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Cautiously positive. The company experienced notable short-term headwinds from a European ERP implementation and calendar timing that pressured Q1 sales and margins, but these were characterized as temporary. Management highlighted improving order trends, book-to-bill above 1, strong free cash flow (101% conversion), improved leverage (1.9x), a credit upgrade, a small strategic tuck-in acquisition, and reiterated full-year guidance while projecting meaningful margin recovery in the back half. Given the balance of transitory operational issues against solid cash generation, improving orders and reaffirmed guidance, the tone of the call and outlook skew positive.
Gates reiterated its full‑year 2026 guidance while providing quarter‑level detail: Q1 sales were $851M with adjusted EBITDA $177M (20.8% margin), adjusted gross margin 40.5% and adjusted EPS $0.35, with the European ERP transition plus two fewer working days creating roughly a 600‑bp core‑sales headwind and a $0.07 headwind to adjusted EPS; book‑to‑bill exited the quarter above 1. For Q2 management guides revenue of $905M–$945M (midpoint core growth ~3.5% YoY) and expects adjusted EBITDA margin to be down ~30 bps YoY (midpoint ≈22.2%), noting about 100 bps of remaining near‑term drag from ERP/hypercare and footprint work. They expect the footprint optimization benefits to show in the back half, targeting an adjusted EBITDA margin approaching ~23.5% in H2, and reiterated confidence in achieving full‑year core growth absent further geopolitical escalation; balance‑sheet metrics include 12‑month free cash flow conversion ~101% and net leverage of 1.9x (improved ~0.4 turns YoY). They also announced a Timken Industrial Belt tuck‑in (expected close in Q3) that management estimates could add roughly $5M/month of revenue.
Q1 sales of $851 million. Core sales decreased 2.9% year-over-year but management reported improving demand trends (core sales approximated mid-single digits growth in March) and a book-to-bill solidly above 1. Company reiterated full-year guidance.
Adjusted EBITDA of $177 million with an adjusted EBITDA margin of 20.8% (down 130 basis points YoY) but in line with expectations. Management expects margin improvement through the year (Q2 midpoint ~22.2%) and an adjusted EBITDA margin approaching ~23.5% in the second half of 2026.
Delivered free cash flow conversion of approximately 101% over the last 12 months. Net leverage improved to 1.9x (about 0.4 turns better vs Q1 2025). Moody's upgraded credit rating to Ba2 (from Ba3). Continued share repurchases and balanced capital allocation posture.
APAC region grew almost 4% (industrial OEM and auto aftermarket contributing). Personal Mobility expanded 6% in Q1 and expected to return to normalized higher growth in Q2. Power Transmission revenues of $533 million (core -2.5%) and Fluid Power $318 million (core -3.5%). Data center revenue grew ~700% from a low prior-year base, with management indicating on-track progress toward larger targets.
Europe successfully implemented a new ERP system; business stabilized and delivered revenues in March on par with pre-ERP levels. Management expects distribution and operational efficiencies to further stabilize in Q2 and anticipates recovering past-due backlog in Q2.
Announced acquisition of Timken's Industrial Belt business (expected to close in Q3). Management estimated the asset could add roughly $5 million per month of revenue (approx. $60 million annualized) and viewed it as a highly complementary tuck-in with opportunities to improve margins. Management also signaled an active, accretive M&A pipeline.
Reiterated 2026 financial guidance. Q2 revenue guide $905M–$945M (midpoint core growth ~3.5% YoY). Management reported accelerating order trends (industrial OEM orders improving), positive early-April demand, and order intake outpacing sales exiting Q1.
Good morning, and welcome, everyone, to the Gates Industrial Corporation Corporation First Quarter 2026 Earnings Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Rich Kwas, Senior Vice President, Investor Relations. Please go ahead.
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, iIvo Jurek; be followed by Brooks Mallard, our CFO. Before the market opened today, we published our first quarter results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 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 have described in our most recent annual report on Form 10-K and i...