies and strategic pricing.
• Destocking is continuing but is expected to slow soon.
• Capital allocation priorities include debt reduction and stock buybacks, balanced with potential M&A opportunities.
• Emphasis was placed on acquiring companies that are essential, non-discretionary, and do not require significant capital investment.

In conclusion, Gates Industrial remains focused on navigating global challenges while leveraging growth opportunities in key sectors. For more details, refer to the full transcript below.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Brad Hewitt, Bench hitting for Nigel: right. Good morning, everyone. Continuing with Day two of our conference. My name is Brad Hewitt, bench hitting 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

Unidentified speaker: time, we’ll just kinda jump into questions. Curious,

Brad Hewitt, Bench hitting for Nigel: you know, just kind of state of the union, how things are tracking in q two, you know, relative to guidance of flattish. I think it’s about one and a half percent positive organic in q one. Just curious. Any thoughts on q two trends today. Well

Brooks Mallard, CFO, Gates Corporation: yeah. So if you if you think about q one, you know, it came in, you know, obviously better than than we thought. I think, you know, automotive replacement was good, which we thought it would be. A lot of that was driven by, you know, our new the kind of the final quarter load in of the new big customer in North America, retail customer that we have in North America. You know, bill mobility came in strong, but we we continue to see that recover from the, you know, the inventory buildup that we had over the past, you know, six quarters or so, six or seven quarters.

And so we saw mobility come in very strong, up double digits. You know, China, and Asia in general, you know, came in with positive core growth. Continue to see the industrial recovery there. Also, the automotive replacement business has been good, particularly in China. You know, EMEA was only down 1% in in q one.

I think, you know, largely on the back of the improvement mobility, that’s where a big part of our mobility business is, with, you with e bikes and things like that. And then, you know, when when you think about the the things that have been real headwinds over the past, gosh, two to three years, really, you know, ag and construction as they continue to take inventories out, those weren’t as bad as they have been. Those were kinda down mid single digits. And so kind of just think about, you know, how does that play into, you know, what we’re you know, what what we got guided for q two and kinda how things are progressing. You know, things are progressing kind of how we, you know, we thought we thought they would.

You know, our, you know, our guidance was was, you know, fairly tempered, you know, after a a pretty good q one at at flattish. You know, there’s a lot of things going on in the world. Right? We’re trying to be pragmatic in our view of things. We continue to think that automotive replacement and mobility are gonna be the strength of the business as we move through

Unidentified speaker: the year.

Brooks Mallard, CFO, Gates Corporation: And and, you know, and we’re we have tempered expectations around, you know, industrial recovery. Right? And so and and then also, you know, some pragmatism in terms of, you know, how is tariffs and global trade gonna

Brad Hewitt, Bench hitting for Nigel: play out.

Brooks Mallard, CFO, Gates Corporation: Right? And so and so things are largely aligned with how they how we thought they would be, you know, from a from a second quarter. Okay.

Brad Hewitt, Bench hitting for Nigel: Great. And then maybe can you talk about, you know, maybe by geography or by segment, kind of how you see, you see the current trends and how you see the growth playing out throughout the year?

Brooks Mallard, CFO, Gates Corporation: Yeah. So, you know, as I said, you know, I think, you know, automotive replacement, you know, we think should be positive. You know, we’ll have you know, for for North America, we’ll continue to have kind of year over year tailwinds with with the new customer. You know, we didn’t we didn’t really start shipping the new customer until q four of twenty four. So for the first three quarters, we should have positive year over year comps from that from that customer.

You know, in addition, addition, I think globally, the automotive replacement business, you know, just has more wind in its sales. You know you know, interest rates are high. You know, replacement, replacement car sales, used car sales are are strong, prices are high. And so, you know, we we think that that’s gonna be good kind of global. Right?

Mobility. You know, we think that’s gonna be good kind of globally. You know, I think from an industrial perspective, you know, that’s that’s where, you know, we’re really waiting to see, you know, kind of how, you know, how do how do a lot of this global trade stuff play out? How do the tariffs play out? And when do you start to see PMIs, you know, start to inflect positively for some meaningful period of time, right, which is which kinda drive which which really drives factory activity, not just in terms of consumables and factories, but also drives factory activity in terms of throughput.

Right? So you kinda get a double, you know, benefit there when you see the inflection. And, you know, within three years of three years of tough times on the PMI. And so, you know, you know, that’s that’s kind of in a nutshell, you know, how we’re looking at. Yeah.

And and I would say from a from a regional perspective, you know, you know, I’d say, you know you know, North America, like I said, we’re gonna have the, you know, we’re gonna have the automotive replacement tailwinds with our new customer for three quarters. You know, I think the industrial side is gonna be tougher. We’ll see how that plays out. Know, in Europe, they’re gonna have the tailwinds of mobility. I think that’s gonna be helpful there.

And, you know, we’ve had a couple of quarters of of poor growth in in East Asia and India and China. So in Asia overall, we’ve had a couple of quarters of positive core growth. And so we’re starting to kinda see the industrial turn a little bit there. It gives us a little bit of, I think, you know, 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’s starting typically, it will start in Asia and hopefully spread spread to the rest of the world.

Brad Hewitt, Bench hitting for Nigel: Great. And maybe in terms of China, so you did about three and a half percent organic growth in q one. You guys sound more optimistic on China than a lot of the companies we cover. So just curious if you could talk about kinda what you’re seeing there in China and what’s been driving the strength there.

Brooks Mallard, CFO, Gates Corporation: Yeah. Well, so, you know, it’s interesting. You know, our our automotive replacement franchise, we’ve grown from a relatively small business, you know, back, you know, at the at the at the turn of the decade, you know, 2020 to really be in, you know, one of the biggest parts of the business in China. And so, you know, we’ve done that with a lot of hard work and effort. We’ve grown that into a very profitable, very nice, you know, chunk of business over there.

So we’ve got that as a as a baseline. You know, even as as automotive OEM has been down, you know, we’ve been able to grow China through that automotive replacement business, which is very different than automotive OEM. Right? But what’s interesting too is, you know, we’re seeing a little bit stronger, you know, stronger OEM business on the industrial side of China. And so I think that’s, you know, again, given us a you know, that we’re not, you know, ready to, you know, kinda absorb it out of the gates.

But, you know, it’s it gives us a little bit of confidence that, you know, we’re in the right markets. You know, we’re 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. That’s kind of the you know, as as China, you know, kind of stimulates its economy and gets its industrial economy going going again that we’re in the right places there. So we feel pretty good about that.

Brad Hewitt, Bench hitting for Nigel: Now as we think about the phasing of organic growth throughout the year, so at the midpoint, it looks like you’re guiding to about one and a half points of growth organically for the year, flattish in q two. So that would imply, you know, something less than 1% for the first half. So kind of accelerating in the second half. Maybe walk us through kind of the moving pieces there.

Brooks Mallard, CFO, Gates Corporation: Yeah. So, you know you know, I’ve talked about, you know, some of it, you know, already. Look. You know, I think there’s, you know, the I think we really saw the bottoming out of the industrial side of things in in 2023, particularly in the back half of 2023. So some of that, you know, is gonna be comparable.

Right? It’s just gonna be easier comps. You know, mobility, I I think it’ll continue to be, you know, strong. And then, you know, you know, in full full transparency, right, you know, we had we did add about 40,000,000 of price in relative to tariffs, mostly in the back half of the year, and we didn’t change our guidance. So we we took that out of volume.

So we kind of you know, I would say, you know, we took a pragmatic view that, hey. Look. You know, we’re gonna put the price through to offset the tariffs, but, you know, let’s not you know, let’s eyes wide open. Right? There’s probably gonna be a little bit of demand headwind associated with that as well.

And so so little bit more price in the back half, a little bit less volume than originally anticipated. So but we do we do expect, you know, industrial, you know, to be, you know, to be a little bit better in the second half as we come up against a little bit easier comps, then we do start to see, hopefully, a little bit of green shoots continuing to come through.

Brad Hewitt, Bench hitting for Nigel: Okay. And then maybe in terms of inventory levels, I guess, know, are you still seeing destocking, like, maybe in ag and construction? And how do you how do you think about the phasing there?

Brooks Mallard, CFO, Gates Corporation: Yeah. I I would say that, you know, it’s the the destocking is not done yet, but I think the the biggest chunk of that probably is through the system. Right? So we saw you know, I I think certainly on the mobility side with the growth we’ve seen over the past couple of quarters, you know, we’re pretty comfortable that, you know, except for maybe some very specific niches in the mobility business that that that’s largely through. So that that that destocking’s done.

Ag and construction, you know, probably more done than not done. And then I think on the distribution side of the business, replacement side of the business, you know, you kinda see some pauses and starts in terms of, you know, sell in versus sell out. But, you know, kind of over time, it’s largely a line. So we feel pretty comfortable about the inventory levels from a distribution perspective.

Brad Hewitt, Bench hitting for Nigel: Okay. And maybe going back to your earlier comment about the, you know, the 40,000,000 of price that you put in the guide related to the tariff offset. You know, implicitly, you removed 40,000,000 of volumes from the guide. How do you think about price elasticity, you know, for your portfolio kind of historically speaking?

Brooks Mallard, CFO, Gates Corporation: Yeah. Well, look, I mean, you know, two thirds of our business is through distribution. Right? And and our distribution partners, you know you know, typically, you know you know, first of all, when you push price increases through and we’ve and we’ve done a tremendous amount of of of pricing, you know, over the course of ’22 and ’23 with with all the inflation. Right?

Because a of that inflation was, you know, kind of very polymer based and resin based and metals based, and that’s a big part of our of our cost of goods cost of goods manufactured. And so, you know, we pushed that price through. We were doing quarterly price increases, you know, kind of through the course of ’22 and ’23, so 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. So, you know, so, you know, we feel pretty confident that we can get price, you know, where we need to get price when when you’re having cost increases, which is what the what these tariffs are, even though we’re trying our best, you know, operationally to offset what we can. Right? So we have, you know, 50,000,000 of of of cost increases. You know, we we we we targeted 10,000,000 that we’re we’re gonna do ourselves in terms of operational, you know, efficiencies and things we’re gonna change in our supply chain and to offset 10,000,000 of it and then 40,000,000 of us going through through on price.

Having said all that, you know, we we’re we’re really moving toward more of a value based pricing model, a strategic pricing model, kinda based on our 8020 operating model. You know, where we’re really trying to value base, you know, we because we make hundreds of thousands of SKUs. Right? We’re making we’re making SKUs for and equipment and automotive, you know, autos and and things like that that are, you know, fifteen, twenty, 20 five years old. And so we have a long tail of SKUs that we make.

So what we’re trying to do is make sure we strategically price and value price, you know, the long tail of things, which, you know, cost us more money to make, smaller production runs, you know, things like that. And then value price the AI items, things with more velocity, value price them as well, and be less peanut butter in our approach, to overall pricing. So so what kind of what’s the sum 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, you know, 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.

Brad Hewitt, Bench hitting for Nigel: Okay. As we think about, you know, kind of the current tariff regime where, you know, there have been some rollbacks on the tariff rates, how do you think about the stickiness of price? And then also, think, you know, when 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, you know, as we get into next year, how does that evolve towards maybe more of a margin neutral approach? How do you think about that?

Brooks Mallard, CFO, Gates Corporation: Yeah. So look, I think, you know, you know, to, you know, just kinda go back to the beginning. Right? You know, we we waited, kind of as long as we could, to see what the ultimate outcome of of, you know, kind 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, you know, what’s the cost impact gonna be overall and where can we move things around and do different things.

And so we finally got to the point where we said, hey. Look. You know, this is the best information we have. These are the price increases we’re gonna roll out with. We communicated those to all of our customers and we explained to them, you know, to our distribution partners and everything what we’re gonna do.

And so and so, of course, right after that, they they come back and roll back the, the retaliatory tariffs with China. Right? And so and so, look, you know, we’re gonna we’re we’re we’re in communication with our distribution partners. You know, we’re gonna, you know, continue to take a pragmatic approach. You know, we we don’t know what the future holds.

And so we’ll continue to go to, you know, play that, you know, month by month, quarter by quarter, you know, to make sure that, you know, that we treat our that we treat our distribution partners fairly and that we get back to what we, you know, originally committed committed to our investors too and, which is, you know, we’re gonna be dollar neutral. Right? Now that means there’s gonna be some puts and takes. You know, that means there’s gonna be some negotiations and different things like that. But we’re extremely confident that we’ll be, you know, dollar neutral from an overall, tariff perspective.

I think, you know, you know, longer term, you know, we’re gonna be able to do more stuff operationally based on how things turn out from a global trade policy and a global tariff policy perspective. You know, we’ve always been, you know, very much an in region, four region, you know, manufacturing strategy. That’s been the core of our manufacturing strategy. And there are definitely levers we could pull to to improve our in region, four region manufacturing, you know, capabilities and, you know, help offset, you know, whatever headwinds we may see from global trade policy and or tariffs. And so I would say, you know, that that’s probably gonna give us some opportunity as we move through the year, both from a footprint optimization perspective and a supply chain optimization perspective to offset, you know, some of that some of that margin dilution that we’re seeing from a price cost perspective as we move through 2026.

And we’re still committed to our, you know, 24% plus EBITDAR target, you know, as we exit 2026. And so, you know, we feel pretty confident in our ability to to move things around and optimize things to achieve those targets.

Brad Hewitt, Bench hitting for Nigel: In terms of that 10,000,000,000 of operational initiatives that you’re talking about for 2025, how much of that is, you know, already encapsulated in that 2026 outlook, or is this kind of incremental above and beyond?

Brooks Mallard, CFO, Gates Corporation: Yeah. Well, look, I would say it’s probably more, I think it’s probably more offset to headwinds. And so I I would say, you know, what we’re doing is saying, look, we’ve got some unanticipated headwinds, you know, related to, you know, kind of what the optimal cost structure might otherwise be, you know, that are related to tariffs and and some of these global trade policies and things like that. But we think we see enough opportunity to offset that and maintain you know, like I said, you know, we got, I think, fifty fifty bps of of of margin dilution that we’re gonna see here related to the tariffs on the back half of the year, but we’re gonna be able to offset that as we move forward. So I’d say it’s more of a, you know, is it incremental?

Yes. Incremental. But it’s incremental that’s gonna offset some of the headwinds that we did see come.

Brad Hewitt, Bench hitting for Nigel: Okay. Great. Maybe we’ll pause there and see if there’s any questions in the audience. Alright. We’ll keep going then.

So in terms of kind of the EBITDA guidance for the year, July. So forty, fifty basis points year over year. Any thoughts on kind of how that margin expansion looks by segment?

Brooks Mallard, CFO, Gates Corporation: Yeah. Well, look, I mean, we don’t really guide by segment. I I you know, I can tell you that, you know, you know, different, you know, different segments have a little bit different, you know, kind of headwinds and tailwinds. You know, I would say that, you know, when you think about China as an example, you know, China has has more of power transmission business. And so, you know, they’re gonna have a little bit more, you know, headwinds in terms of some of the tariff stuff that they need to work on and and things like that.

On the flip side, you know, the mobility business is largely power transmission. The AR business that we’ve that we’ve won in North America, majority of that is is power transmission. And so that’s kind of driving some upside there. You know, when you think about, you know, opportunity set on the on the data center side, and I you know, that’s gonna be relatively small this year. But as it goes forward, you know, we expect it to be bigger, and I’m sure you’ll you’ll ask me about that here soon.

You know, that’s largely gonna be on the fluid power side. And I would say the Fluid, you know, the Fluid Power side may be less impacted by some of the tariffs. And so I think both of them have puts and takes. But, you know, when when we began the year, it was largely, you know, immaterial in terms of of margin improvement one versus the other year over year.

Brad Hewitt, Bench hitting for Nigel: 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. And then how do you see that progressing over the next three to five years?

Brooks Mallard, CFO, Gates Corporation: So so, you know, it’s important to to, you know, remember, we’re really at the kind of end of of, you know, individual data center build out. And one of the last things they do is put the cooling element in after they build it out. And, you know, we we’re making, you know, data center sales, you know, today. Right? We’ve got, you know, whole data center host that we’re selling, and we’re working with hyperscalers.

We’re working with installers. We’re working with contractors, designers, you know, all through the, you know, kind of the whole data center value. We’re working with really all of them, in terms of, you know, electronic water pumps, which we talked about quite a bit. Oh, you know, the new hose that we’ve you know, we had existing hose that was already being used in, like, supercomputers and data centers. The new hose, new products that we’re bringing out, as well as couplings and things

So I, you know, I would say, look, it’s it’s gonna be relatively de minimis this year in terms of kinda year over year. But, you know, the more people we talk to, you know, the more, you know, negotiations we have, you know, more quotes we’re putting out, you the more things kinda move along, I would say, you know, we we put a target out there of a hundred to 200,000,000 of additional incremental revenue over the next couple of years, so say by 2027. And I think if anything, we’re more confident in delivering that number, you know, 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.

Brad Hewitt, Bench hitting for Nigel: As you think about the data center opportunity, I mean, is that something you guys are gonna attack mostly organically, or could there be some inorganic opportunities there?

Brooks Mallard, CFO, Gates Corporation: Yeah. I mean, look, we’ve we’ve got all the products and the technology to do it organic. Right? And and the capacity. Right?

So, you know, the the electronic water pump, you know, we designed that as, you know, both, you know, automotive OEM for the electric vehicle market and the replacement market. Right? And, you know, we we designed that from the ground up and and then we just, you know, learned that we could scale it, you know, at at multiple different wattages and and kind of pumping capacities. And, you know, it’s this very small, you know, package that you can actually put in line with the hoses in the data center racks as opposed to having a, you know, big pump sitting over here. And so, you know, the and and the the hose, you know, we we’ve already been doing data center hoses for years.

And so all that is organic, and we’ve got the capacity to to deliver that, you know, hundred to 200,000,000, you know, that we think, you know, you know, without without adding any material, you know, capital investment or anything like that. Now having said that, you know, if opportunities come along, know, to to expand our our, you know, total available market, relative to data centers from an M and A perspective, you know, we feel good about our what our balance sheet is. If the opportune opportunities come along, you know, to accelerate that, that’s certainly something we would look at.

Brad Hewitt, Bench hitting for Nigel: In terms of the balance sheet and capital allocation, so I think you’re a little over two turns of debt leverage today with a goal of one to two times. How do you think about the balance between debt reduction, buybacks, and m and a?

Brooks Mallard, CFO, Gates Corporation: So, look, you know, we did a lot of work last year on our whole debt stack. So we refinanced our whole whole debt stack. You know, we got a 50 bps reduction in our overall term loan in q four of last year, you know, when rates were down. We don’t have any maturities, meaningful maturities until 2029. And so we feel really good about, you know, kind of where our our our debt stands and our, you know, our ability to grow earnings to to drive, you know, the the the the multiple, the EBITDA leverage relative to debt, the net debt EBITDA leverage.

Having said that, we really wanna get our total, you know, gross debt below 2,000,000,000. So so we are gonna pay down some debt, you know, here over the next few quarters. We still think having said that, we still think our stocks have a value. And so for us, it’s always a, you know, it’s always a calculation of, okay, what’s from an earnings per share accretion from a cash flow perspective, what do we think the best thing for our investors is? And so we’ll continue to do that math.

I mean, like, you know, when our stock went down, you know, kinda recently, you know, we were kinda all in on, okay. You know, it’s it’s it’s, you know, weighted more heavily towards, you stock buyback, right, from a from an accretion perspective than than debt pay down since the stocks recovered. You know, it’s gotten a little bit back more in balance. The great thing is both of those are are are pretty good return alternatives for our investors and almost entirely risk free. So, you know, it’s good to have risk free alternatives that you know are gonna drive, the stock value.

You know, we’re gonna, you know, create wealth for our investors. And, you know, we’ll we’ll we’ll take a balanced approach. You know, I think if you look over the past three or three and a half years, we’ve been about, you know, 55% stock buyback versus 45% debt pay down, from a capital allocation perspective, and we’ll continue to to to to be in balance like that, both from a capital both from a stock buyback and from a debt paid out.

Brad Hewitt, Bench hitting for Nigel: Okay. Great. As you think about m and a, you know, I know the, the activity there has been a little bit lower, you know, kind of going back to the IPO in 2018. But how do you think about, you know, the pipeline of opportunities and kind of your interest in m and a, and what are you seeing out there?

Brooks Mallard, CFO, Gates Corporation: Yeah. Look. I think, look, I think from a from a balance sheet perspective, you know, we’ve actually got the balance sheet now where we could go do it. Right? And and then, you know, that’s something that, you know, two years ago, three years ago, four years ago, year ago, probably could say.

Right? Now it has to it has to be you know, the multiples have to line up. You know, interest rates are still pretty elevated. Right? So the cost of money is higher.

I’d say probably the biggest thing for us is, you know, our stock we think is still undervalued. So, you know, if we’re trading at, let’s say, nine times, and we go out and acquire a company and we have to pay our 11 or 12 times, right, that’s a tough putt, you know, to get your, you know, your IRR where you need to get it. Right? You’re gonna have to have a lot of synergies to drive that. And so, you know, look, we’ve got a lot of great internal opportunities to drive to to continue to drive EBITDA, to continue to drive our multiple, you know, we’re gonna be focused on that.

You know? But having said that, you know, 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, you know, something we would look at.

Brad Hewitt, Bench hitting for Nigel: We have about two minutes left. Let’s see if there’s any questions from the audience. Alright. 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?

Brooks Mallard, CFO, Gates Corporation: Yeah. I mean, I well, I would say, you know, we I mean, we’ve got a pipeline that kinda hits, you know, all the different things. I you know, the segments, you know, geographies, you know, things like that. I mean, there’s certain strategic things that we obviously, you know, we’d like to look at, you know, like, you know, the, you know, the certain parts of the business we’d like to expand more geographically, you know, probably. But, you know, I think the probably the bigger thing for us overall is is, you know, we wanna 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 don’t wanna do something out of the gate where they people are scratching their heads and going, I’m not sure why they’re doing that. Right?

And I think also we wanna do something meaningful. Right? Something that’s gonna move the needle, and and and kind of scale us up. Because that’s one of the things we wanna do with m and a is scale up, continue to grow the, you know, grow the business, overall. So I you know you know, as as opposed to kind of being a segment or or geography specific, what we really wanted to do is when people look at our strategy, when they kinda go back and look at our Investor Day and different things like that, when we do an acquisition, they look at it, know, that makes a % sense.

I get it. And then, also, we want them to look at it and go, okay. Well, that moves the needle and that moves them up, you you know, kinda up the chain in terms of the the overall size and scale of the organization, you know, which quite frankly will, you know, attract more investors and kinda make it better for everybody. Right?

Unidentified speaker: That’s a good question. Yep. Can you just take, like, an example over the last three or four years of something that might have transacted that that something like it’s just hard to sort of envision. It’s Yeah. What you what you’re talking about.

That word or just not specifically creating.

Brooks Mallard, CFO, Gates Corporation: Well, look, I I mean, I I can think I I’m I’m reluctant to kind of specifically cite what other companies have done because I’m not sure the outcome is Yeah. The stuff we wanna imitate. Right. But, you know, but but I I will say this. There are certainly companies, I think, that that are out there, you know, that that you kind of look in our peer group and our universe that are transactable, that kind of that line up with, you know, our margin profile, you know, maybe a little bit more OEM centric than than distribution centric like we are, which is not necessarily a bad thing, right, if you’re able to have that market profile.

And so so I so, yes, there are things I could think of. I’m like I said, I’m kind of reluctant to to talk about that here.

Unidentified speaker: The replacement. Yeah.

Brooks Mallard, CFO, Gates Corporation: Yeah. I look. I think

Unidentified speaker: subsystem and just a

Brooks Mallard, CFO, Gates Corporation: I think the I think for us, the the the critical you know, the the replacement side is an important an important thing. Right? Because you want kind of an ongoing, you know, you want an ongoing revenue stream. Right? But, you know, when we think about our products, what we think about is something that’s critical to function, nondiscretionary in nature.

You need these products to run whatever it is you’re running. Right? You can’t say, well, you know, we’ll put that off till next year. You know, we need it now. I would say the other thing is, I don’t know I I would say, you know, you know, one one of the things we like about, you know, our business is not only is it nondiscretionary, it’s not really huge dollar value in terms of a per unit sale.

Right? And so it’s like, you you know, if you need a belt for your car, you know, and it’s $15 or $20, there’s no questions asked. Right? If you need a belt, you know, for your combine harvester, if you need a new hose assembly for your combine harvester, and it’s a, you know, half a million dollar combine harvester and it’s a hundred dollar assembly, that’s a no brainer. Right?

And so we kinda wanna make sure that those characteristics are also and not and not everything in an acquisition that we do, but a lot of it. Right? That, you know, it’s it’s it’s things that, you know, critical to function, nondiscretionary in nature, and something that’s not gonna give people pause to think about when they purchase it. Is that helpful? Okay.

Brad Hewitt, Bench hitting for Nigel: I think we’re out of time, so we’ll have to draw the line there.

Brooks Mallard, CFO, Gates Corporation: Thanks, Brooks. Thanks very much. Appreciate it.

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