Q1 2024 Cummins Inc Earnings Call

Operator: Greetings and welcome to the Q1 2024 Cummins, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. To ask a question, press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Clulow, Vice President of Investor Relief. Thank you, Chris. You may begin.

Greetings and welcome to the Q1 'twenty 'twenty four Cummins, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation to ask a question press star one on your telephone keypad.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Chris Kula, Vice President of Investor Relations. Thank you, Chris you may begin.

Christopher C. Clulow: Thanks very much. Good morning, everyone. And welcome to our teleconference today to discuss Cummins results for the first quarter of 2024. Participating with me today are Jennifer Rumsey, 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.

Christopher C. Clulow: Thanks, very much good morning, everyone and welcome to our teleconference. Today to discuss Cummins results for the first quarter of 2024.

Christopher C. Clulow: Participating with me today are Jennifer Ramsey, our chair and Chief Executive Officer, and Mark Smith, Our Chief Financial Officer will all be available to answer questions at the end of the teleconference.

Christopher C. Clulow: 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 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 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-Q.

Christopher C. Clulow: 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 Exchange Act of 1934 such.

Christopher C. Clulow: Such statements express our forecasts expectations hopes beliefs and intentions on 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.

Christopher C. Clulow: 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-Q.

Christopher C. Clulow: During the course of this call, we will be discussing certain non-GAAP financial measures and will refer you to our website for the reconciliation of those measures to GAAP financial measures. 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 will turn you over to our chair and CEO, Jennifer Rumsey, to kick us off.

Christopher C. Clulow: 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. 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.

Christopher C. Clulow: With that out of the way I'll turn you over to our chair and CEO, Jennifer Rumsey that kicks off.

Jennifer W. Rumsey: Thank you, Chris, and good morning, everyone. I'll start with a summary of our first quarter financial results, and then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2024. Mark will then take you through more details of both our first quarter financial performance and our forecast for this year. Before getting into the details on our performance, I want to take a moment to highlight a few major events from the first quarter.

Jennifer W. Rumsey: Thank you, Chris and good morning, everyone I'll start with a summary of our first quarter financial results and then I will discuss our sales and end market trends by region I will finish with a discussion of our outlook for 2024, Mark will then take you through more details of both our first quarter financial performance and our forecast for this year.

Jennifer W. Rumsey: In March, Cummins successfully completed the separation of our filtration business, Atmos Filtration Technologies. Cummins will continue its focus on advancing innovative power solutions, while Atmos is now well positioned to pursue its own plans for profitable growth. We are proud of our employees' hard work and all who were involved in ensuring a successful separation, and we are excited to see what the future holds for both Cummins and Atmos. The final step in the separation of Atmos resulted in a tax-free exchange of shares, which reduced Cummins shares outstanding by $5.6 million. In addition, we reintroduced our fuel agnostic platforms with a name that captures the innovation that powers us forward. Cummins Helm Platform.

Speaker Change: Before getting into the details on our performance I wanted to take a moment to highlight a few major events from the first quarter.

Jennifer W. Rumsey: In March come in and successfully completed the separation of our filtration business Atmos filtration technologies Cummins will continue its focus on advancing innovative power solutions, well Atmos is now well positioned to pursue its own plans for profitable growth.

Jennifer W. Rumsey: We're proud of our employees' hard work and Oliver who were involved to ensure successful separation and we are excited to see what the future holds for both Cummins in Atlas.

Jennifer W. Rumsey: The final step in the separation of Atmos resulted in a tax free exchange of shares which reduced common shares outstanding by $5 6 million.

Jennifer W. Rumsey: In addition, we reintroduced our fuel agnostic platforms with a name that captures the innovation that powers us forward.

Jennifer W. Rumsey: <unk> talent platform.

Jennifer W. Rumsey: With higher efficiency, lower emissions, and multiple fuels, the Cummins Helm platforms give our customers control of how they navigate their own journeys as part of the energy transition. As the next product in the Cummins Helm 15-liter platform, we announced we will launch the next generation diesel X15 in North America for the heavy-duty on-highway market, which will be compliant with the U.S. EPA and CARB 2027 Aligned Regulation Lastly, in April, Cummins Power Generation introduced four new generator sets to the award-winning SENSUM series, powered by Cummins QSK-50 and QSK-78 engines. These new models have been engineered specifically for the most critical applications, such as data centers, health care facilities, and wastewater treatment plants.

Jennifer W. Rumsey: With higher efficiency lower emissions and multiple fuels. The Commons helm platforms give our customers control of how they navigate their own journeys as part of the energy transition.

Jennifer W. Rumsey: As the next product in the Commons helm 15 liter platform, we announced we will launch the next generation diesel access 15 in North America for the heavy duty on highway market, which will be compliant with the U S. U S EPA and carb 'twenty twenty-seven aligned regulations at launch.

Lastly in April Cummins power generation introduced four new generator sets to the award winning send some series.

Jennifer W. Rumsey: Powered by Cummins Q S. K 50 in Q S. K 78 engine.

Jennifer W. Rumsey: New models have been engineered specifically for the most critical applications such as data centers health care facilities and wastewater treatment plants.

Jennifer W. Rumsey: I was excited to attend the launch event with our customers and hear about the growing demand for these critical applications and high interest in our Genset products, which build on decades of experience meeting our customers' needs and deliver a step-change improvement in power density, assured reliability, sustainability, and low emissions. Now, I will comment on the overall company performance for the first quarter of 2024 and cover some of our key markets. Demand for our products remained strong across many of our key markets and regions.

Jennifer W. Rumsey: I was excited to attend the launch event with our customers and hear about the growing demand for these critical applications and high interest in our Gen set products, which built on decades of experience meeting our customers needs and deliver a step change improvement in power density assured reliability sustainability and low emissions.

Jennifer W. Rumsey: Revenues for the first quarter were $8.4 billion, a decrease of 1% compared to the first quarter of 2023. EBITDA was $2.6 billion, or 30.6%, compared to $1.4 billion, or 16.1%, a year ago. First quarter 2024 results include a gain net of transaction costs and other expenses of $1.3 billion related to the ATMAS divestiture and $29 million of restructuring expenses as we continue to work to simplify our operating structure and improve the efficiency of our business for the long term. This compares to first quarter 2023 results, which included $18 million of costs related to the separation of the atmosphere.

Jennifer W. Rumsey: Now I will comment on the overall company performance for the first quarter of 2024 and cover some of our key markets.

Jennifer W. Rumsey: Demand for our products remained strong across many of our key markets and reach US revenues for the first quarter were $8 4 billion, a decrease of 1% compared to the first quarter of 2023.

Jennifer W. Rumsey: EBITDA was $2 $6 billion or <unk> 36 per cent compared to $1.4 billion or 16, 1% a year ago.

Jennifer W. Rumsey: First quarter 'twenty 'twenty four results include a gain net of transaction costs and other expenses of $1 $3 billion related to the Atmos divestiture.

Jennifer W. Rumsey: And $29 million of restructuring expenses as we continue to work to simplify our operating structure and improve the efficiency of our business for the long term.

Jennifer W. Rumsey: This compares to the first quarter 2023 results, which included $18 million of costs related to the separation of the Atmos business.

Jennifer W. Rumsey: Excluding the one-time gain and the costs related to the separation of ATMAS as well as the restructuring expenses, EBITDA decreased by 80 basis points as improved pricing partially offset lower volumes and higher research and development expenses, as we continue to invest in products and technologies that will create advantages in the future. Gross Margin dollars improved compared to the first quarter of 2023, as the benefits of pricing more than offset the impact of lower volumes and supply chain costs.

Jennifer W. Rumsey: Excluding the onetime gain and the costs related to the separation of Atmos as well as the restructuring expenses EBITDA percentage decreased by 80 basis points as improved pricing, partially offset lower volumes and higher research and development expenses as we continue to invest in the products and technologies that will create advantages.

Jennifer W. Rumsey: In the future.

Jennifer W. Rumsey: Gross margin dollars improved compared to the first quarter of 2023 as the benefits of pricing more than offset the impact of lower volumes and supply chain cost increases.

Jennifer W. Rumsey: Our first quarter revenues in North America were flat with 2023. Industry production of heavy duty trucks in the first quarter was 73,000 units, down 5% from 2023 levels. While our heavy duty unit sales were $26,000, down 7% from 2023, industry production of medium duty trucks was 41,000 units in the first quarter of 2024, an increase of 8%, while our unit sales were 36,000, up 22% from 2023. We will ship 38,000 engines to Stellantis for use in their RAM pickups in the first quarter of 2024, down 2% from the 2023 level. However, revenues for North America power generation increased by 21%, driven by continued strong data center emission critical power demand.

Jennifer W. Rumsey: Our first quarter revenues in North America were flat with 2023 industry production of heavy duty trucks in the first quarter was 73000 units down 5% from 2023 levels.

Jennifer W. Rumsey: While our heavy duty unit sales were 26000 down 7% from 40 23.

Jennifer W. Rumsey: Industry production of medium duty trucks was 41000 units in the first quarter of 2024, an increase of 8% while our unit sales were 36000 up 22% from 2023.

Jennifer W. Rumsey: We shipped 38000 engines, just Atlanta for use in the Ram pickups in the first quarter of 'twenty 'twenty four down 2% from the 2023 levels.

Jennifer W. Rumsey: Revenues for North America power generation increased by 21% driven by continued strong datacenter and mission critical power demand.

Jennifer W. Rumsey: Our international revenues decreased by 1% in the first quarter of 2024 compared to a year ago. First quarter revenues in China, including joint ventures, were $1.6 billion, a decrease of 5% as weaker domestic volumes were partially offset by the accelerating data center demand. Industry demand for medium and heavy duty trucks in China was 305,000 units, an increase of 14% from last year.

Jennifer W. Rumsey: Our international revenues decreased by 1% in the first quarter of 'twenty 'twenty four compared to a year ago.

Jennifer W. Rumsey: First quarter revenues in China, including joint ventures were $1 $6 billion, a decrease of 5% as a weaker domestic volumes were partially offset with accelerating data center demand.

Jennifer W. Rumsey: Industry demand for medium and heavy duty trucks in China with 305000 units an increase of 14% from last year. However shifts in the market share during the first quarter led to a decline in our volumes year over year.

Jennifer W. Rumsey: However, shifts in market share during the first quarter led to a decline in our volumes year over year. The light duty market in China was up 2% from 2023 levels at 486,000 units, while our units sold, including joint ventures, were 37,000, an increase of 3%. Industry demand for excavators in the first quarter was 50,000 units, a decrease of 13% from 2023 levels. The decrease in the market size is due to weak property investment, a high equipment population, and slowing export demand.

Jennifer W. Rumsey: The light duty market in China was up 2% from 'twenty to 'twenty three levels at 486000 units, while our unit sold including joint Ventures were 37000, an increase of 3%.

Jennifer W. Rumsey: Industry demand for excavators in the first quarter was 50000 units a decrease of 13% from 'twenty to 'twenty three levels.

Jennifer W. Rumsey: The decrease in the market sizes due to weak property investment high equipment population and slowing export demand. Our units sold were 9000 units an increase of 10% as a result of the U S. M 15 penetration and export growth.

Jennifer W. Rumsey: Our units sold were 9,000 units, an increase of 10% as a result of the QSM-15 penetration and export growth. However, sales of power generation equipment in China decreased 7% in the first quarter as accelerating data center demand was offset by softening in other markets.

Jennifer W. Rumsey: Sales of power generation equipment in China decreased 7% in the first quarter as accelerating data center demand was offset by softening in other markets.

Jennifer W. Rumsey: First quarter revenues in India, including joint ventures, were $758 million, an increase of 1% from the first quarter a year ago. Industry truck production decreased by 7% while our shipments decreased by 5% as the market slowed ahead of elections in April. Power generation revenues increased by 37% in the first quarter as economic activity remained strong.

Jennifer W. Rumsey: First quarter revenues in India, including joint ventures were $758 million, an increase of 1% from the first quarter a year ago industry truck production decreased by 7%, while our shipments decreased by 5% as the market slowed ahead of elections in April power.

Jennifer W. Rumsey: Power generation revenues increased by 37% in the first quarter as economic activity remains strong.

Jennifer W. Rumsey: Now, let me provide an outlook for 2024, including some comments on individual regions and markets. Our full-year guidance now excludes APMIS from the March 18th separation date onward, and also excludes the first quarter gain related to the divestiture. The guidance provided previously included ATMAS for the full year as it preceded the transaction announcement.

Speaker Change: Now, let me provide an outlook for 'twenty 'twenty four including some comments on individual regions and end markets.

Jennifer W. Rumsey: Our full year guidance now excludes atmos from the March 18th separation date onwards.

Jennifer W. Rumsey: And also include excludes the first quarter gain related to the divestiture. The guidance provided previously included Atmos for the full year as it preceded the transaction announcement.

Jennifer W. Rumsey: We're happy to share that our expectations for 2024 have improved from our initial guidance issued in February. Our forecast for total company revenue in 2024 remains the same at down 2 to 5%, which implies higher base business revenues of approximately $1.3 billion compared to our prior guidance as Atmos is now excluded from future quarters. We are increasing our forecast for heavy-duty trucks in North America to 255,000 to 275,000 units in 2024, compared to our prior guide of 245 to 265,000 units. But we do still expect softening in the second half of the year.

Jennifer W. Rumsey: We're happy to share that our expectations for 2024 have improved from our initial guidance issued in February of.

Jennifer W. Rumsey: Our forecast for total company revenue in 'twenty 'twenty four remains the same at down 2% to 5%, which implies higher base business revenues of approximately $1 $3 billion compared to our prior guidance as Atmos is now excluded from future quarters.

Jennifer W. Rumsey: We are increasing our forecast for heavy duty trucks in North America to 255000 to 275000 units in 2024.

Jennifer W. Rumsey: Paired to our prior guide of 245 to 265000 units, though we do still expect softening in the second half of the year.

Jennifer W. Rumsey: In North America, the medium duty truck market, we maintain our power guidance of 140 to 150,000 units, down 5% to flat from 2023. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be $135,000 to $145,000 in 2024, down 5% to 10% from 2023 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, consistent with our prior guidance.

Jennifer W. Rumsey: In North America medium duty truck market, we maintain our prior guidance of 140 to 150000 units down 5% to flat from 2023.

Jennifer W. Rumsey: Consistent with our prior guidance our engine shipments for pickup trucks in North America are expected to be 135 to 145000 in 'twenty 'twenty four down 5% to 10% from 'twenty to 'twenty three as we prepare to launch our model year 'twenty 'twenty five in the fourth quarter.

Jennifer W. Rumsey: In China, We project total revenue, including joint ventures to increase 3% in 2024 consistent with our prior guidance.

Jennifer W. Rumsey: We project a range of down 5% to up 10% in heavy and medium duty truck demand and expect a range of down 5% to up 5% in demand in the light duty truck market. We expect replacement demand to be in the range to be the biggest driver, but the effect may be weakened by a sluggish economy and potentially slower export demand. The Short-Term Shifts in the Market. Chair, that I noted earlier, are expected to normalize as we progress through the remainder of the year.

Jennifer W. Rumsey: We project a range of down 5% to up 10% in heavy and medium duty truck demand and expect a range of down 5% to up 5% and demand in the light duty truck market.

Jennifer W. Rumsey: We expect replacement demand to be in the range the big Sea the biggest driver, but the effect may be weekend by a sluggish economy and potentially slower export demand.

Jennifer W. Rumsey: The short term shifts in the market.

Jennifer W. Rumsey: Sure that I noted earlier are expected to normalize as we progress through the remainder of the year.

Jennifer W. Rumsey: In India, we project total revenue, including joint ventures, to increase 9% in 2024, primarily driven by strong power generation and on-highway demand, consistent with our prior guidance. We expect industry demand for trucks to be flat to up 5% for the year. For global construction, we project down 10% to flat year over year, up from our previous guidance of down 5 to 15%. We continue to expect weak property investment and slowing export demand.

Jennifer W. Rumsey: In India, We project total revenue, including joint ventures to increase 9% in 2024.

Jennifer W. Rumsey: Primarily driven by strong power generation and on highway demand consistent with our prior guidance.

Jennifer W. Rumsey: We expect industry demand for trucks to be flat to up 5% for the year.

Jennifer W. Rumsey: For global construction, we project down 10% to flat year over year up from our previous guidance of down 5% to 15%.

Jennifer W. Rumsey: We continue to expect weak property investment and slowing export demand in China.

Jennifer W. Rumsey: We project our major global high horsepower markets to remain strong in 2024. We are raising our guidance for global power generation markets to be up 10 to 15 percent, compared to our prior guidance of about 5 to 10 percent, driven by continued increases in the data center and mission-critical markets. Sales of mining engines are expected to be down 5% to up 5%, consistent with our prior guidance. While a smaller market for us, we continue to anticipate demand for oil and gas engines to decrease by 40 to 50% in 2024, primarily driven by decreased demand in North America.

Jennifer W. Rumsey: We project, our major global high horsepower markets to remain strong in 'twenty 'twenty four we are raising our guidance for global power generation markets to be up 10 to 15 per cent compared to our prior guidance of about 5% to 10% driven by continued increases in the data center and mission critical markets.

Jennifer W. Rumsey: All of a sudden mining engines are expected to be down five to up 5% consistent with our prior guidance.

Jennifer W. Rumsey: While a smaller market for us we continue to anticipate demand for oil and gas engines to decrease by 40% to 50% in 2024, primarily driven by decreased demand in North America.

Jennifer W. Rumsey: For aftermarket, we maintain our guidance of down 5% to up 5% for 2024 as we are through the inventory management efforts and destocking that happened throughout the industry in the second half of 2020. For Accelera, we expect full-year sales to be $450 to $500 million, compared to $354 million in 2023, consistent with our prior guidance. We are ramping up electrolyzer manufacturing capacity and capability to deliver orders to our customers, as well as expecting continued growth in electrified components.

Jennifer W. Rumsey: For aftermarket, we maintain our guidance of down five to up 5% for 'twenty 'twenty four as we are through the inventory management efforts and destocking that happened throughout the industry in the second half of 2023.

Jennifer W. Rumsey: An accelerant, we expect full year sales to be $450 million to $500 million compared to $354 million in 2023 consistent with our prior guidance.

Jennifer W. Rumsey: We are ramping up electrolyze or manufacturing capacity and capability to deliver orders to our customers as well as expect continued growth in electrified components.

Jennifer W. Rumsey: In summary, coming off a strong first quarter, we are maintaining our sales growth outlook for the year of down 2 to 5% as stronger demand in our base business has offset the removal of Atmos for future quarters from our guide. We have also revised our forecast for EBITDA to be in the range of 14.5 to 15.5% compared to our previous guidance of 14.4 to 15.4%, reflecting stronger North America heavy-duty truck and power generation markets, which more than offsets the loss of profitability of Atmos.

Jennifer W. Rumsey: In summary, coming off a strong first quarter, we are maintaining our sales growth outlook for the year of down 2% to 5% as stronger demand in our base business has offset the removal of atmos for future quarters from our guidance.

Jennifer W. Rumsey: We have also revised our forecast for EBITDA to be in the range of 14, five to 15, 5% compared to our previous guidance of $14 four to 15, 4%, reflecting stronger North America heavy duty truck and power generation markets, which more than offsets the loss of profitability of Atlas.

Jennifer W. 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. During the quarter, we returned $239 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. In addition, we reduced the overall Cummins share count by $5.6 million as we completed the ATMAS share exchange, which will be more fully reflected in the average share count in the second quarter and beyond.

Jennifer W. Rumsey: In addition, we have taken steps to reduce cost optimize our business and position Cummins for continued success in 2024.

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

Jennifer W. Rumsey: During the quarter, we returned $239 million to shareholders in the form of dividends consistent with our long term plan to return approximately 50% of operating cash flow to shareholders in.

Jennifer W. Rumsey: In addition, we reduced the overall common share count by $5 6 million as we completed the Atmos share exchange.

Jennifer W. Rumsey: Which will be more fully reflected in the average share count in the second quarter and beyond.

Jennifer W. Rumsey: I am impressed and grateful for the commitment of our employees and leaders around the world to delivering for our customers and generating strong financial performance at the same time. Our results further enhance Cummins' ability to invest in future growth, bring sustainable solutions that will protect our planet for future generations, and return cash to our shareholders. I look forward to discussing our long-term strategy further at our upcoming Analyst Day on May 16th. Now, let me turn it over to Mark.

Jennifer W. Rumsey: I am impressed and grateful for the commitment of our employees and leaders around the world who are delivering for our customers and generating strong financial performance at the same time.

Mark: Our results further enhance cummins ability to keep investing in the future growth.

Jennifer W. Rumsey: Bringing sustainable solutions that will protect our planet for future generations, and returning cash to our shareholders I look forward to discussing our long term strategy further in our upcoming annual analyst day on May 16th and now let me turn it over to Mark.

Mark A. Smith: Thank you, Jen, and good morning, everyone. We delivered solid first-quarter revenue and profitability and generated positive operating cash flow. Given the strength of first quarter results and our improved outlook, we've raised our full year expectations for 2024, after adjusting for the separation of activities. First quarter revenues were $8.4 billion, down 1% from a year ago. The separation of Atmos in mid-March resulted in a year-over-year sales decline of around 1% for Cummins Consolidated Sales.

Mark: Thank you Jen and good morning, everyone, we delivered solid first quarter revenue and profitability.

Mark A. Smith: Yeah.

Mark A. Smith: Positive operating cash flow.

Mark A. Smith: Given the strength of the first quarter results and our improved outlook, we've raised our full year expectations for 2024.

Mark A. Smith: After adjusting for the separation of rocks.

Mark A. Smith: First quarter revenues were $4 billion down 1% from a year ago.

Mark A. Smith: Separation of Atmos in mid March resulted in a year or two of us use sales decline of around 1% two hour to Cummins consolidate.

Mark A. Smith: Our underlying revenues increased in North America, Latin America, and were offset by weaker demand in China and Europe.

Mark A. Smith: Our underlying revenues increased in North America and Latin America and were offset by weaker demand in China and Europe. EBITDA was $2.6 billion, or 30.6% of sales for the quarter. We completed the tax-free full separation of Atmos in March, which resulted in a one-time gain on the divestiture of $1.3 billion.

Mark A. Smith: EBIT <unk>, two $6 billion or 36% of sales for the quarter.

Mark A. Smith: We completed the tax free full separation about March which resulted in a one time gain on the <unk>, one $3 billion net of transaction costs and other expenses.

Mark A. Smith: Net of transaction costs and other expenses. The first quarter results also included $29 million in restructuring expenses. This compares to the first quarter of 2023, which included $18 million of costs related to the separation. To provide clarity on operational performance and allow comparison to the prior year, I am excluding the one-time gain and the costs related to the separation of Atmos, as well as the restructuring expenses in my following comments. The financial results of Act through March 18th are included in our first quarter consolidated sales and EBITDA.

Mark A. Smith: Quarter results also included $29 million of restructuring expenses.

Mark A. Smith: This compares to first quarter of 2023, which included $18 million of costs related to the study.

Mark A. Smith: To provide clarity on operational performance and allow comparison to prior year.

Mark A. Smith: Excluding the one time gain on the costs related to the separation of Atlas as well as the restructuring expenses and my following comments.

Mark A. Smith: And actual results about through March 18th are included in our first quarter consolidated sales and EBIT, though.

Mark A. Smith: Yeah.

Mark A. Smith: EBITDA was $1.3 billion or 15.5% of sales for the quarter compared to $1.4 billion or 16.3% of sales a year ago. The lower EBITDA percentage was driven by investment in new products and capabilities and lower sales volume. Now let's look into more detail by aligning.

Mark A. Smith: EBITDA was $1 $3 billion of 15, 5% of sales for the quarter compared to $1 four.

Mark A. Smith: Oh 16, 3% of sales a year ago.

Mark A. Smith: The percentage was driven by investment in new products.

Mark A. Smith: Capabilities and lower sales volumes.

Mark A. Smith: Now, let's look into more detail by line item.

Mark A. Smith: Gross margin for the quarter was $2.1 billion, or 24.5% of sales, compared to $2 billion, or 24% even, last year. The improved margins were primarily driven by favorable pricing and operational improvements, especially in the power systems business. Selling, administrative, and research expenses increased by $72 million, driven by higher research costs as we continue to bring new products and capabilities to market to support future profitable growth, particularly the development of the Helm product line within the engine business.

Mark A. Smith: Gross margin for the quarter was $2 $1 billion or 24, 5% of sales compared to $2 billion or 24% even last year.

Mark A. Smith: The improved margins were primarily driven by favorable pricing and operational improvements, especially in the power systems business.

Mark A. Smith: Selling administrative and research expenses increased by $72 million driven by higher research costs as we continue to bring to market new products and capabilities to support future profitable growth, particularly the development of the home product line.

Mark A. Smith: The engine business.

Mark A. Smith: Joint venture income of $123 million increased $4 million from the prior year. Primarily due to increased earnings in the power system segment, other income was $21 million, a decrease of $50 million from a year ago. The decrease in other income is driven by the relative negative impact of foreign currency revaluation and lower gains on investments related to company-owned life insurance compared to a year ago. Interest expense was $89 million, an increase of $2 million from the prior year, driven by higher outstanding long-term borrowings related to the bond issuance we completed in February.

Mark A. Smith: Joint venture income of $123 million increased $4 million from the prior year.

Mark A. Smith: Primarily due to increased earnings in the power systems segment. Other income was $21 million, a decrease of $50 million from a year ago.

Mark A. Smith: Decrease in other income is driven by the negative relative to negative impact of foreign currency revaluation.

Mark A. Smith: Lower gains on investments related to company owned life insurance compared to a year ago.

Mark A. Smith: Interest expense was 18 9 million an increase of $2 million from the prior year driven by higher outstanding long term borrowings related to the bond issuance we completed in February.

Mark A. Smith: And just to reinforce what Jen said, the all-in effective tax rate in the first quarter was 8.7%, mainly due to the tax-free gain on the separation of assets. All-in net earnings for the quarter were $2 billion or $14.03 per diluted share, which includes the net gain related to the separation of ATMAS of $1.3 billion or $9.08 per diluted share and restructuring expenses of $29 million or $0.15 per share.

Mark A. Smith: The old an effective tax rate in the first quarter was eight 7% mainly due to the tax free gain on the separation of <unk>.

Mark A. Smith: All in net earnings for the quarter with $2 billion or $14 <unk> per diluted share, which includes the net gain related to the separation of Atlas, a $1.3 billion or $9.08 per diluted share and restructuring expenses of $29 million.

Mark A. Smith: 50 cents per share.

Mark A. Smith: Just to reinforce what Jim said.

Mark A. Smith: Full impact of the lower share count from the separation will be seen in future quarters since the diluted share counts counted on a weighted average basis.

Mark A. Smith: The full impact of the lower share count from the atmosphere separation will be seen in future quarters since the diluted share counts are counted on a weighted average basis. All in, operating cash flow was an inflow of $276 million compared to an inflow of $495 million in the first quarter last year. Now let me comment on segment performance and our guidance for 2024. As a reminder, prior guidance for 2024 assumed that the operations of ATLAS would be included in our consolidated results for the full year.

Mark A. Smith: All in operating cash flow was an inflow of $276 million compared to an inflow of $495 million in the first quarter last year.

Mark A. Smith: Components segment revenue was $3.3 billion, a decrease of 6%, while EBITDA, excluding costs related to the separation of ATMAS, increased from 14.6% of sales to 14.8%, driven primarily by improved performance within Cummins Meritil. For components, we've updated the guidance for the segment following the separation of ATMAS and expect 2024 revenues to decrease 9% to 14% and EBITDA margins in the range of 13.5% to Our latest guidance reflects an increase in both revenues and EBITDA margins after adjusting for the separation of assets.

Mark A. Smith: Now, let me comment on segment performance and our guidance for 2024.

Mark A. Smith: As a reminder, prior guidance for 2020 for assumed that the operations of Atlas would be included in our consolidated results for the full year.

Mark A. Smith: Components segment revenue was $3 3 billion, a decrease of 6% while EBITDA excluding costs related to the separation of Atlas increased from 14, 6% of sales to 14.8, driven primarily by improved performance within Cummins Murdo.

Mark A. Smith: Components, we've updated the guidance for the segment following the separation of Atlas in 2020 full revenues to decreased 9% to 14%.

Mark A. Smith: EBITDA margins in the range of 13, five to 14, 5%.

Mark A. Smith: Our.

Mark A. Smith: Latest guidance reflects an increase in both revenues and EBITDA margins.

Mark A. Smith: After adjusting for the separation of X.

Mark A. Smith: For the engine segment, first quarter revenues were $2.9 billion, a decrease of 2% from a year ago. EBITDA was 14.1%, a decrease from 15.3% a year ago as a benefit of pricing set by lower volumes and higher research and development, 2024. We now project revenues for the engine business to be down 5% to flat.

Mark A. Smith: Yeah.

Mark A. Smith: For the engine segment first quarter revenues were $2 nine.

Mark A. Smith: $9 billion, a decrease of 2% from a year ago.

Mark A. Smith: Though it was 14, 1% decrease from 15, 3% a year ago, that's the benefit of pricing.

Mark A. Smith: Set by lower volumes and higher research costs.

Mark A. Smith: 2024, we now project revenues for the engine business to be down 5% to flat.

Mark A. Smith: An improvement of 2% at the midpoint from our prior projections, reflecting a revised outlook in the North American truck markets and stronger than expected demand from our construction customers. 2024 EBITDA is projected to be in the range of 12.7 to 13.7%, an increase of 20 basis points at the midpoint due to higher volume. In the distribution segment, revenues increased 5% from a year ago to $2.5 billion. However, EBITDA decreased as a percent of sales to 11.6% compared to 13.9% of sales a year ago, as aftermarket sales, particularly to industrial customers, declined from the record levels that we experienced a year ago.

Mark A. Smith: An improvement of 2% at the midpoint from our prior projections, reflecting our revised outlook in the North American truck markets and stronger than expected demand from our construction customers.

Mark A. Smith: 2020 for EBITDA is projected to be in the range of $12 seven to 13, 7% an increase of 20 basis points at the midpoint.

Mark A. Smith: Due to higher volumes.

Mark A. Smith: In the distribution segment revenues increased 5% from a year ago to $2 5 billion EBIT.

Mark A. Smith: EBIT decreased as a percent of sales to 11, 6% compared to 13, 9% of sales a year ago as aftermarket sales, particularly to industrial customers declined from the record levels that we experienced a year ago.

Mark A. Smith: We expect 2024 distribution revenues to be flat to up 5%, and EBITDA margins to be in the range of 11.5% to 12.5%, an increase from the prior guide of 3% for revenues and a modest improvement to margins for the full year. Power Systems segment revenues were $1.4 billion, an increase of 3%. EBITDA increased from 16.3% to 17.1% of sales driven by higher volumes, particularly in the power generation markets, improved pricing, and operating improvements, all of which contributed to a strong trend of improving performance in that sector.

Mark A. Smith: We expect 2024 distribution revenues to be flat to up 5% and EBIT margins to be in the range of 11, 5% to 12.5%.

Mark A. Smith: An increase from the prior guide of 3% for revenues and a modest improvement to margins for the full year.

Mark A. Smith: From our systems segment revenues were $1 $4 billion, an increase of 3%.

Mark A. Smith: And EBITDA increased from 16, 3% to 17, 1% sales driven by higher volumes, particularly in the power generation markets improved pricing and operating improvements all of which contributed to a strong trend of improving performance in that segment.

Mark A. Smith: In 2024, we now expect power systems revenues to be flat to 5%, up 3% at the midpoint, and EBITDA is also increasing, to be approximately 16 to 17 percent of 80 basis points from our previous guide. Accelera revenues increased 9% to $93 million, driven by increased electrolyzer installations.

Mark A. Smith: 2024, we now expect power systems revenues to be flat to 5% up 3% at the midpoint.

Mark A. Smith: EBITDA has also increased.

Mark A. Smith: To be approximately 16% to 17%.

Mark A. Smith: 80 basis points from our previous guide.

Mark A. Smith: Accelerant revenues increased 90% to $93 million driven by increased electric lines of installations.

Mark A. Smith: Our EBITDA loss was $101 million, compared to an EBITDA loss of $94 million a year ago, as we continue to invest in the products and capabilities to support future growth. Our guidance is unchanged. We expect revenues to be in the range of $450-$500 million and net losses to be in the range of $400-$433 million, consistent with our prior guidance. As Jen mentioned, given the strong performance in the first quarter and the outlook in our key regions and markets, we are adjusting the full-year company guidance, and we project company revenue, and consolidated company revenues to be down 2-5%.

Mark A. Smith: Our EBITDA loss was $101 million compared to an EBITDA loss of $94 million a year ago.

Mark A. Smith: As we continue to invest in the products and capabilities to support future growth.

Mark A. Smith: In 2024.

Mark A. Smith: Our guidance wouldn't change, we expect revenues to be in the range of $450 million to $500 million net losses to be in the range of $400 million to $433 million consistent with our prior guide.

Mark A. Smith: As Jen mentioned, given the strong performance in the first quarter and the outlook in our key regions and markets. We are adjusting the full year company guidance.

Mark A. Smith: Yeah.

Mark A. Smith: I mean revenue consolidated company revenues to be down 2% to 5%.

Mark A. Smith: Consistent with the prior guidance despite the separation of acts. Company EBITDA margins are now projected to be approximately 14.5% to 15.5%, a 10 basis points from prior guidance, all of which excludes the net gain related to the separation of ATMAS and the restructuring expenses. Our effective tax rate is expected to be 24%, excluding the tax-free gain related to ATMAS and other discrete items.

Mark A. Smith: Consistent with the prior guidance. Despite the separation of US company EBITDA margins are now projected to be approximately 14 to.

Mark A. Smith: To 15, 5% up 10 basis points from prior guidance, all of which excludes the gain related to the separation of Atlas and the restructuring expenses.

Mark A. Smith: Our effective tax rate is expected to be 24%, excluding the tax free gain related to Atlas and other discrete items.

Mark A. Smith: Capital investments will be in the range of $1.2 to $1.3 billion, unchanged from our outlook three months ago, as we continue to make critical investments in new products and Capacity Expansion to support future growth. In summary, we delivered solid sales, profitability, and positive cash flow in the first quarter. We do still expect moderation in some of our key markets in the second half of 2024, but we have raised our expectations of our own performance relative to our prior guidance.

Mark A. Smith: Capital investments will be in the range of one two to $1 3 billion.

Mark A. Smith: Unchanged from our outlook three months ago, as we continue to make critical investments in new products capacity expansion to support future growth.

Mark A. Smith: In summary, we delivered solid sales profitability and positive cash flow in the first quarter, we do still expect moderation in some of our key markets in the second half of 2024, but we have raised our expectations about our own performance relative to our prior guide.

Mark A. Smith: We took some steps to reduce costs in the fourth quarter of 2023 and continue to identify ways to streamline our business going forward, leaving us well-positioned to navigate any economic cyclicality and continue investing and delivering strong financial performance. Our priorities in 2024 for capital allocation are unchanged. We will reinvest for growth, plan to raise the dividend, and reduce debt. Thank you for your interest today, and I look forward to seeing some of you in person in New York on our upcoming Analyst Day. Now, let me turn it over to Chris.

Mark A. Smith: Took some steps to reduce costs in the fourth quarter of 2023 and continue to identify ways to streamline our business going forwards, leaving us well positioned to navigate any economic cyclicality continue investing and delivering strong financial performance.

Chris: Priorities in 2020 full for capital allocation.

Chris: Didn't change we will reinvest for growth.

Chris: Plan to raise the dividend and reduce debt.

Mark A. Smith: Thank you for your interest today and I look forward to seeing some of you in person in New York now coming Analyst Day, now, let me turn it over to Chris.

Christopher C. Clulow: Thank you, Mark. Out of consideration for 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. Thank you.

Chris: 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 any additional questions. Please rejoin the queue.

Chris: Operator, we're ready for our first question.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing start.

Chris: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for a participant.

Operator: Using speaker equipment it.

Operator: May be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Steve Volkmann with Jeffries. Please proceed with your question.

Operator: One moment, please while we poll for questions.

Operator: Thank you. Our first question comes from the line of Steve Volkmann with Jefferies. Please proceed with your question.

Stephen Edward Volkmann: Great. Good morning, guys.

Stephen Edward Volkmann: Great. Good morning, guys. Thank you for taking the question I think I'd like to start off with power Gen. If we could that business seems to be going well.

Stephen Edward Volkmann: So sort of two things I'm curious to hear about exactly kind of what you think your position is in the data center market.

Stephen Edward Volkmann: How much of your business is data centers and then how are you thinking about increasing capacity over the next whatever a few quarters or years. However, that's going to play out what should we be thinking about in terms of capacity additions in your ability to kind of grow that business over time.

Stephen Edward Volkmann: Okay, great. Thanks, Thanks, Steve.

Stephen Edward Volkmann: And as you heard in the guidance, we're projecting the power Gen business to be up 10% to 15% for the year and data Center are mission critical is really the driver of that.

Stephen Edward Volkmann: Thank you for taking the question. I think I'd like to start off with PowerGen, if we could. That business seems to be going well. So, sort of, you know, what your position is in the data center market, how much of your business is data centers, and then how are you thinking about increasing capacity over the next, whatever, a few quarters or years, however, that's going to play out? You know, what should we be thinking about in terms of capacity additions and your ability to kind of grow that business over time?

Stephen Edward Volkmann: And we've had a very strong demand from dataset.

Stephen Edward Volkmann: Center customers have had historically a strong position in that market or that market is obviously growing we're sold out on our 95.

Stephen Edward Volkmann: Leader through 2025, right now and I mentioned, the launch of the New center product, which uses our 57th.

Stephen Edward Volkmann: 78 liter engine, so that's providing additional additional solution to those customers and then of course, we're continuing to look at capacity, the 95 liter and and how we are.

Stephen Edward Volkmann: Plan to support what we think will be a continuing strong and growing market.

Speaker Change: So I'm sorry, do you have any concrete plans to increase capacity of 95, yet or is that still in process.

Speaker Change: Yeah, we do have we do have concrete plans to increase the capacity that we have in place today for the 95 liter.

Speaker Change: Okay, great. Thank you.

Speaker Change: Thank you.

Jennifer W. Rumsey: Great. Thanks, Steve.

Speaker Change: Our next question comes from the line of.

Jennifer W. Rumsey: Jerry Revich with Goldman Sachs. Please proceed with your question.

Jennifer W. Rumsey: And as you heard in the guidance, we're projecting the PowerGen business to be 10 to 15% for the year, and data center mission critical is really the driver of that. And, and we've had very strong demand from data center customers, who historically have had a strong position in that market, and that market is obviously growing. We're sold out of our 95 liter through 2025 right now, and I mentioned the launch of the new Centum product, which uses our 50 and 78 liter engines.

Steve: Yes, hi, good morning, everyone.

Jennifer W. Rumsey: So that's providing additional additional solutions to those customers. And then, of course, we're continuing to look at capacity of the 95 liter and how we plan to support what we think will be a continuing strong and growing market.

Stephen Edward Volkmann: So, sorry, do you have any concrete plans to increase the capacity of the 95 yet, or is that still in process?

Steve: Hey, Jerry.

Jennifer W. Rumsey: Okay.

Speaker Change: If I just ask the cadence of earnings over the course of this year nice to see the upwards revision to both top line and margins Mark can you just talk about where the quarter came in versus your expectations. Because obviously the quarter was light versus where consensus was set up and I'm just wondering.

Stephen Edward Volkmann: How the quarter developed versus your internal plan.

Stephen Edward Volkmann: What's the cadence of the acceleration that you folks are seeking to raise the guidance higher.

Speaker Change: Higher thanks.

Jennifer W. Rumsey: Yeah, we do have, we do have concrete plans to increase the capacity that we have in place today for the 95-league. Great. Thank you.

Speaker Change: Yes, I think to be fair to everyone involved to all of you on that side of the fence and all of US a lot of moving parts with the separation of Atlas. So from my perspective in total we came in in line with our expectations and when you adjust for the mid quarter.

Stephen Edward Volkmann: Okay, great. Thank you.

Stephen Edward Volkmann: Separation of Atmos, I think were by and large in line I would say.

Stephen Edward Volkmann: Some have pointed out the distribution business margins a little bit lower.

Stephen Edward Volkmann: Certainly lower than last year, we see that it was at the bottom end of the range in Q1 and improving from here largely driven by what we've seen is a pullback on pumps sales, particularly in the and.

Stephen Edward Volkmann: <unk>.

Speaker Change: Hi, Wei applications. So that's the one area, it's not new it's not so it's been there for a couple of more.

Stephen Edward Volkmann: Two quarters, but otherwise I'd say, we feel good about the gross margin improvement year over year as you can see from our announcements and our comments were continuing to look at ways to.

Stephen Edward Volkmann: Streamline our organization.

Stephen Edward Volkmann: Make us more efficient where we can so overall in line, Jerry but expecting distribution in particular to pick up.

Stephen Edward Volkmann: Margins going forwards.

Stephen Edward Volkmann: We've always expected probably we were expecting this a little bit last year to be fair and it didn't materialize, but we are expecting.

Stephen Edward Volkmann: Heavy duty truck production.

Stephen Edward Volkmann: To decline in the third quarter in particular.

Stephen Edward Volkmann: <unk>, probably heard that from other industry participants so I think the engine business and components we'll.

Speaker Change: We will feel some of that in Q3.

Stephen Edward Volkmann: Probably Q4.

Stephen Edward Volkmann: Our systems and distribution.

Stephen Edward Volkmann: Shouldn't see any significant volatility in revenues and really the momentum is.

Stephen Edward Volkmann: To the up on power systems going forwards and into next year clearly in distribution as you know.

Stephen Edward Volkmann: It's more than half parts and service and quite predictable and reliable we just try to.

Stephen Edward Volkmann: Little bit of a mix shift with the lowest path, but we think that's temporary.

Stephen Edward Volkmann: Super Thank you.

Stephen Edward Volkmann: Can I just ask from a bigger picture standpoint, so new regulations 2027 will have.

Stephen Edward Volkmann: Embedded warranties essentially what does that mean for your <unk> market share is that an opportunity when that fuel population increases for you folks have higher engine parts market share because.

Stephen Edward Volkmann: That warranty dynamic on the new regulations, how significant is that opportunity.

Speaker Change: Yeah, I mean as you noted there's a requirement starting with the EPA 'twenty 'twenty seven regulations for a longer emissions warranty for heavy duty, it's 10 years or 450000 miles.

Stephen Edward Volkmann: Most of that application is going to mile out so it's essentially.

Stephen Edward Volkmann: What our five year extended warranty that some customers are already purchasing and then that will mean that everybody will need that warranty that will be.

Stephen Edward Volkmann: Got it and to pricing on those those engine systems, and then of course will drive customers to genuine parts throughout that that period, which will provide some further benefit to us.

Stephen Edward Volkmann: Oh.

Stephen Edward Volkmann: Thank you.

Operator: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Stephen Edward Volkmann: Our next question comes from the line of Nicole <unk> with Deutsche Bank. Please proceed with your question.

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

Jerry David Revich: I'm wondering if I can just ask the cadence of earnings over the course of this year. You know, nice to see the upward revisions to both top line and margins. Mark, can you just talk about where the quarter came in versus your expectations? Because obviously, the quarter was light versus where the consensus was set up, and I'm just wondering how the quarter developed versus your internal plan. And you know, what's the cadence of the acceleration that you folks are seeing to raise the guidance?

Jerry David Revich: Yeah. Thanks for the question good morning, guys I'm going to ask mine together, because they're related so and they're both around power system. So I think in the guidance you guys are embedding full year margins below <unk> levels, I think it's a lumpy business, but if I look back historically its more common that the second half is higher and then similar.

Mark A. Smith: Yeah, I think, to be fair to everyone involved, to all of you on that side of the fence, and all of us, there are a lot of moving parts with the separation of Atmos. So from my perspective, in total, we came in in line with our expectations, and when you were just for the mid-quarter, I think we're by and large in line.

Mark A. Smith: Question on gross the comps ease slightly in the second half, but your full year growth guidance is for an outcome like less than the growth you saw in the first quarter. So if you could address both of those items. Thank you.

Mark A. Smith: Power systems and distribution shouldn't see any significant volatility in revenues, and really, the momentum is Transcribed by https://otter.ai, More than half of parts and service and quite predictable and reliable. We just had a little bit of a mixed shift with the lower path, but we think that's temporary.

Mark A. Smith: I would say, as some have pointed out, the distribution business margins are a little bit lower, certainly lower than last year. We see those at the bottom end of the range in Q1 and improving from here, largely driven by what we've seen as a pullback on parts sales, particularly in the... industrial off-highway application. So that was the one area, it's not new, it's not, it's been there for a couple of... months, two quarters, but otherwise, I'd say we feel good about the gross margin improvement year over year. As you can see from our announcements and our comments, we're continuing to look at ways to make us more efficient where we can.

Mark A. Smith: Yeah, we do see some seasonality on revenue in the fourth quarter, a little bit with second half.

Mark A. Smith: So overall in line, Jerry, but expecting distribution in particular to pick up in its margins going forward. We've always expected, probably we were expecting this a little bit last year, to be fair, and it didn't materialize, but we are expecting heavy-duty truck production to decline in the third quarter in particular. And you've probably heard that from other industry participants. So I think the engine, business, and components will feel some of that in Q3, probably Q4.

Mark A. Smith: But I think the point of your question, it's essentially right Nicole this positive momentum.

Mark A. Smith: We've been raising the guidance is the performance is improving there is some modest variation depending on how the pumps.

Mark A. Smith: Flow in that business.

Mark A. Smith: Overall, our messages were confident in the business and the improvements that we have.

Mark A. Smith: Jenny Bush and her team have really worked hard on over the last 18 months.

Mark A. Smith: If we get more revenue, we're comfortable to another higher earnings, but theres nothing.

Mark A. Smith: Dramatically structurally different going forward, we expect improvement over time.

Speaker Change: I'll pass it on.

Speaker Change: Thank you. Thank you.

Mark A. Smith: Our next question comes from the line of David Raso with Evercore ISI. Please proceed with your question.

Speaker Change: Thank you may.

Jerry: 16th meeting can you just give us some expectations around the meeting I think particularly around the margin side I think people are just trying to figure out the the operating leverage in the company over the last couple of years, maybe not quite the margins people were expecting.

Mark A. Smith: You know even like the guide today it was nice to see the power Gen.

Mark A. Smith: The margin increase but overall, though the relative.

Mark A. Smith: Increase in earnings relative to the increase implicit in the sales guide.

Speaker Change: It's still not that tremendous so I'm just curious if you can sort of tee up a little bit what should we expect may 16th I'm trying to steal the thunder of the meeting yeah, Yeah, Yeah, well, obviously I won't I won't I won't tell you what we're going to tell you about specifically, but certainly you can expect us to talk about overall.

Mark A. Smith: Overall strategy for the company, where we think we're at again some of the 2030 goals that we shared in our last analyst day, and you know certainly talking about revenue and margin expectations on what the drivers for that will be.

Mark A. Smith: Within that so I think you'll you'll hear more about that for sure David at our analyst day.

Jerry: Okay, and one quick one the JV income in the first quarter.

Mark A. Smith: It was up year over year, but you're still guiding the year.

Mark A. Smith: Don.

Mark A. Smith: I'm just trying to make sure we know.

Mark A. Smith: We know why is it down is it China not continuing some of the improvement.

Mark A. Smith: As or other parts of.

Mark A. Smith: The royalty income I I know that.

Mark A. Smith: It's a pretty lumpy lumpy line item within the JV income if he can help us with that would be great. Thank you yeah I think you.

Speaker Change: Youre exactly right, David there's really two moving parts as the operating performance, which generally tends to move in line or.

Mark A. Smith: Better than the market rate and then we get very lumpy tech fees from the joint venture back to Cummins.

Mark A. Smith: Consolidated results as new products are launched last year was particularly.

Mark A. Smith: Strong periods of new product launch on reaching certain development milestones. So the tech fees are going to be.

Mark A. Smith: Down, particularly.

Mark A. Smith: Particularly in the engine business primarily.

Mark A. Smith: And that's offsetting any of them.

Mark A. Smith: Around the market growth I will say it's.

Mark A. Smith: There was some truck OEM.

Mark A. Smith: Build increases in Q1, but that was more.

Mark A. Smith: On expectations or hopes about going forwards, we're still waiting for clearer signs of momentum as China is as you know is the biggest driver of the earnings.

Mark A. Smith: It's really lower tech fees, which were a big auto lost you a little bit in components, mostly in the engine business.

Mark A. Smith: One quick add there David and we also have built in our plans to launch of the battery joint venture later on this year post approval. So that will have some losses as well as that comes back online which is second half.

Mark A. Smith: Which is embedded an accelerant.

Speaker Change: Yes, we are.

Mark A. Smith: <unk> that we have final regulatory approval for that battery JV. So we're expecting that's going to start flowing in Q2.

Mark A. Smith: Yes.

Speaker Change: Thank you.

Mark A. Smith: Our next question comes from the line of Angel Castillo.

Mark A. Smith: With Morgan Stanley. Please proceed with your question.

Mark A. Smith: Thanks.

Speaker Change: Morning, everyone just back to the power generation segment, I think you raised your guidance to 10% to 15% versus a 5% 10%. Previously can you just talk about the price versus volume mix makeup of that versus prior expectations.

Mark A. Smith: This is this a matter of getting a better production than you've kind of an anticipated or is pricing going in and just kind of what are you seeing from that perspective.

Speaker Change: Yeah. So there's a couple of dynamics to keep in mind in that market. So first of all as I articulate the order board is pretty long and so some of the work to improve our.

Mark A. Smith: Price cost in response to inflation and our performance.

Mark A. Smith: Performance of the business takes some time to play out so we're starting to see stronger.

Mark A. Smith: Pricing leverage come into that that market and then we're continuing to of course drive improvements in the power systems business and efficiency and manufacturing and supply chain and I noted the launch of the new products that we've also designed to be.

Mark A. Smith: Be able to sell it somehow higher margin. So there are some.

Mark A. Smith: Favorable dynamics that have been happening in the power Gen market compared to historically, where we would've been at margin performance.

Jerry: That's very helpful. Thank you and along the lines of new products. Just you talked about your ex 15 diesel engine, that's coming out for kind of ahead of the emissions regulations can you give us a little bit more as to what you should kind of expect in terms of guardrails around pricing and margin potential improvement I know you typically run emission cycles. This is when you get it.

Mark A. Smith: The opportunity to reset.

Mark A. Smith: And recover some of that margin. So as we think about you know maybe not necessarily specifically to any given year, but those projects or those products and kind of the implications to your price and margins.

Mark A. Smith: Those get rolled out.

Mark A. Smith: Yeah, So certainly like in past emissions regulations here, our goal is to deliver incremental value to the customer.

Mark A. Smith: To have margin improvement associated with that you will see with the 27 EPA regulations, we already talked about that the emissions warranty dynamic.

Jerry David Revich: Super. Thank you. And can I just ask from a bigger picture standpoint, so new regulations in 2027 will have embedded warranties, essentially, what does that mean for your arts market share? Is that an opportunity when that field population? Yeah, I mean, as you noted, there's a requirement.

Jennifer W. Rumsey: Yeah, I mean, as you noted, there's a requirement starting with the EPA 2027 regulations for longer emissions warranty for heavy duty 10 years or 450,000 miles. But most of that application is going to mile out.

Jerry David Revich: Dynamic you'll also see added content in particular, the after treatment system to meet those regulations.

Jennifer W. Rumsey: Has notable additional.

Jennifer W. Rumsey: Content and then you will also have the warranty dynamic that we always have as we launch new products, where we began at least at launch to accrue at a higher rate from a warranty perspective until that product out in the market and we've demonstrated.

Jennifer W. Rumsey: So it's essentially what our five-year extended warranty that some customers are already purchasing. And then that will mean that everybody will need that warranty, which will be embedded into the pricing on those engine systems. And then, of course, we'll drive customers to genuine parts throughout that period, which will provide some further benefit to us.

Operator: Our next question comes from the line of Nicole DeVlasier with Deutsche Bank. Please proceed with your question.

Nicole Sheree DeBlase: Warranty. So those are the moving parts that you'll see we have not yet shared specific numbers on what we expect around exact pricing for those products.

Operator: Okay.

Nicole Sheree DeBlase: Thank you.

Nicole Sheree DeBlase: Our next question comes from the line of Tami Zakaria with Jpmorgan. Please proceed with your question.

Nicole Sheree DeBlase: Yeah, thanks for the question. Good morning, guys. I'm going to ask mine together because they're related.

Nicole Sheree DeBlase: Hey, good morning, Thank you so much.

Nicole Sheree DeBlase: So.

Nicole Sheree DeBlase: Wanted to understand the <unk>.

Nicole Sheree DeBlase: Arjun guide a little better.

Nicole Sheree DeBlase: Like I'm, excluding atmos, which probably.

Nicole Sheree DeBlase: Was it a headwind.

Nicole Sheree DeBlase: Separating that out it is becoming a headwind, but you sort of raised the full year guide by about 10 basis points.

Nicole Sheree DeBlase: Expecting better margins in engine and parts isn't just to.

Nicole Sheree DeBlase: Get a sense of what's really driving this improved margin expectation is it higher volumes or is it more cost savings or is it more price cost, but any color there would be helpful.

Nicole Sheree DeBlase: Good question you're right.

Nicole Sheree DeBlase: The separation is a little bit dilutive to margins. So good that you picked up on that it's really volume and a little bit of cost reduction activity. Those are the two primary <unk>.

Nicole Sheree DeBlase: <unk>.

Nicole Sheree DeBlase: Okay, great. Thank you.

Nicole Sheree DeBlase: Thank you. Thank you.

Nicole Sheree DeBlase: Our next question comes from the line of Rob Wertheimer.

Nicole Sheree DeBlase: With Maluso research. Please proceed with your question.

Nicole Sheree DeBlase: And they're both around power systems. So, I think in the guidance, you guys are embedding full year margins below one Q level. I think, you know, it's a lumpy business. But if I look back historically, it's more common that the second half is higher. And then a similar question on growth, the comps ease slightly in the second half, but your full year growth guidance is for an outcome less than the growth you saw in the first quarter. So, if you could address both of those items, thank you. Yeah, we do tend to see some seasonality in...

Nicole Sheree DeBlase: Hey, good morning, everybody.

Mark A. Smith: We do tend to see some seasonality on revenue in the fourth quarter and a little bit in the second half. But I think the point of your question is essentially right, Nicole, there's positive momentum there. We've been raising the guidance as the performance is improving. There is some modest variation depending on how the parks are flowing that business.

Nicole Sheree DeBlase: My connection is going to be around.

Mark A. Smith: Your competitive positioning in the 2027 EPA from what you can see today, there's a bunch of questions, we get on whether Theres, a pre buy and what the cost increase would be.

Speaker Change: Maybe the warranty should be stripped out of that I'm not sure.

Mark A. Smith: And there may also be more subtle things that you guys would understand better than most of us around how how the standards can be met with or having additional nat gas, where you guys do pretty well offset other emissions and so forth. So that's the general question.

Mark A. Smith: This increase whether share gain and whether theres any subtleties around your mix.

Mark A. Smith: In your early prepared notes that will help you in 2027th transition. Thanks.

Nicole Sheree DeBlase: Thank you. Thank you. Our next question comes from the line of David Raso with Evercore ISI; please proceed with

Mark A. Smith: But, you know, overall, our messages were confident in the business and the improvements that we have, that Jenny Bush and her team have really worked hard on over the last 18 months. If we get more revenue, we're confident we'll turn that into higher earnings. But there's nothing... dramatically structurally different going forward; we expect improvement over time.

Operator: Thank you. May 16, you just give us some The Bulletproof Executive 2013, I think particularly around March, trying to figure out the operating leverage. Thank you for joining the PowerGem Guide today. It was nice to see the PowerGem margin. The Bulletproof Executive 2013.

Speaker Change: Yeah, great. Thank you. Thanks for the question and we are investing as we've talked about and the new helm engine platforms.

Operator: We're in a unique position because of our scale to continue to invest in what will be a market leading engine solutions to meet those future regulations and so we expect that that will provide some advantage for us as we go go into those regulations there will be a dynamic we think that's going to play out.

Operator: And.

Operator: And the 25 and 26 time period as customers anticipate a major.

Operator: Regulation change and what that will mean to them and so we expect that's going to drive some things beyond the normal cycle and in the U S truck market and then as we go into 'twenty seven there'll be some period of uptake, but we think we're well well positioned obviously our position in medium duty has continued to strengthen them.

Operator: And it will have a next generation 15 liter natural gas that we go into the market. Later this year that is of high interest to some of our customers that have sustainability ambitions and see this as the best way most cost effective and reliable way to meet those ambitions and then we'll have a new high efficiency.

Operator: 15 liter platform.

Operator: And 10 liter platform as well so we're excited about our position with those products I'm really focused on.

Operator: The execution of development and watching them into the market.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.

Speaker Change: Thanks, just sticking with EPA 2027 for a minute here.

Operator: The final rules continue to provide a nice crediting.

Operator: Hydrogen trucks.

Operator: And just given your offerings in this space wondering if you're starting to see more of a pickup for hydrogen fuel cell or whether most of the sort of the accelerating bounds at this point are primarily bev.

Operator: Yeah. So if you look beyond even the 27 into the the EPA announced the phase II greenhouse gas.

Operator: <unk>, which is going to really start to shape the industry as we get into 2030 and beyond no major surprises for us with that regulation, but it is really an unprecedented level of ambition in the assumptions around zero emission.

Operator: Vehicle penetration and so you know the industry and government and that's going to have to work really closely together for that to be successful. So to your question. One other things where there are a few things that were pleased about in the regulation. One is it actually recognizes hydrogen engines as a zero emission solution. So we believe that that will create a space for Hydra.

Operator: And fueled engine.

Operator: Hydrogen fuel cells still are good solution over time, but the adoption rate on that is.

Operator: To be.

Operator: It takes some time I would say and then the EPA also did commit to work to streamline hybrid powertrain certification. So hybrid engines, we think may be an attractive solution because infrastructure availability is going to be a challenge.

Operator: That's another thing that we're looking at that.

Operator: Closely so theres still some engine based solutions, yes, we're seeing an uptick today and more of the battery electric powertrain.

Speaker Change: Noted and of course Electrolyze, there's fuel cells is still a pretty low level.

Speaker Change: Yeah makes sense and then you mentioned that you got regulatory approval for the JV. So just can you lay out for us kind of the game plan on how are you.

Operator: Spending for the Giga factory.

Operator: Should should proceed over the next couple of years and what you may be doing at this point in terms of mining of supply and demand for the factory.

Operator: Yeah.

Operator: You know that the partners have been working together ahead of getting the final regulatory approval, we announced that we selected a site.

Operator: Earlier this year, so it will be.

Operator: Getting our site ready.

Operator: Mississippi just outside of Memphis.

Operator: Tennessee, and really starting to work to prepare for supply chain.

Operator: And building the plant we now that we have regulatory approval to believe we'll be able to close and finalize the entities.

Operator: And this quarter and then will have phased investment as we build the plant and work towards a startup production in 2027 and then we're of course sharing this investment of 21 gigawatt hour.

Operator: Across the partners and have this design that will allow us to phase our new lines at scale up the plant and production rates based on how we see the industry developing and we're still feeling really good about how we're positioned in the market together with.

Operator: L. A T cell that will be designed specifically for the commercial vehicle market and have the ability to leverage some of the incentive money that's available.

Operator: Oh here to to help enable adoption and our commercial vehicle market.

Speaker Change: Okay, great color. Thanks, so much.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Jamie Cook with tourists Securities. Please proceed with your question.

Speaker Change: Hi, good morning, I'm, so sorry, managing through like seven calls I hope this hasn't been asked but Mark. The question is to you I guess understanding you have your guys analyst day coming up. This month, you know I'm, just looking at Cummins and thinking okay. Perhaps there's a cost story there you have market share gains that should be helping.

David Michael Raso: Yeah, yeah, yeah, well, obviously, I won't, I won't, I won't tell you what we're going to tell you, but specifically, but certainly, you can expect us to talk about, you know, the overall strategy for the company where we think we are at, again, some of the 2030 goals that we shared at our last analyst day, and, you know, certainly talking about revenue and margin expectations and what the drivers for that will So I think you'll, you'll hear more about that for sure, David, at our analyst thing. Okay, one quick one. The JV income in the first quarter was up... Still guiding the year down, and I'm just trying to make sure we know.

David Michael Raso: I don't know why it's a town. Is it China? Is there other parts? Royalty Income. I know that, you know, it's a pretty lumpy, lumpy line item. The Bulletproof Executive, 2013

Mark A. Smith: You're exactly right, David. There are really two moving parts to the operating performance, which generally tends to move in line or better than the market rate. And then we get very lumpy tech fees from the joint venture back to Cummins. Consolidated results as new products are launched and last year was particularly good. There were some truck OEM build increases in Q1, but that was more about expectations or hopes about going forward.

Mark A. Smith: We're still waiting for clearer signs of momentum, as China, as you know, is the biggest driver of earnings there. But it's really lower tech fees, which were a big adder last year, a little bit in components, mostly in the end.

Mark A. Smith: One quick add there, David. We also have inbuilt in our plan the launch of the Battery Joint Venture later this year, post-approval, so that will have some losses as well if that comes online, which can happen.

Mark A. Smith: You you know maybe less spend on cellarer I'm just wondering as you think about margins over the medium term do you think there's an opportunity to structurally improve incremental margins or do you think about sort of the next couple of years. It's more so you know taking these actions to hit.

Mark A. Smith: You know Cummins historic.

Mark A. Smith: Targeting targeted incremental margins and then.

Speaker Change: You know my my second question would be and if this is addressed I apologize can you just talk to the visibility you have across like in terms of backlog across your portfolio in particular for the engine side and the power system side. Thank you.

Speaker Change: So I heard you we will explicitly address incremental margins and you will not miss that.

Mark A. Smith: For all who were asking very appropriate in center of mind.

Mark A. Smith: Top of mind for US clearly so you will hear that very very shortly yes, yeah.

Mark A. Smith: which is embedded in Accelera. Yeah, we're expecting that.

Speaker Change: And Jamie good to have you back.

Mark A. Smith: Or of course work in and you're seeing them proven and the merits of our business as we do the integration and an accelerated ramp up.

Mark A. Smith: Revenue about perhaps more about that in terms of in terms of color on the market.

Mark A. Smith: Yeah, we're expecting that. We have final regulatory approval for that battery JV, so we're expecting that to start flowing in Q2.

Mark A. Smith:

Mark A. Smith: We're seeing continued solid demand in the heavy duty market because of the high backlog that had been built up still a lot of strength in the vocational market.

Operator: Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.

Angel Castillo: Truckloads been down for some time and so we are still.

Angel Castillo: Anticipating and hearing from our customers. The second half we will have some weakening in that that's baked into our revised guidance, which is down but not as far down as previous guidance Powergen I noted earlier, we've sold out the 95 liter through 25, we're looking at capacity there and how we.

Angel Castillo: It can take that up as well as with the NUCYNTA.

Operator: Launched being able to sell some of our other engines into that market as well so pretty you know really strong feeling very good about power Gen.

Angel Castillo: Good about medium duty and vocational on highway it's really the you know.

Angel Castillo: The truckload.

Angel Castillo: Fleet customers and that the heavy duty market. That's the one that we're watching closely and still anticipating that it's going to soften before we enter the next.

Angel Castillo: Uptick in their cycle.

Angel Castillo: Thanks, and good morning everyone. Just back to the power generation segment, I think you have raised your guidance to 10 to 15 percent versus 5 to 10 percent previously. Can you just talk about the price versus volume mix, and how that compares to prior expectations? Is this a matter of, you know, getting better production than you kind of anticipated, or is pricing growing, and just kind of, you know, what are you seeing from that perspective?

Angel Castillo: And then what you heard earlier was.

Mark A. Smith: Yeah, so there's a couple of dynamics to keep in mind in that market. So first of all, as I articulated, the order board is pretty long.

Angel Castillo: Some industry consensus building about 25 and 26 2027.

Mark A. Smith: And so some of the work to improve price, cost, and response to inflation and performance of the business takes some time to play out. And so we're starting to see stronger pricing leverage come into that market. And then, you know, we're continuing to, of course, drive improvements in the power systems business and efficiency and manufacturing and supply chain. And I noted the launch of the new products that we've also designed to be able to sell at some higher margins. So there are some favorable dynamics that have been happening in the power generation market compared to where we would have been in terms of margin performance.

Mark A. Smith: Baseline assumption today is that this is not at all.

Mark A. Smith: Shop or as deep as the.

Mark A. Smith: Normal cyclical downturn.

Mark A. Smith: On the assumption that fact.

Mark A. Smith: That's what we baked into our outlook for this year.

Speaker Change: Thank you John as though China is the one where we're still waiting for more momentum probably.

Mark A. Smith: Yeah.

Angel Castillo: Can you give us a little bit more, you know, as to what you kind of expect in terms of guardrails around pricing and margin potential improvement? I know you typically, around emission cycles, this is when you get kind of the opportunity to reset and recover some of that margin. So, as we think about, you know, maybe not necessarily specifically to any given year, but those products and the kind of implications on your price and margins, you know, as those get rolled out. Yeah, so, you know, certainly

Mark A. Smith: Thank you. Our next question comes from the line of Jeff Kauffman with vertical research. Please proceed with your question.

Jennifer W. Rumsey: So, you know, certainly like in past emissions regulations, our goal is to deliver incremental value to the customer and to have margin improvement associated with that. You will see with the 27 EPA regulations, we have already talked about the emissions warranty dynamic, you will also see added content, particularly the after-treatment system to meet those regulations has notable additional content. And then you will also have the warranty dynamic that we always have as we launch new products, where we begin, at least at launch, to accrue at a higher rate from a warranty perspective until the product's out in the market and we've demonstrated it. So those are the moving parts that you'll see. We have not yet shared specific numbers on what we expect around exact pricing for those products.

Operator: Our next question comes from the line of Tami Zakaria with J.P. Morgan. Please proceed with your question.

Tami Zakaria: Hey, good morning. Thank you so much. So I wanted to understand The Margin Guide a little better. It seems like excluding ATMOS, which probably was the headwind, separating that out is becoming a headwind, but you sort of raise the full-year guide by about 10 basis points.

Tami Zakaria: Thank you very much and thanks for squeezing me in.

Tami Zakaria: I was just curious your thoughts it's apparent that the downturn I think a lot of us feared and 24 on the heavy duty engine side isn't it going to be as bad.

Mark A. Smith: Good question. You're right that the atmosphere separation is a little bit dilutive to margins. So, yeah, good that you picked up on that. It's really volume and a little bit of cost reduction activity. Those are the two primary drivers.

Mark A. Smith: As originally feared I know act research has taken up their forecast.

Mark A. Smith: You did mentioned some weakness beginning of <unk>, but.

Mark A. Smith: Are we taking from what would have been otherwise pre buy in 2006, if we have a better 'twenty four or do you think the two are unrelated.

Mark A. Smith: Yeah.

Mark A. Smith: I'm not I'm not sure that they're related I mean, where we're really watching what's going on with production rate.

Mark A. Smith: With backlog with some of the spot rate dynamics in the market and if you look at some of the freight carriers out there and they've been challenged now for the last.

Mark A. Smith: 18 months and so that's what's driving our outlook, but fair I mean, we because of the supply it's really the supply chain dynamic that has made this cycle. So.

Mark A. Smith: Different than even unpredictable it certainly held up better and longer than we had had had forecast.

Mark A. Smith: And we are still expecting to see some some softening in the second half.

Speaker Change: Okay, well, congratulations and that's my one thank you.

Speaker Change: Thanks, Jeff.

Mark A. Smith: Okay.

Speaker Change: Thank you.

Mark A. Smith: Our last question comes from the line of Chad Dillard with Bernstein Research. Please proceed with your question.

Tami Zakaria: Okay, great. Thank you.

Speaker Change: Hi, Good morning, Thank you say legal creating for Chad.

Speaker Change: I would like to double click on the R&D, because it and how to think about is on the medium term basis.

Operator: Our next question comes from the line of Rob Wertheimer with Meluso's Research. Please proceed with your question.

Speaker Change: Sorry can you repeat that I don't think we got the first part.

Operator: Sorry.

Robert Cameron Wertheimer: We would like to double click on the R&D intensity and how to think about this on a medium term basis.

Robert Cameron Wertheimer: Hey, good morning, everybody. My question is going to be around your competitive positioning in the 2027 EPA. From what you can see today, there's a bunch of questions we get on whether there's a pre-buy, on what the cost increase would be, and, you know, maybe the warranty should be stripped out of that. I'm not sure. And there may also be more subtle things that you guys would understand better than most of us around how the standards can be met, whether having additional natural gas, where you guys do pretty well, can offset other emissions and so forth. So, that's the general question. Price increase, you know, whether share gain and, you know, whether there's any subtleties around your mix in your early preparedness that will help you in the 2027 transition.

Robert Cameron Wertheimer: Yeah. So we are of course as you know we've taken up our R&D investments as we noted that and you know in our comments, because where we're making investments in particular in these new fuel agnostic engine platform. So we're at an elevated level of R&D for those new platform investments.

Robert Cameron Wertheimer: And those products are beginning to launch them really will launch to the 26 and 27.

Jennifer W. Rumsey: Thanks. Yeah, great. Thank you. Thanks for the question. And, you know, we are investing, as we've talked about,

Robert Cameron Wertheimer: Yeah, great. Thank you. Thanks for the question.

Robert Cameron Wertheimer: <unk> time period, and then of course, we're at a period of you know.

Jennifer W. Rumsey: And, you know, we are investing, as we've talked about, in the new Helm engine platforms. And we're in a unique position, because of our scale, to continue to invest in what will be market-leading engine solutions to meet those future regulations. And so we expect that that will provide some advantage for us as we go into those regulations. There will be a dynamic, we think, that exists in the 25 and 26 time period as end customers anticipate a major regulatory change and what that will mean to them.

Jennifer W. Rumsey: And so, you know, we expect that's going to drive some things beyond the normal cycle in the US truck market. And then, as we go into 27, there'll be some period of uptake. But we think we're well, well positioned, obviously, our position in medium duty has continued to strengthen, and we'll have a next generation 15 liter natural gas that will go into the market later this year that is of high interest to some of our customers that have sustainability ambitions and see this as the best way, the most cost-effective, and reliable way to meet those ambitions.

Jennifer W. Rumsey: And then we'll have a new high efficiency 15 liter platform and a 10 liter platform as well. So we're excited about our position with those products and really focused on, you know, the execution of development and launching them into the market.

Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question.

Jennifer W. Rumsey: Investment in the Accelerant business as we work to launch new products ramp up revenue there as well.

Noah Duke Kaye: Thanks, just sticking with EPA 2027 for a minute here, you know, if the final rules continue to provide nice crediting for hydrogen trucks, you know, and just given your offerings in this space, wondering if you started to see more of a pickup for hydrogen fuel cells, or whether most of the sort of the accelerator inbounds at this point are primarily Bev.

Operator: Thank you. Our next question comes from the line of Jeff Kaufman with Vertical Research. Please proceed with your question.

Jennifer W. Rumsey: Yeah, so if you look beyond the 27, the EPA announced the phase three greenhouse gas Regulation, which is going to really start to shape the industry as we get into 2030 and beyond. No major surprises for us with that regulation, but it is really an unprecedented level of ambition and assumptions around zero emissions. Vehicle penetration.

Jeffrey Asher Kauffman: Thank you very much and thanks for squeezing me in. I was just curious about your thoughts. It's apparent that the downturn that I think a lot of us feared in 24 on the heavy-duty engine side isn't going to be as bad as originally feared. I know ACT Research has taken up their forecast. You did mention some weakness beginning at 3Q, but are we taking from what would have been a pre-buy in 26 if we had a better 24? Do you think the two are unrelated?

Jennifer W. Rumsey: And so, you know, the industry and the government are going to have to work really closely together for that to be successful. So to your question, one of the things, there are a few things that we're pleased about in the regulation. One is that it actually recognizes hydrogen engines as a zero emission solution. So we believe that that will create a space for a hydrogen-fueled engine, and hydrogen fuel cells will still be a good solution over time. But you know, the adoption rate on that is likely to be, you know, take some time, I would say.

Jennifer W. Rumsey: I'm not sure that they're related. I mean, we're really watching what's going on with production rates. With backlog, with some of the spot rate dynamics in the market, and you know if you look at some of the freight carriers out there, they've been challenged now for the last 18 months. And so that's what's driving our outlook. But fair, I mean, we because of the supply, it's really the supply chain dynamic that has made this cycle so different and even unpredictable. It certainly held up better and for longer than we had forecast. And we are still expecting to see some some softening in the second. Well, congratulations!

Jennifer W. Rumsey: And then the EPA also did commit to work to streamline hybrid powertrain certification. So hybrid engines, we think, may be an attractive solution because infrastructure availability is going to be a challenge. So that's another thing that we're looking at closely. There are still some engine-based solutions. Yes, we're seeing an uptick today and more of the battery electric powertrain. As I noted, and of course, electrolyzers, and fuel cells are still pretty expensive.

Jeffrey Asher Kauffman: Okay, well, congratulations, and that's my one. Thank you. Thanks, Jeff. Thank you. Our last question comes from the line.

Noah Duke Kaye: Yep, that makes sense. And then you mentioned you got regulatory approval for the JV. So just, can you lay out for us kind of a game plan on how, you know, spending for the Gigafactory should proceed over the next couple of years and what you may be doing at this point in terms of, you know, lining up supply and demand for the factory? Yeah, I mean, we, you know, the partners have been working together ahead of getting the final regulatory approval.

Operator: Thank you. Our last question comes from the line of Chad Dillard with Bernstein Research. Please proceed with your question. Hi, good morning. This is Federico, joining for the chat.

Noah Duke Kaye: We announced that we've selected a site earlier this year, so we'll be getting a site ready in Mississippi, just outside of Memphis. Tennessee, and you know, really starting the work to prepare for the supply chain and building the plant. Now that we have regulatory approval, we believe we'll be able to close and finalize the entity in this quarter. And then, you know, we'll have phased investment as we build the plant and work towards the start of production in 2027.

Chad Dillard: Sorry, can you repeat that? I don't think we caught the first part. Sorry. We would like to double-click on the R&D intensity.

Noah Duke Kaye: And then, you know, we're, of course, sharing this investment of a 21 gigawatt hour plant across the partners and have this design that will allow us to phase in new lines and scale up the plant and production rates based on how we see the industry developing. And we're still feeling really good about how we're positioned in the market together with the LFP cell that will be designed specifically for the commercial vehicle market and have the ability to leverage some Okay, great call. Thanks so much.

Jennifer W. Rumsey: Yeah, so we are core, as you know, we've taken up our R&D investments. We noted that, and you know, in our comments, because we're making investments, in particular, in these new fuel-agnostic engine platforms. So we're at an elevated level of R&D for those new platform investments. And those products are beginning to launch and really will launch through the 26 and 27 time periods, and then of course, we're at a period of, you know, investment in the Accelera business as we work to launch new products and ramp up revenue there as well.

Operator: Our next question comes from the line of Jamie Cook with Truist Securities. Please proceed with your question.

Jamie Lyn Cook: Hi, good morning. So sorry, I'm managing through like seven calls. I hope this hasn't been asked already.

Jamie Lyn Cook: But Mark, the question is to you, I guess, understanding you have your guys' analyst day coming up this month. You know, I'm just looking at Cummins and thinking, okay, perhaps there's a cost story there, you have market share games that should be helping you, you know, maybe less spend on Accelera. I'm just wondering, as you think about margins over the medium term, do you think there's an opportunity to structurally improve incremental margins?

Speaker Change: Thank you.

Jamie Lyn Cook: Or as you think about sort of the next couple of years, it's more so, you know, taking these actions to hit, you know, Cummins' historic, you know, targeted, incremental margins. And then, you know, my second question would be, and if this is addressed, I apologize, can you just talk about the visibility you have across, like in terms of backlog across your portfolio, in particular for the engine side on the power system side? Thank you.

Mark A. Smith: So, I heard you, we will explicitly address incremental margins in May. You will not miss that, for all who are asking. Very appropriate and center of mind, or top of mind for us, clearly. So, you will hear that very, very shortly. Yes.

Jamie Lyn Cook: Thanks.

Jennifer W. Rumsey: Jamie, good to have you back. We're, of course, working, and you've seen the improvement in the Meritor business as we do the integration and, you know, and accelerate as we ramp up revenue. We'll talk more about that in terms of color in the market. But you know, we're seeing continued solid demand in the heavy duty market because of the high backlogs that have been built up. There is still a lot of strength in the vocational market.

Jennifer W. Rumsey: Truckloads have been down for some time, and so we are still anticipating and hearing from our customers that the second half will have some weakening. And that that's baked into our revised guidance, which is down, but not as far down as previous guidance. Power gen, as I noted earlier, we've sold out the 95 liter through 25. We're looking at capacity there and how we can take that up, as well as, with the new Centum launch, being able to sell some of our other engines into that market as well.

Jennifer W. Rumsey: So pretty, you know, really strong, feeling very good about power gen, feeling good about medium duty and vocational on highway. It's really the, you know, truckload fleet customers in the heavy duty market that's the one that we're watching closely and still anticipating that it's going to soften before we enter the next UpTick in their cycle.

Mark A. Smith: Yeah, and then what you heard maybe earlier was... There's some industry consensus building about 25 and 26 ahead of 2027. So our baseline assumption today is that this is not as sharp or as deep as a normal cyclical downturn. An assumption, not a fact, but that's what we've baked into our outlook for this year. Thank you. China's the one where we're still waiting for more momentum, probably.

Christopher C. Clulow: Thank you. I would like to turn the floor back over to Chris Clulow for closing comments.

Jamie: Thank you, Okay, I would like I'd like to turn the floor back over to Chris <unk> for closing comments.

Christopher C. Clulow: Thank you everybody for your participation today. That concludes our teleconference. I really appreciate the interest. And, as always, the investor relations team will be available for questions after the call. Have a good day. Look forward to seeing many of you in person in a couple weeks.

Christopher C. Clulow: Thanks, everybody for your participation today and that concludes our teleconference really appreciate the interest and as always the Investor relations team will be available for questions. After the call have a good day look forward to seeing many of you in person in a couple of weeks.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Operator: Yeah.