Q4 2023 Cummins Inc Earnings Call

Operator: Greetings. Welcome to Cummins' 4th quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Reading smoking welcome to Cummins, Inc. Fourth quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the form of presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Chris Crullo, Vice President of Investor Relations. Thank you.

Please note. This conference is being recorded I will now turn the conference over to Chris crew, though vice President of Investor Relations. Thank you you may begin.

Chris Crew: Thank you good morning, everyone and welcome to our teleconference. Today to discuss Cummins results for the fourth quarter and full year of 2023 participating with me today are Jennifer Ramsey, our chair and Chief Executive Officer, and Mark Smith, Our Chief Financial Officer.

Chris Laserinko: Good morning everyone, and welcome to our teleconference today to discuss Cummins results for the fourth quarter and full year of 2023. Participating with me today are Jennifer Romsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference.

Speaker Change: We will all be available to answer questions at the end of the teleconference. Before we start. Please note that some of the information that you will hear or be given today will consist of forward looking statements within the meaning of the securities and exchange acts up 934.

Chris Laserinko: Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Security and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions regarding strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck in our filings with the Securities and Exchange Commission. Particularly the risk factor section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly report on Form 10-Q.

Speaker Change: Such statements express our forecasts expectations hopes beliefs and intentions on strategies regarding the future are.

Speaker Change: Actual future results could differ materially from those projected in such forward looking statements because of a number of risks and uncertainties.

More information regarding such risks and uncertainties is available in the forward looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently filed annual report on Form 10-K, and any subsequently filed quarterly reports on Form 10-Q3.

Chris Laserinko: During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial. Our press release, a copy of the financial statements, and a copy of today's webcast presentation are available on our website within the investor relations section at cummins.com. With that out of the way, I'll turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Thank you, Chris.

Speaker Change: During the course of this call we will be discussing certain non-GAAP financial measures and we refer you to our website for the reconciliation of those measures to GAAP financial measures.

Speaker Change: Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at Cummins Dot com.

Speaker Change: With that out of the way I'll turn you over to our chair and CEO, Jennifer Ramsey to kick us off thank.

Jennifer Rumsey: Good morning, everyone. I'll start with a summary of 2023 and discuss our fourth quarter and full year results. And then I'll finish with a discussion of our outlook for 2024. Mark will then take you through more details of our fourth quarter and full year financial performance and our forecast for this year. As I reflect back on 2023, I am incredibly proud of what Cummins and our employees accomplished for our stakeholders, and I feel energized about the opportunities ahead for us as we continue to demonstrate our relentless focus on being a global leader in clean energy technology and innovation. We have made significant progress in achieving our Destination Zero strategy, and it continues to be clear that this dual-path approach to reducing greenhouse gas and air quality impacts of our products is the right approach to meet our customers' needs today and continue to grow our business and impact.

Jennifer Ramsey: Thank you, Chris and good morning, everyone.

Jennifer Ramsey: I'll start with a summary of 2023 and discuss fourth quarter and full year results and then I'll finish with a discussion of our outlook for 2024, Mark will then take you through more details of our fourth quarter and full year financial performance and our forecast for this year.

Jennifer Ramsey: As I reflect back on 2023, I am incredibly proud of our comments and our employees accomplished for our stakeholders and I feel energized about the opportunities ahead for us as we continue to demonstrate our relentless focus on being a global leader in clean energy technology and innovation, we made significant progress in achieving our desks.

Jennifer Ramsey: A nation zero strategy and it continues to be clear that this dual path approach to reducing greenhouse gas and air quality impacts of our products is the right approach to meet our customers' needs today and continue to grow our business and impact.

Jennifer Rumsey: We did this by advancing our core business as well as developing new zero-emission solutions through Accelera by Cummins. Most notably, for our core business in 2023, we committed to investing more than $1 billion across our U.S. engine manufacturing network to support the industry's first fuel-agnostic engine platforms, as well as unveil the X10 fuel-agnostic series launching in North America in 2026. Additionally, we initiated several collaborations with our natural gas X-15 engine, which will launch in North America this year and further enables our customers to achieve their decarbonization goals. This is the industry's first natural gas engine designed specifically for heavy-duty and on-highway truck applications, offering customers the opportunity to realize reductions in nitrous oxides and greenhouse gases without compromising performance.

Jennifer Ramsey: We did this by advancing our core business as well as develop a new zero emission solutions to accelerate by covenants.

Most notably for our core business in 2023, we committed to invest in more than $1 billion across our U S manufacturing network to support the industry's first steel agnostic engine platforms as well as unveiled the X 10 fuel agnostic series launching in North America in 2026.

Jennifer Ramsey: Additionally, we initiated several collaborations with our natural gas X 15 engine, which will launch in North America. This year and further enables our customers to achieve their decarbonization goals.

Jennifer Ramsey: This is the industry's first natural gas engine designed specifically for heavy duty and on highway truck applications offering customers the opportunity to realize reductions in nitrous oxides and greenhouse gas without compromising performance, we're continuing to see strong interest from both Oems and end users ahead of a launch later this year.

Jennifer Rumsey: We are continuing to see strong interest from both OEMs and end-users ahead of the launch later this year. In our Accelera business, we announced a joint venture with Daimler Trucks and Buses, PACCAR, and EVE Energy to accelerate and localize battery cell production and the battery supply chain in the U.S. We further announced this quarter the selection of Marshall County, Mississippi, for the 21 gigawatt hour factory that is expected to create more than 2000 U.S. manufacturing jobs, with production anticipated to begin in 2027. Xceler also reached a further milestone this year in terms of its electrolyzer order backlog, totaling over $500 million. In order to meet the growing electrolyzer demand, we began production at our first U.S. manufacturing location for electrolyzers at the Cummins Power Generation Facility in Fridley, Minnesota.

Jennifer Ramsey: And our accelerator business, we announced a joint venture with Daimler trucks, and buses pass car and EV energy to accelerate and localized battery cell production and the battery supply chain in the U S.

Jennifer Ramsey: We further announced this quarter the selection of Marshall County, Mississippi for the 'twenty, one gigawatt hour factory that is expected to create more than 2000 U S manufacturing jobs with production anticipated to begin in 2027.

Jennifer Ramsey: Excel are also reached a further milestone this year of Electrolyzed their order backlog totaled eight over $500 million.

Jennifer Ramsey: In order to meet the growing electric laser demand, we began production at our first U S manufacturing location for Electrolyze theirs, and the Cummins power generation facility in Frederick Minnesota.

Jennifer Rumsey: Lastly, we are resolute about the leading role we play in the energy transition, and emissions compliance continues to be a critical element of this work and central to our values. We were transparent about this in December when we announced that we reached an agreement in principle to resolve U.S. regulatory claims regarding our emission certification and compliance process for certain engines primarily used in our pickup truck applications. After four and a half years of working diligently with the regulators, reaching an agreement was the best way for us to achieve certainty on this matter and move forward with certifying our new products and advancing our Destination Zero strategy. We have expanded and strengthened our emissions compliance program to help ensure our products comply with increasingly stringent emissions regulations around the world. Our Product Compliance and Regulatory Affairs Organization, which we launched in 2019, has a reporting line directly to me, and positions are in place to meet global product compliance requirements and deliver solutions for our customers that are safe and lead to a cleaner environment.

Jennifer Ramsey: Lastly, we are resolute about the leading role we play in the energy transition and emissions compliance continues to be a critical element of this work and central to our values.

Jennifer Ramsey: We were transparent about this in December when we announced that we reached an agreement in principle to resolve U S regulatory claims regarding our emission certification and compliance processes for certain engine.

Jennifer Ramsey: Primarily used in our pickup truck applications.

Jennifer Ramsey: After four and a half years of working diligently with the regulators, reaching an agreement with the best way for us to achieve certainty on this matter and move forward with certified in our new products and advancing our destinations here our strategy.

Jennifer Ramsey: We have expanded and strengthened our emissions compliance program to help ensure our products comply with increasingly stringent emissions regulations around the world.

Jennifer Ramsey: Our product compliance and regulatory Affairs organization, which we launched in 2019 has a reporting line directly to me and positions us to meet global product compliance requirements and deliver solutions for our customers that are safe and lead to a cleaner environment.

Jennifer Rumsey: Now I will comment on the overall company performance for the fourth quarter of 2023 and cover some of our key markets. Demand for our products remains strong across many of our key markets and regions. Revenues for this quarter totaled $8.5 billion, an increase of 10% compared to 2022, driven by strong demand across most global markets. EBITDA was a loss of $878 million, or negative 10.3%, compared to positive $1.1 billion or 14.2% a year ago. Fourth quarter 2023 results included $2.04 billion of costs related to the agreement to resolve U.S. regulatory claims, $42 million of costs related to a voluntary retirement and separation program, and $33 million of costs related to the separation of the ATMAS business.

Speaker Change: Now I will comment on the overall company performance for the fourth quarter of 2023 and cover some of our key markets.

Speaker Change: Demand for our products remains strong across many of our key markets and regions revenues for this quarter totaled $8 $5 billion, an increase of 10% compared to 2022, driven by strong demand across most global markets EBIT.

Speaker Change: EBITA was a loss of $878 million or negative 10, 3% compared to positive $1 $1 billion or 14 per two point to 14, 2% a year ago.

Speaker Change: Fourth quarter 2023 results included $2.04 billion of costs related to the agreement to resolve U S regulatory claims $42 million of costs related to a voluntary retirement and separation program and $33 million of costs related to the separation of the atmosphere stuff.

Jennifer Rumsey: This compares to the fourth quarter 2022 results, which included $19 million of costs related to the separation of the atmospheres. Excluding those items, EBITDA was $1.2 billion, or 14.4% of sales, compared to $1.1 billion, or 14.5%. EBITDA dollars increased from a year ago as increased pricing and higher volumes more than offset increased selling, administrative, research, and development expenses, and inflation costs. Research and development expenses increased in the fourth quarter as we continue to invest in products and technologies that will create advantages in the future, particularly in the engine, components, and accelerous segments. The record $34.1 billion, 21% higher than 2022, driven by the addition of meritor and strong demand across most global markets. EBITDA was $3 billion, or 8.9% of sales compared to $3.8 billion, or 13.5% of sales in 2022. The 2023 results include $2.04 billion of costs related to the agreement to resolve U.S. regulatory claims, the voluntary headcount reduction program I noted previously, and $100 million of costs related to the separation of the filtration business.

Speaker Change: This compares to the fourth quarter 2022 results, which include a $19 million of costs related to the separation of the Atmos business.

Excluding those items EBITDA was $1 $2 billion or 14, 4% of sales compared to $1 $1 billion or 14, 5%.

Speaker Change: EBIT dollars increased from a year ago as increased pricing and higher volumes more than offset increased selling administrative research and development expenses and inflation costs.

Speaker Change: Research and development expense increased in the fourth quarter as we continue to invest in the products and technologies that will create advantages in the future, particularly.

Speaker Change: Particularly in the engine components and accelerates segments.

Speaker Change: Record $34 1 billion, 21% higher than 2022, driven by the addition of meritor and strong demand across both global markets EBIT.

Speaker Change: EBITDA was $3 billion or eight 9% of sales compared to $3 8 billion or 13, 5% of sales in 2022.

Speaker Change: 2023 results include $2.04 billion of costs related to the agreement to resolve U S regulatory claims.

Speaker Change: The voluntary head count reduction program I noted previously and $100 million of costs related to the separation of the filtration business. This.

Jennifer Rumsey: This compares to our 2022 results, which included $111 million of costs related to the indefinite suspension of operations in Russia and $81 million of costs related to the separation of filtration. Excluding those items, EBITDA was a record $5.2 billion, or 15.3% of sales, for 2023, compared to $4 billion, or 14.2% of sales, for 2022, as the benefits of higher volume and pricing exceeded increased selling, administrative, research, and development, and inflation costs. EBITDA percent improved year-over-year in the distribution, components, and power system segments. Our power systems business, in particular, finished 2023 with a full year EBITDA of 14.7% of sales, up from 12.2% in 2022. This segment completed the first year of its Focused Business Transformation effort, and the improvement and performance are encouraging.

Speaker Change: This compares to our 2022 results, which included $111 million of costs related to the indefinite suspension of operations in Russia.

Speaker Change: And $81 million of costs related to the separation of the filtration business.

Speaker Change: Excluding those items EBITDA was a record $5 2 billion or 15, 3% of sales for 2023 compared to $4 billion or 14, 2% of sales for 2022 as the benefits of higher volume and pricing exceeded increased selling and administrative research and development and inflation costs.

Speaker Change: Yes.

EBITDA percent improved year over year in the distribution and power system segment.

Speaker Change: Our power systems business in particular finished 2023 with our full year EBITDA of 14, 7% of sales up from 12, 2% in 2022.

Speaker Change: This segment completed the first year of their focused business transformation effort and the improvement in performance is encouraging.

Jennifer Rumsey: You will see from our guidance that we expect further margin gains this year. In addition, Mirator finished 2023 with full-year EBITDA of 10.8% of sales, up from 7.4% in 2022, as our employees did a tremendous job of executing value capture opportunities across the business. I'm very pleased with the performance of Cummins Meritor to date as we continue our program to improve margins in that business and expand its global reach.

Speaker Change: You will see from our guidance that we expect further margin gains this year.

Speaker Change: In addition to our segments Meritor finished 2023 with full year EBITA of 10, 8% of sales up from seven 4% in 2022 as our employees did a tremendous job of executing value capture opportunities across the business.

Speaker Change: I am very pleased with the performance of Cummins Meritor to date as we continue our program to improve margins in that business and expand its global reach.

Jennifer Rumsey: In addition, operating cash flow for 2023 was a record of $4 billion, a significant increase from $2 billion in 2022. I'm proud of our leaders and employees' efforts in 2023 as they helped deliver on one of our primary focus areas. Strong revenue generation will continue to be a top priority moving forward.

Speaker Change: In addition, operating cash flow for 2023 was a record of $4 billion, a significant increase from $2 billion in 2022.

Speaker Change: I am proud of our leaders and employees efforts in 2023 as they helped deliver on one of our primary focus areas strong cash generation, we will continue to be a top priority moving forward.

Jennifer Rumsey: Now, let me provide our overall outlook for 2024 and then comment on individual regions in Denmark. Our 2024 guidance continues to include ATMOS for the full year but excludes any costs or benefits associated with the planned separation of that business. We are forecasting total company revenue for 2024 to be down 2% to 5% compared to 2023, and EBITDA to be in the range of 14.4% to 15.4% of sales, as we anticipate slowing demand in some of our key regions and markets, particularly North America heavy duty trucks. Early in 2024, we expect the heavy duty market to continue at its current rate, which is slightly off the peak of the first half of 2023, with further soften Industry production for heavy-duty trucks in North America is projected to be 245,000 to 265,000 units in 2024, a 10 to 15% decline year over year.

Speaker Change: Now let me provide our overall outlook for 2024, and then comment on individual regions and end markets.

Speaker Change: Our 2024 guidance continues to include <unk> for the full year that excludes any costs or benefits associated with the planned separation of that business.

We are forecasting total company revenue for 2024 to be down 2% to 5% compared to 2023 and EBITDA to be in the range of $14 four to 15, 4% of sales as we anticipate slowing demand in some of our key regions and markets, particularly North America heavy duty truck early.

Speaker Change: In 2024, we expect the heavy duty market to continue at its current rate, which is slightly off the peak of the first half of 2023 with further softening in our forecast in the second half of the year.

Speaker Change: Industry production for heavy duty trucks in North America is projected to be 245000 to 265000 units in 2020 for a 10% to 15% decline year over year.

Jennifer Rumsey: In the medium duty truck market, we expect the market size to be 140 to 150,000 units, down 5% to flat compared to 2023. Our engine shipments for pickup trucks in North America are expected to be 135 to 145,000 units in 2024, a 5 to 10 percent decline year over year as we prepare to launch our model year 2025 in the fourth quarter. In China, we project total revenue, including joint ventures, to increase 3% in 2024. We're projecting a range of down 5% to up 10% in heavy-duty and medium-duty truck demand and expect a range of down 5% to up 5% in demand in light-duty truck markets. We expect replacement demand to be the biggest driver, but the effect may be weakened by a sluggish economy and moderating export demand.

Speaker Change: In medium duty truck market, we expect market size to be 140 to 150000 units down 5% to flat compared to 2023.

Speaker Change: Our engine shipments for pickup trucks in North America are expected to be 135 to 145000 units in 2024.

Speaker Change: 5% to 10% decline year over year as we prepare to launch our model year 2025 in the fourth quarter.

Speaker Change: In China, We project total revenue, including joint ventures to increase 3% in 2024.

Speaker Change: We're projecting a range of down 5% to up 10% and heavy duty and medium duty truck demand and expect a range of down 5% to up 5% and demand in light duty truck market.

Speaker Change: We expect replacement demand to be the biggest driver, but the effect may be weekend by a sluggish economy and moderating export demand.

Jennifer Rumsey: Despite the slow pace of recovery in the Chinese truck market, we expect to see continued strong performance for the 15-liter natural gas engine as we achieve approximately 20% share in the heavy duty market in 2023. In India, we project total revenue, including joint ventures, to increase 9% in 2024, primarily driven by strong power generation and on-highway demand. We expect industry demand for trucks to be flat to up 5% for the year. For global construction, we expect a 5% to 15% decline year over year, primarily driven by weak property investment and shrinking export demand in China.

Speaker Change: Despite the slow pace of recovery in the China truck market, we expect to see continued strong performance for the 15 liter natural gas engine as we achieved approximately 20% share.

Speaker Change: For 2023, and the heavy duty market.

Speaker Change: In India, We project total revenue, including joint ventures to increase 9% in 2024, primarily driven by strong power generation and on highway demand.

Speaker Change: We expect industry demand for trucks to be flat to up 5% for the year.

Speaker Change: For global construction, we expect a 5% to 15% decline year over year, primarily driven by weak property investment and shrinking export demand in China.

Jennifer Rumsey: We project our major global high-horsepower markets to remain strong in 2024. Revenues in the global power generation market are expected to increase 5 to 10 percent, driven by continued increases in the data center and mission-critical markets. Sales and mining engines are expected to be down 5% to up 5%. While a small market for us, demand for oil and gas engines is expected to decrease by 40-50% in 2024, primarily driven by decreased demand in North America.

Speaker Change: We project our major major global high horsepower markets to remain strong in 2024 revenues in our global power generation market are expected to increase 5% to 10% driven by continued increases in the datacenter and mission critical markets.

Speaker Change: Sales of mining engines are expected to be down 5% to up 5% smaller.

Speaker Change: While a small market for us demand for oil and gas engines is expected to decrease by 40% to 50% in 2024, primarily driven by decreased demand in North America.

Jennifer Rumsey: And for the aftermarket, we expect a range of flat to an increase of 5% for 2024, as we expect it largely through inventory management efforts and de-stocking that happened throughout the industry in the second half of 2023. For Accelera, we expect full-year sales to be $450 to $500 million compared to $354 million in 2023. We have a growing pipeline of electrolyzer orders, which we expect to deliver over the course of the next 12 to 18 months, as well as expect continued growth in electrified components.

Speaker Change: And for aftermarket, we expect a range of flat to an increase of 5% for 2024, as we expect to be largely through inventory management efforts and destocking that happened throughout the industry in the second half of 2023.

Speaker Change: And accelerate we expect full year sales to be $450 million to $500 million compared to the $354 million in 2023.

Speaker Change: We have a growing pipeline of electrolyzed their orders, which we expect to deliver over the course of the next 12 months to 18 months as well as expect continued growth in electrified components.

Jennifer Rumsey: In summary, 2023 was a record year for revenues and operating cash flow, excluding the impacts related to the Agreement to Resolve U.S. Regulatory Claims. 2023 was also a record year for EBITDA, net income, and earnings per share. While 2023 revenues were at the high end of our expectations, we anticipate moderating demand in North America truck production in the second half of 2024. We expect this moderating demand to be partially offset by a strong power generation market, resiliency in our distribution business given the strong aftermarket presence, and improved Accelera sales.

Speaker Change: In summary, 2023 was a record year for revenues and operating cash flow, excluding the impacts related to the agreement to resolve U S. Regulatory claims 2023 was also a record year for EBITDA net income and earnings per share.

Speaker Change: While 2023 revenues were at the high end of our expectations, we anticipate moderating demand in North America truck production in the second half of 2024.

Speaker Change: We expect this moderating demand to be partially offset by a strong power generation market resiliency in our distribution business given the strong aftermarket precedent presence and improved accelerate sales.

Jennifer Rumsey: In addition, we are taking steps to reduce costs, optimize our business, and position Cummins for continued success in 2024. We are in a strong position to keep investing in the future, bringing new technologies to customers, and returning cash to our investors. As I close, I would like to officially announce that our Analyst Day is now scheduled for May 16th in New York City.

Speaker Change: In addition, we are taking steps to reduce cost.

Speaker Change: Optimize our business and position <unk> for continued success in 2024.

Speaker Change: We are in a strong position to keep investing in the future, bringing new technologies to customers and returning cash to our investors.

Speaker Change: As I close I would like to officially announce that our analyst day is now scheduled for May 16th in New York City.

Mark Andrew Smith: I look forward to further discussing our strategy and expect invitations to be sent out shortly. Now, let me turn it over to Mark, who will discuss our financial results in more detail. Thank you, Jen, and good morning, everyone.

Speaker Change: I look forward to further discussing our strategy and expect invitations to be sent out shortly now let me turn it over to Mark who will discuss our financial results in more detail mark. Thank.

Mark Andrew Smith: Thank you Jen and good morning, everyone I will acknowledge you have a heavy cold. This morning, so if I sound more downward unusual I mean little Rafa, please take that into consideration.

Mark Andrew Smith: I will acknowledge I have a heavy cold this morning, so if I sound more dour than usual and a little rougher, please take that into consideration. We delivered solid operational results in the fourth quarter, exceeding our expectations for revenue and delivering EBITDA margins in line with our guidance. Compared to 2022, our full-year sales grew 21%, and our operating cash flow more than doubled to a record $4 billion, reflecting the strong focus of our employees on meeting customer demand and improving working conditions. Now, let me go into more details on the fourth quarter and full year performance.

Mark Andrew Smith: We delivered solid operational results in the fourth quarter exceeding our expectations for revenue and.

Mark Andrew Smith: And delivering EBITDA margins in line with our guidance.

Mark Andrew Smith: 2022, our full year sales grew 21%.

Mark Andrew Smith: Operating cash flow more than doubled to a record $4 billion.

Mark Andrew Smith: Reflecting the strong focus of our employees are meeting customer demand.

Mark Andrew Smith: From a demand and improving working capital.

Mark Andrew Smith: Now let me go into more details on the fourth quarter and full year performance Q4 revenues were $8 $5 billion and EBITDA was a net loss of $878 million.

Mark Andrew Smith: All four revenues were $8.5 billion, and EBITDA was a net loss of $878 million, or a negative 10.3% of sales. For the full year, we reported revenues of a record $34.1 billion, and EBITDA was $3.0 billion, or 8.9% of flow. As Jen mentioned, we recorded a one-time charge of $2.04 billion in Q4 to settle the previously disclosed U.S. regulatory claim. Fourth quarter results also included $42 million of costs associated with the Voluntary Retirement and Separation Program. Costs associated with the planned separation of Atmos were $33 million in the fourth quarter and $100 million for the full year, compared to $19 million in the fourth quarter of 2022 and a total of $81 million in the previous year.

Mark Andrew Smith: Negative 10, 3% of sales.

Mark Andrew Smith: For the full year, we reported revenues of a record $34 1 billion.

Mark Andrew Smith: EBITDA was $3 billion or eight 9% of sales.

Mark Andrew Smith: As Jim mentioned, we recorded a onetime charge of $2 4 billion in Q4 to settle the previously disclosed U S regulatory claims.

Mark Andrew Smith: Fourth quarter results also included $42 million of costs associated with the voluntary retirement and separation programs.

Costs associated with the planned separation of Atlas with $33 million in the fourth quarter and 100 million for the full year.

Mark Andrew Smith: Compares to $19 million in the.

Mark Andrew Smith: Fourth quarter of 2022.

Mark Andrew Smith: A total of $81 million and the <unk>.

Mark Andrew Smith: This year.

Mark Andrew Smith: Full year 2022 results also included $111 million of costs related to the indefinite suspension of our operations in Russia. To provide clarity on the fourth quarter and 2023 full year operational performance of our business, I am now excluding the costs associated with the regulatory settlement, voluntary retirement separation programs, planned separation of ATMOS, and the indefinite suspension of our operations in Russia in my following comments.

Mark Andrew Smith: Full year 2022 results also included $111 million of costs related to the indefinite suspension of our operations in Russia.

Mark Andrew Smith: To provide clarity on the fourth quarter and 2023 full year operational performance of our business.

Mark Andrew Smith: Excluding the costs.

Mark Andrew Smith: With the regulatory settlement voluntary retirement separation flu programs.

Mark Andrew Smith: Plumbing separation of Atlas and the indefinite suspension of our operations in Russia.

Mark Andrew Smith: In my following comments.

Mark Andrew Smith: Q4 revenues were $8.5 billion, an increase of 10% from a year ago. Sales in North America increased 8%, driven by improved pricing across multiple end markets and stronger demand for power generation products. International revenues increased 13%, driven by strong global power generation demand, particularly for data centers.

Mark Andrew Smith: Q4 revenues were $8 $5 billion, an increase of 10% from a year ago sales.

Mark Andrew Smith: Sales in North America increased 8% driven by improved pricing across multiple end markets and stronger demand for power generation products.

Mark Andrew Smith: International revenues increased 13% driven by strong global power Gen demand, particularly for data centers.

Mark Andrew Smith: EBITDA was $1.2 billion or 14.4% of sales for the quarter, compared to $1.1 billion or 14.5% a year ago. However, improved pricing was offset by higher compensation costs, increased investment and development, and Capabilities Now are AccelerAffect. Higher variable compensation costs were driven primarily by stronger operating cash flow, which exceeded our expectations for the quarter and the full year. Now I'll go into each line item with a little bit more detail.

Mark Andrew Smith: EBITDA was $1 $2 billion of 14, 4% of sales for the quarter compared to $1 $1 billion or 14, 5%.

Mark Andrew Smith: Sales a year ago.

Mark Andrew Smith: Proved pricing was offset by higher compensation costs increased investment in development.

Mark Andrew Smith: And capabilities and our accelerators segment.

Higher variable compensation cost would crime, driven primarily by stronger operating cash flow, which exceeded our expectations for the quarter.

Mark Andrew Smith: The full year.

Speaker Change: Now I'll go into each line item was a little bit more detail.

Mark Andrew Smith: Gross margin was $2 billion, or 23.7% of sales, an increase of $201 million, or 30 basis points, from the prior year. Gross margin was driven by favorable pricing and higher volumes, partially offset by higher product coverage costs and compensation expenses. Selling, admin, and research expenses increased by $154 million, or 15%, as we continue to invest in the development of new products that will drive future growth, and also due to higher variable compensation costs. Joint venture income increased $25 million due to slowly recovering demand in China from a low base in 2022. Other income was $50 million, an increase of $17 million from a year ago, primarily due to the recovery of technology fees from customers. Interest expense was $92 million, an increase of $5 million from the prior year, driven by higher interest rates on the floating rate portion. The Ultimate Parody Site-Limited Company, LLC. All the ineffective tax rate in the fourth quarter was negative 13.3% principally due to non-deductible costs associated with the regulatory settlement.

Speaker Change: Gross margin was $2 billion or 23, 7% of sales an increase of $201 million or 30 basis points.

Speaker Change: From the prior year improved.

Speaker Change: Margins were driven by favorable pricing and higher volumes.

Speaker Change: Fully offset by higher product coverage costs.

Speaker Change: Compensation expenses.

Speaker Change: Selling admin and research expenses increased by $154 million or <unk>.

Speaker Change: 15%, because we continue to invest in the development new products that will drive future growth and also due to higher variable compensation costs.

Speaker Change: Joint venture income increased $25 million due to slowly recovering demand in China from a low base in 2022.

Speaker Change: Other income was $50 million, an increase of $17 million from a year ago.

Speaker Change: Primarily due to the recovery of technology for use from customers.

Speaker Change: In the fourth quarter interest expense was $92 million, an increase of $5 million from the prior year driven by higher interest rates on the floating rate portion.

Speaker Change: Good day.

Speaker Change: The all in effective tax rate in the fourth quarter was negative 13, 3% principally due to nondeductible costs associated with the regulatory settlement.

Mark Andrew Smith: All in, the net loss for the quarter was $1.4 billion or negative $10.01 per diluted share, which includes $2.04 billion or $13.76 per diluted share of costs associated with the regulatory settlement, $42 million or, our $0.22 per diluted share of costs associated with the Voluntary Retirement Separation Program, and $33 million or $0.17 per diluted share of costs associated with a planned separation of acts. Operating cash flow was an inflow of $1.5 billion, $642 million higher than the fourth quarter last year, driven by strong earnings and a lower expansion of our working capital across the business. For the full year 2023, revenues were a record $34.1 billion, up 21% or $6 billion from a year ago, driven by the inclusion of a full year of Meritor results and strong organic growth. Sales in North America increased 22%, and international sales increased 20%. Within those numbers, organic sales growth was 12% driven by improved pricing and strong global demand for power generation products. Due to continued strength in the North American truck market and slowly improving economic conditions in China.

Speaker Change: All in net loss for the quarter was $1 $4 billion for negative $10.01 per diluted share, which includes $2 4 billion.

Speaker Change: $13.76 per diluted share of cost associated with the regulatory settlement.

Speaker Change: $2 million or <unk>.

Speaker Change: 22 per diluted share.

Speaker Change: Costs associated with the voluntary retirement and separation programs.

Speaker Change: $33 million or <unk> 17 cents per diluted share of cost associated with the planned separation of <unk>.

Speaker Change: Operating cash flow was an inflow of $1 $5 billion 642 million higher than the fourth quarter last year driven by strong earnings.

Speaker Change: Aloha expansion of our working capital across the business.

Speaker Change: For the full year 2023 revenues were a record $44 $1 billion.

Speaker Change: 21% or <unk> 6 billion from a year ago, driven by the inclusion of a full year meritor results and strong organic growth.

Speaker Change: Sales in North America increased 22% and international sales increased 20% within those numbers organic sales growth was 12% driven by improved pricing strong global demand for power generation products.

Speaker Change: Continued strength in the North American truck market and slowly improving economic conditions in China.

Mark Andrew Smith: EBITDA for the year was $5.2 billion, or 15.3% of sales in 2023, an increase of $1.2 billion, or 110 basis points from the prior year. The increase in EBITDA percent was driven by higher volumes, favorable pricing, and logistics costs, as well as a modest and favorable mark-to-market impact from investments that underpin our company-owned life insurance plans, all of that partially offset by higher compensation expenses.

Speaker Change: EBITDA for the year was $5 $2 billion of 15, 3% of sales for 2023, an increase of $1 2 billion or 110 basis points from the prior year.

Speaker Change: The increase in EBITDA percent was driven by higher volumes favorable pricing and logistics costs.

Speaker Change: And the modest favorable mark to market impact from investments that underpin our company owned life insurance plans all of the partially offset by higher compensation expenses.

Mark Andrew Smith: All in net earnings were $735 million, or $5.15 per diluted share, compared to $2.2 billion, or $15.12 per diluted share, a year ago. 2023 net earnings include $2.04 billion, or $13.78 per diluted share of costs related to the regulatory settlement, $100,000,000.00, or $0.54 per diluted share, costs related to the separation of atmospheres. $42 million, or $0.22 per diluted share, of costs related to the voluntary separation programs that we implemented during the fourth quarter.

Speaker Change: All in net earnings were $735 million or $5.15 per diluted share.

Speaker Change: Prior to $2 2 billion or 50.

Speaker Change: $15.12 per diluted share a year ago.

Speaker Change: 2023, net earnings include $2 4 billion or $13.78 per diluted share of costs related to the regulatory settlement.

Speaker Change: $100 million of point.

Speaker Change: 54 cents per diluted share.

Speaker Change: With costs related to the separation of about $42 million or 22 cents per diluted share of costs related to the voluntary separation programs that we implemented during the fourth quarter.

Mark Andrew Smith: Full year cash from operations was a record inflow of $4 billion, doubling from a year ago as a result of higher operating income and much lower expansion of working capital. The Bulletproof Executive 2013, Capital expenditures in 2023 were $1.2 billion, in line with our forecast, and an increase of $297 million from 2022, as we continue to invest in new products and capabilities to drive growth, particularly related to the fuel agnostic platforms within our core business. Our long-term goal is to deliver at least 50% of operating cash flow to shareholders. And over the past five years, we've returned 56% of operating cash flow in the form of share repurchase and dividend. All in all, Hang on, I've jumped on one page too many times. Sorry about that; I've gone the wrong way, and Hussain's son's dad.

Full year cash from operations was a record inflow of $4 billion.

Speaker Change: Doubling from a year ago as a result of higher operating income.

Speaker Change: Much lower expansion of working capital.

Speaker Change: Across the company.

Speaker Change: Capital expenditures in 2023 were $1 2 billion in line with our forecast and an increase of $297 million from 2022.

Speaker Change: As we continue to invest in the new products and capabilities to drive growth, particularly related to the fuel agnostic platforms within our core business.

Speaker Change: Our long term goal is to deliver at least 50% of operating cash flow to shareholders and over the past five years, we've returned 56% of operating cash flow in the form of share repurchases and dividends.

Speaker Change: All in.

Speaker Change: Hum.

Speaker Change: Uh-huh jumped one page too many sorry about that the wrong way.

Speaker Change: Okay.

Speaker Change: Yes.

Mark Andrew Smith: In 2023, we focused our capital allocation on organic investments and dividend growth, returning $921 million to shareholders via the dividend and debt reduction following the acquisition of Meritil. We currently expect that our priorities for cash deployment in 2024 will mirror those of last year. I'll now summarize the 2023 results for the operating segments and provide guidance for 2024. If I need to say it again, I will say that the results... Then I'm going to discuss going forward, exclude the costs related to the separation of ATMOS, the costs associated with the voluntary retirement and separation, and the costs associated with the indefinite suspension of our operations in Russia in 2022.

Speaker Change: In 2023, we focused our capital allocation on organic investments and dividend growth returning $921 million to shareholders via the dividend.

Speaker Change: And debt reduction following the acquisition of <unk>.

Speaker Change: Currently expect that our priorities for cash deployment in 2024 will mirror those of last year.

Speaker Change: I will now summarize the 2023 results for the operating segments and provide guidance for 2024.

Speaker Change: Okay.

Speaker Change: If I need to say it again I will let the results.

Speaker Change: Im going to discuss going forwards exclude the costs related to the separation of the costs associated with the voluntary retirement and the separation and the costs associated with the indefinite suspension of our operations in Russia in 2022.

Mark Andrew Smith: Components segment revenues were a record $13.4 billion, 38% higher than the prior year. EBITDA was 14.4% of sales, compared to 14.2, an increase of $540 million, or 40%. And finally, for 2024, we expect total revenue for the components business to decrease 2-7% and EBITDA margins to be in the range of 13.9-14.9%. For the engine segment, in 2023, revenues increased 7% to a record $11.7 billion, and EBITDA was 14.1% of sales, compared to 14.3% a year ago. In dollar terms, EBITDA increased 74 million, or 5%. In 2024, we project revenues for the engine business will decrease 2 to 7% due to expected moderation in the North American heavy duty truck market, most likely in the second half or most prominently in the second half of the year. 2024 EBITDA is projected to be in the range of 12.5 to 13.5%. In the distribution segment, revenues increased 15% from a year ago to a record $10.2 billion. Nibit Da increased by 28% and improved as a percent of sales to 11.8% compared to 10.6% a year ago.

Speaker Change: Components segment record revenues were a record $13 four.

Speaker Change: <unk>.

Speaker Change: 38% higher than the prior year ebay.

Speaker Change: EBITDA was 14, 4% of sales compared to $14 two.

Speaker Change: An increase of $540 million or 40%.

Speaker Change: For 2024, we expect total revenue for the components business decreased 2% to 7%.

Speaker Change: EBITDA margins to be in the range of $13 nine to 14, 9%.

Speaker Change: For the engine segment 2023 revenues increased 7% to a record $11 $7 billion and EBITDA was 14, 1% of sales compared to 14, 3% a year ago.

Speaker Change: In dollar terms, EBITDA increased $74 million or 5%.

Speaker Change: In 2024, we project revenues to the engine business will decrease 2% to 7% due to expected moderation in the North American heavy duty truck market most likely in the second half while most prominently in the second half of the year two.

Speaker Change: 2020 for EBITDA is projected to be in the range of 12 five to 13, 5%.

Speaker Change: In the distribution segment revenues increased 15% from a year ago to a record $10 2 billion EBIT.

Speaker Change: EBIT increased by 28%.

Speaker Change: And improved as a percent of sales to 11, 8% compared to 10, 6% a year ago.

Speaker Change: We expect distribution revenues to be down.

Speaker Change: Between down three 2% and EBIT margins to begin in the range of 11, four to 12, 4% for the full year.

Speaker Change: In the power systems segment.

Speaker Change: Revenues were also a record $5 7 billion or.

Speaker Change: 13% higher than last year.

Speaker Change: EBITDA was 14, 7% or 250 basis points higher than 2022, driven by favorable pricing.

Speaker Change: Strong volume.

Speaker Change: And certain cost reduction actions.

Speaker Change: In 2024, we expect power.

Speaker Change: <unk> revenues.

Speaker Change: To be down 3% to up 2%.

EBIT in the range of 15 to 16, 2%.

Speaker Change: Accelerate revenues increased to 354 million $354 million in 2023 with a net loss.

Speaker Change: EBITDA level of $443 million in 2024, we expect.

Speaker Change: So they are using it.

Speaker Change: Anticipate that accelerated revenues will increase in the range of $450 million to $500 million.

Speaker Change: Net losses to reduce to between 400 and $430 million as we continue to make targeted investments in future technologies, whilst improving the operating performance of our current products.

Speaker Change: Currently project 2024 company revenues to be down 2% to 5%.

Speaker Change: <unk> EBITA margins in the range of $14 four to 15, 4%.

Speaker Change: Our effective tax rate is expected to be approximately 24% in 2000, <unk>, excluding any discrete items catheter.

Speaker Change: Capital investments will likely be in the range of one two to $1 3 billion.

Speaker Change: As we continue to make critical investments to support future growth.

Speaker Change: To summarize we delivered record sales and strong operating profits in 2023 cash generation has been and will continue to be a strong focus as we enter 2020 for enabling us to continue investing in new products.

Speaker Change: Even during times of economic uncertainty, returning cash to shareholders and maintaining a strong balance sheet.

Speaker Change: As John indicated we do expect moderation in several of our key markets in 2020 for especially in the U S truck market as reflected in our guidance, we've already taken actions to reduce costs in the business.

Speaker Change: On a good situation to navigate the economic cycle improve our cycle over cycle performance in 2024.

Speaker Change: Subject to our mark to market conditions, our intention is to split off the remaining ownership in Atlas through an exchange offer as our next step in the separation as we seek to reposition our portfolio for the future.

Speaker Change: Part of the proposed exchange offer common shareholders will have the choice to exchange all some or none of the shares of common stock to.

Speaker Change: Shares.

Speaker Change: Common stock subject to the terms of the offer.

Speaker Change: The exact timing of our decision to launch an exchange offer will.

Speaker Change: Stated earlier depend on market conditions with the launch of the tender could occur as early as in the coming days our.

Speaker Change: Our guidance for Cummins for this year assumes the inclusion of Atlas <unk> consolidated results for the entirety of 2024 and excludes any costs or benefits of the separation.

Speaker Change: The benefits to come in are expected to include a lower number of shares outstanding.

Speaker Change: Completion of the exchange.

Speaker Change: We will update our guidance as and when the separation is completed thank you for your interest today now let me turn it back over to Chris.

Speaker Change: Okay.

Chris Crew: Thank you Mark out of consideration to others on the call I would ask that you limit yourself to one question and a related follow up if you have an additional question. Please rejoin the queue operator, we're ready for our first question.

Chris Crew: Thank you if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line into the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Chris Crew: One moment, while we poll for questions.

Chris Crew: Our first question is from Jerry Revich with Goldman Sachs. Please proceed.

Jerry Revich: Yes, hi, good morning, everyone.

Jerry Revich: Morning, Jerry.

Jerry Revich: Jennifer more Chris so normally when you folks have new edge regulations.

Jerry Revich: Okay to see higher margins from you folks I know, we're a couple of years out.

Jerry Revich: From the 27 regulations, but can you just share some high level thoughts it looks like the average selling price. So go ahead, Jim could double given that better warranty increase.

Jerry Revich: I'm wondering if you could just comment on that.

Jim: And then broadly just talk about the parameters.

Speaker Change: How do you expect.

Jim: Great time to play out.

Jim: Your business compared to the margin expansion, we've seen on prior admission cycles, where you folks have increased your rail yet thanks.

Speaker Change: Yes. Thanks for the question Gerry so as you've seen from us in the past as we as we launch product with new emissions regulations, typically we see a content increase.

Speaker Change: Of course, and then also look at creating value for our customers and have an opportunity to price.

Speaker Change: Price accordingly with them so.

Speaker Change: We are looking to continue to do that as we launch new products in particular these fuel agnostic engine platforms of course, we also typically see.

Speaker Change: A bump up in our warranty costs, because we arent began accruing at a high rate until we've demonstrated.

Speaker Change: Capability of that platform. So that's the other factor to watch it watch as we launch those products, but what you see us doing right now is really focusing on improving operating performance of the business.

Speaker Change: As well as investing and the key platforms for the future that we believe will bring value to our customers and position the company for profitable growth.

Speaker Change: Okay Super and then.

Speaker Change: Can I ask separately, given the high logistics costs.

Super: The industry saw in <unk>.

<unk> thousand 23 can you comment on where your labor hours per unit.

Super: <unk> today versus normal and to what extent.

Super: Source of upside.

Super: Relative to the guide.

Super: Yes, Jerry I think I think that has been as we've progressed through 2023 continue to drive more and more efficiencies some of the supply chain hiccups that we have experienced are beginning to iron out we're getting better on time delivery and that does allow us to drive more efficiency in our plants. So I think we are continuing to see that as we.

Super: Progress through the latter half of the year as we expect.

As both John and Mark mentioned volumes too, particularly in the North America heavy duty truck space come down a bit and moderate a bit.

Super: We can continue to drive those efficiencies so I think the.

Super: Cost per labor hour, we'll continue to get better.

Super: And I would say the overall costs on labor have somewhat leveled out.

Super: As you know a long period of them rising.

Super: Through the course of the last six months that has settled down and become much more of a flat.

Super: In the near term, there's a little bit of increased anxiety about.

Super: In the middle East and some shipping delays.

Super: Some.

Super: Reversing of the trend we've seen in logistics costs, which have been actually going down for us Jerry.

Super: Want to overstate that obviously.

Super: As a little bit of a concern in the near term.

Super: Our next question is from Tim Thein with Citigroup. Please proceed.

Tim W. Thein: Hi, Thanks, Good morning, maybe just one.

Tim W. Thein: Bit of a clarification, but on the comments on.

Tim W. Thein: Our engine shipments in North America for on Highway I think you said 100 and call. It 140000.

Tim W. Thein: Down 5% to 10% is that right.

Tim W. Thein: Relative to the total north of heavy and medium duty market or was that a comment just on heavy duty.

Tim W. Thein: In terms of.

Tim W. Thein: The medium.

Speaker Change: Yes on the medium duty, Tim we had it down.

Speaker Change: One 5% to flat and Thats, a 140 to 150, the heavy duty market, we have it down at 10% to 15% and Thats.

Speaker Change: Oh.

Speaker Change: Our guide for the year, so and I'll, just give a little a little color I mean as you know this has been an unusual cycle I think you're all seeing that with very high usage of trucks in the 'twenty, one 'twenty two time frame and supply constraints that prevented the industry from fully meeting customer demand.

Speaker Change: That has improved over the course of 2023, we saw the markets peak really in the second quarter end.

Speaker Change: Some.

Speaker Change: Slight drop off in the second half, but to the high end of our guide it was not as much as we had forecast going into Q1 in our backlogs look strong.

Speaker Change: In particular, feeling quite good about the medium duty market and continuing to watch what happens we are still predict Dana shallow cycle and further softening as we go into the second half of the year.

Speaker Change: So that just some color behind those numbers, that's how I would describe that.

Speaker Change: Okay.

Speaker Change: A question on kind of what that implied in terms of the market share, but I can follow up with Chris after.

Speaker Change: And then the second one is just on on the implied Decrementals for the engine segment in 2004.

Speaker Change: Obviously the.

Speaker Change: Kind of a high 30% number.

Speaker Change: JV income will certainly be a drag on that but maybe not to go through every single piece, but the.

Speaker Change: The parts headwind was was pronounced in 'twenty three for comment and I'm just curious for that piece, specifically you outlined the guidance for the off highway.

Speaker Change: <unk> outlook for that.

Speaker Change: And anything else that maybe you'd call out that's relevant to the to the.

Speaker Change: Year over year margin performance for engine. Thank you yeah. Good question Tim.

Speaker Change: Main thing that you didn't cover it with just our assumptions around product coverage, we're not expecting any significant change.

Speaker Change: But baked into our guidance is a little bit higher coverage a warranty as a percent of sales in the engine business, we'll see how that plays out but that's okay.

Speaker Change: The other factor that's in there that you didn't list.

Speaker Change: Our next question is from David Raso with Evercore ISI. Please proceed.

David Raso: Hi, Thank you just sort of a bigger picture question I know, there's been a lot of cost involved and you are right in the sector of course of AR.

David Raso: Call. It a decade long energy transition that Theres a lot of expenses I'm. Just curious if you look out over the next year or two is there an inflection point that you see your cost.

David Raso: Begin to recede.

David Raso: And if not is there a thought of maybe a larger cost out program I recognize the software separation program you discussed, but just something maybe more substantial size.

David Raso: Just given relative to other names, we will look at they've had a real strong run them on profitability. The last couple of years and it's been a little more of a challenge for your margins. So just just curious if you see something on the horizon that really changes that.

David Raso: Cost inflection or maybe Oh.

David Raso: The idea of you've proactively spend.

Speaker Change: Spend inflection coming down or something on the cost side that maybe you can do yes, David. Thanks. Thanks for the question first I'll say.

Speaker Change: Thank you said a decade.

Speaker Change: Long energy transition I will just put an S on that decades long right, it's going to take.

Speaker Change: Time, the reality is if you look across our different markets and regions, it's going to take time for that transition to occur.

Speaker Change: We are in a period of really peak investment in the engine business.

Speaker Change: As we invest in these fuel agnostic engine platforms. You know, we've got a major investment in R&D and capital to do that and we think that those engines are going to really position us well with high efficiency diesel products as customers.

Speaker Change: And continue decide not to invest in their own platforms. Then to use comments and then also the fuel flexibility that will help customers as they begin to transition, whether it's natural gas or hydrogen.

Speaker Change: Based engine solutions and so the next few years until we launch those platforms and the 'twenty six 'twenty seven timeframe, we're seeing higher levels of of R&D and those those products and then of course, we're also in a period, where we've got somewhat lower revenue and higher investments in the accelerant business and we are pacing that investment based on.

Speaker Change: And how we see the market moving you know, we're looking at opportunities to share investments, while having a leading solution like you saw us deal with the battery cell joint venture.

Speaker Change: As as revenues grow we improve part of those businesses and electrified components. We've now delivered 500 buses with Bluebird and ramping up the axe. The electrolyze are that will help improve margin performance of the business. There and then the last thing I'd tell you is as comments has done and we will continue.

Speaker Change: The deal we're looking at how do we improve.

Speaker Change: Parts of our business until following the acquisition of the North America distribution business, we had a focused investment on improving margin there and you see that playing out in the distribution business performance I talked about the focus last year that started in our power systems business. You say you see that playing out there the meritor integration.

Speaker Change: We're continuing to look at places that we can improve.

Speaker Change: Operating performance of our business and then watch market demands in and cost into the voluntary reduction actions that we took last year help us as we see some reduction in revenue. This year. So all those things come together to allow us to continue to improve.

Speaker Change: Our returns to investors, while making sure we're investing in key products and technologies for the future.

Speaker Change: Alright, Thank you and just real quick and I'll hop off the cadence of the declines in North America truck that Youre looking at experience as a year goes on.

Speaker Change: Can you give us a little sense of the cadence maybe from an industry perspective.

Speaker Change: Would your declines the cadence be any different.

Speaker Change: The idea of the lead lag between what's in inventory how early you ship just trying to get a sense for the cadence and how you relate to the industry cadence. Thank you.

Speaker Change: Yeah, great. So obviously theres some theres some.

Speaker Change: Lead that we have in supplying engines into truck build so our engine build rates will slightly.

Speaker Change: Lead truck build rates, but as I said earlier from a guy from a guide perspective.

Speaker Change: We think where we were running as we ended the year is going to hold pretty steady through the first part of the ore and then we're forecasting forecasting some softening towards.

Speaker Change: Towards the end of second quarter and entered the second half of the year and in.

Speaker Change: Medium duty truck, there really isn't that much difference between the two.

Speaker Change: Market and ours, and then heavy duty Thats, where we see little bit more vulnerability for the.

Speaker Change: The market would largely expect us to move in line with the market and then the last dynamic is in pickup we got the product changeover that'll drive Q4 volumes, though are in pickup.

Speaker Change: Yeah.

Speaker Change: Our next question is from Haynesville Castello with Morgan Stanley. Please proceed.

Haynesville Castello: Hi, Good morning, Thanks for taking my question I, just wanted to unpack that cadence for the second half a little bit more I think last last quarter. You had indicated aftermarket was an area that maybe it was giving you a bit of a signal that there was a bit of a softening and I think you indicated that things came in maybe the higher end of your expectations and you kind of see that continuing.

Haynesville Castello: To the first half so as we kind of position that second half slowdown and now an expectation for aftermarket to actually pick up from the kind of flat to up 5% through the year can you tell us I guess, what youre seeing in terms of customer.

Haynesville Castello: Commentary or any kind of signs or what kind of gives you confidence in that second half slow down as we think about the year.

Speaker Change: Yes, I'll have a go.

Speaker Change: First question first of all I'll, just say on aftermarket we saw a very pronounced.

Speaker Change: I would say some element of destocking or lower production for cross sell lower demand in pumps in Q4, which we largely attribute to.

Speaker Change: Customer cash flow management, we don't expect that to.

Speaker Change: To be a continuing trend, we expect to recover from Q4 levels on parts and be pretty steady across the year.

Speaker Change: On the truck builds but of course, you've heard from most of our major customers. So we really don't have much more to say other than the backlog of trucks has been.

Speaker Change: Slowly edging down and then the thing that gives us the broader concern as the spot rates and the health of the truck fleet operators. That's our principal concern is not our OEM customers and right now the backlog and the orders still continue.

Speaker Change: Quite decent levels, it's what's what's happening to the underlying economics.

Speaker Change: Freight activity.

Speaker Change: What's giving us the.

Speaker Change: And soon combined which hasn't been moving in the right direction combined with the slowly easing heavy duty backlog so it isn't.

Speaker Change: Kind of pronounced downturn, we might have seen in prior cycles at this point.

Speaker Change: But that's those are the factors that are weighing into our consideration and I think our.

Speaker Change: Guidance is more conservative than anybody else's.

Speaker Change: Don't have any other observations.

Speaker Change: Beyond those really.

Speaker Change: Got it that's helpful. And then maybe pivoting to accelerate I just wanted to maybe unpack that a little bit in terms of.

Speaker Change: Curious what youre seeing in the backlog trends from <unk> to <unk> and as you kind of deliver on at least an.

Speaker Change: Electrolyzed versus over.

Speaker Change: Over the next 12 to 18 months.

Speaker Change: Can you talk to us I guess about the cadence of the profitability of that business, we kind of exit 2024 and you start.

Speaker Change: Higher deliveries on those.

Speaker Change: What would you kind of foresee the exit rate will be in terms of that profitability.

Speaker Change: Yes. So we are in a period of still pretty heavy investment in the axe all our businesses is really <unk>.

Speaker Change: In both R&D and manufacturing investments to scale up the product and we're fortunate we have existing plant and further that we can invest with then.

Speaker Change: To do that to begin to produce electrolyzed with them and we continue to see growing demand and backlog is as I noted at a record level for <unk>. So that that production rate is going to begin to grow and then you'll see margin performance in the electrolyze their portion of the business improving as the revenue.

Speaker Change: Is grow and we deliver that that backlog out into the market same thing in our electrified components business as we see revenue growth there.

Speaker Change: You'll see margin performance improvement one thing we have now included in our 2024 invest.

Speaker Change: Investment of course is beginning to invest in the battery cell joint venture and we believe that that is a key investment that we're making together to ensure we have a leading cell for commercial vehicles here in the U S.

Speaker Change: And domestic supply, which will both allow.

Speaker Change: Asking our customers to take advantage of incentives that are available and ensure security of supply over time into this market.

Speaker Change: Our next question is from.

Speaker Change: Rob Wertheimer with Melius research. Please proceed.

Rob Wertheimer: Yeah, Hi, I Wonder if you could give us some thoughts on what's happening in the data center and large engine market. I mean, obviously, it's very strong I don't know how many years of visibility you have or what that market looks like.

Speaker Change: Your primary competitor announced a capacity expansion I don't know where your capacity and your room to grow into that market. If it is a multiyear kind of curve.

Speaker Change: So I wonder if you could kind of give us an update on dynamics there.

Speaker Change: Yeah, the data center market as our exciting growth market has been for several years the trend with increasing cloud data data storage in the cloud and now with artificial intelligence and other investments. We continue to see very strong demand, we guided up 10% to 15% backlog for that market is very.

Very strong we're looking at our capacity to make sure that we can.

Speaker Change: To meet the market demand of feeling good about the product offering that we have and of course, you know that business and our focus on improving underlying performance.

Speaker Change: Performance of that business will help us as that market grows.

Speaker Change: Probably the clearest secular trend over the next couple of years, Yeah, I think it will continue.

Speaker Change: Yeah.

Speaker Change: And then do you have room to grow in 'twenty, five and 26, maybe.

Speaker Change: I want to share too much of your capacity, but it seems as though you're probably you're probably being asked.

Speaker Change: To quote or to think about capacitor that far out right.

Speaker Change: Yes, I will just say, we expect that that trend of datacenter market growth will continue.

Speaker Change: You know we are and will continue to look at our capacity and how we positioned to meet that demand.

Speaker Change: Okay perfect I'll stop there if I can sneak one more in on medium duty, there's a bit of a narrative that.

Speaker Change: Coverages.

Speaker Change: Constrained production.

Speaker Change: <unk> prioritized large.

Speaker Change: Class eight over the medium duty and that's reflected somewhat in industry outlooks and neuro I'm just wondering if.

Speaker Change: With medium duty has more inherent demand in that.

Speaker Change: Bye.

Speaker Change: Interest rates or anything else or if that's kind of where the market is kind of flattish.

Speaker Change: Yes, I mean, there were certainly the Oems experienced a number of supply chain constraints continue.

Speaker Change: Continued in <unk> and 'twenty, three and even into the early part of this year frame rails.

Speaker Change: In particular, so we are as you as you saw really expect the medium duty market to continue to hold pretty flat to where it is now it's quite strong we of course have a strong position in that market and we're seeing continued.

Speaker Change: Demand and pent up demand from some other customers in that market for a product.

Speaker Change: Our next to last softening there then hasnt duty.

Speaker Change: Our next question is from Tami Zakaria with Jpmorgan. Please proceed.

Tami Zakaria: Hi, good morning.

Tami Zakaria: Thanks for taking my question.

Tami Zakaria: I think you highlighted zeb adoption scenarios at your last analyst day.

Tami Zakaria: As of today, I know you're hosting another analyst day, this year, but as of today.

Tami Zakaria: Scenario, the fast with the low teens.

Tami Zakaria: Seems more likely and how do you think that affects your ex dulera target of 6% to 13 billion revenue by 2030, if any any update updates on that.

Speaker Change: Yeah. As you said, we did a kind of a low and a high scenario for adoption at our last analyst day, and you can expect that we're going to refresh our view.

Speaker Change: Of that as we go into the analyst day in May what I would say is that there are regulations and incentives that are helping to start to drive that adoption.

Speaker Change: Uh huh.

Speaker Change: Maybe more towards the lower end of those scenarios as to what we would think and we are continuing to look at pacing of investment to make sure that we're.

Speaker Change: Managing that in line with how we see adoption actually occurring.

Speaker Change: Got it so is it more leaning towards let's say the floor version does that have.

Speaker Change: Dan planning or somewhat negative a slowing impact on the extra <unk>.

Speaker Change: Targets that you have out there.

Speaker Change: Yes, I mean, we're we're still within that would still fall within the range that we gave in the analyst day consistent with those range of scenarios that we suggest that I recall that.

Speaker Change: A.

Speaker Change: Portion a large portion of that revenue in 2030 for acceleration in the growth of the Electrolyze our business as well.

Speaker Change: Our next question is from Noah Kaye with Oppenheimer and company. Please proceed.

Noah Kaye: Thanks, So much first of a housekeeping question just trying to understand.

Noah Kaye: <unk>.

Noah Kaye: Cash flow dynamics, as we exit the year and the leverage profile.

Noah Kaye: Obviously, the settlement impacts that a bit but you typically have a target to return 30% of our cash.

Noah Kaye: Cash flow to shareholders.

Noah Kaye: How are we thinking about return of capital this year and we're aiming to end the year on leverage.

Noah Kaye: Yes.

Speaker Change: Morning, Noah So we're going to start the year with the same stance as last year.

Speaker Change: Invest in the business.

Speaker Change: Dividend focus.

Noah Kaye: And some more delevering.

Noah Kaye: The way it will start in the year, we will continue to evaluate.

Noah Kaye: Evaluate that with our board as we see how the cycle unfolds.

Noah Kaye: At least that's our initial stance of course part of our in use where we've.

Noah Kaye: Generated more cash than we've needed then we've returned significantly more than the 50% in any given year.

Noah Kaye: Hum.

Noah Kaye: We think this is the wisest approach right now until we see a little bit more on the cycle.

Speaker Change: Okay. So you do expect to Delever.

Speaker Change: As we get to the end of the year.

Speaker Change: Yes, yes.

Speaker Change: And then just on the guide for China truck seems a bit wide can you can talk us through to the low end and the high end of the range in terms of the scenarios you're envisioning.

Speaker Change: The high end.

Speaker Change: Contingent on stimulus.

Speaker Change: Walk us through what you're seeing and assuming.

Speaker Change: Yes.

Speaker Change: That really reflects low visibility right. So we've come off of a very.

Speaker Change: <unk>.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: But there just isn't clear signals yet from the market as to what's actually going to happen. So we can build a cake.

Speaker Change: It's hard for me to think of a case there is a lot lower than where we are today, but just the overall pace of the economy continues to be sluggish and so that upside really.

Speaker Change: Leaves room for something unexpected on the stimulus side, which has happened from time to time in China.

But we don't have a brilliant insight at this point in time.

Speaker Change: The outlook is clarity.

Speaker Change: And the conviction from Oems.

Speaker Change: Not quite there yet.

Speaker Change: We're doing well with our customers launching more products will be.

Speaker Change: Bullish on continuing to outgrow.

Speaker Change: The market in China.

Speaker Change: Both consolidated revenues and in the performance of the Jv's.

Speaker Change: We're also excuse me. So we're all set to outperform we just need a little bit of help from the market overall.

But it's not as tangible as we'd like at the start of the year.

Speaker Change: Of course, we will look at the same data points and provide you with an update hopefully.

Speaker Change: The end of Q1 tend to have a stronger view of the year.

Speaker Change:

Yes, My voice is done for the rest of the morning.

Speaker Change: Chris Congratulations.

Chris Crew: Thank you all for Johnson <unk> Johnson.

Chris Crew: No.

Chris Crew: Our final question is from Michael Feniger with Bank of America. Please proceed.

Michael Feniger: Yeah. Thank you guys for squeezing me in just the share count has been kind of flat to slightly up.

Michael Feniger: Comment in the release about.

Michael Feniger: Focus on debt reduction payment of dividends can you just flush out the priorities in 2024, because I know Mark mentioned.

Michael Feniger: With Atmos.

Michael Feniger: I I heard buybacks, just maybe you can reiterate a framework of how we should kind of think about atmos in.

Michael Feniger: <unk> 24.

Michael Feniger: As we move through the year as some of the puts and takes there.

Speaker Change: Yes, the main the main.

Speaker Change: Impacts of Atlas.

Speaker Change: Our ratio will be obviously.

Speaker Change: They will set off on their own.

Speaker Change: Assuming that growth strategy and is the final step.

Speaker Change: We will swap common shares for.

Speaker Change: Investors will retire common shares in exchange for Atmos shares so our share count will go down.

Speaker Change: If the exchange is successful the reason our share count here in the past.

Speaker Change: Months hasn't been changing are drifting up is because.

Speaker Change: We stopped the share repurchase as well, we de Levered post the meritor acquisition, which we've been telegraphing to investors.

Speaker Change: We've got a little bit more of deleveraging to go and then we'll continue to evaluate whether we.

Speaker Change: What our opportunities are to generate the best returns for investors either through organic growth.

Speaker Change: All through.

Speaker Change: More capital returns, but that's the basic way, it's going to work with share count will go down on the separation.

Speaker Change: Fair enough had market.

Speaker Change: I want to let you go and get better just a quick question for you is just on Meritor I think 23, I think as revenue about $4 8 billion, and maybe EBITDA, a little bit above $500 million.

Speaker Change: When we think of the guide is the guide for 'twenty four on components.

Speaker Change: You can help us unpack about how that meritor in 'twenty, three how that kind of trends in 'twenty four relative to your for all components guide thanks, everyone.

Speaker Change: Got it and I will say I'm, feeling better than a sound and thats largely because of the record cash flow. So as I said at the start reading about breaking voice meritor achieved the goals we had for this year.

Speaker Change: It is not a segment on its own we provided the data for the for the first full year.

Speaker Change: For transparency purposes to make sure investors have a read on.

Speaker Change: How we were doing after a little bit of a bumpy start when we first acquired <unk>. So thats all rolled into the guidance, but it's safe to say, we've got further improvement in meritor.

Going into 2024, and we're really pleased with how the team is doing okay.

Speaker Change: Ken Hogan and his team. So we're excited about that going forward.

Speaker Change: Thank you.

Speaker Change: Thanks, everybody appreciate it thank you.

Speaker Change: This will conclude our question and answer session I would like to turn the conference back over to Chris for closing comments.

Chris Crew: Thank you everybody that concludes our teleconference for the day I appreciate all of you participating and your continued interest as always the Investor relations team will be available for questions. After the call take care.

Chris Crew: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Chris Crew: Okay.

Chris Crew: [music].

Chris Crew: Okay.

Chris Crew: [music].

Chris Crew: Yeah.

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