Q4 2024 Gates Industrial Corp PLC Earnings Call
We will have a question and answer session.
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As a reminder, this conference call is being recorded.
Richard: I would now like to turn the call over to Richard <unk>, Vice President Investor Relations. Thank you. Please go ahead.
Speaker Change: Greetings and thank you for joining us on our fourth quarter and full year 2024 earnings call.
Speaker Change: Briefly cover our non-GAAP and forward looking language before passing the call over to our CEO Evo Europe will.
Brooks Mallard: He'll be followed by Brooks Mallard, our CFO Biff.
Speaker Change: For the market open today, we published our fourth quarter and full year 2024 financial results.
Speaker Change: Copy of the release is available on our website at investors Dot <unk> Dot com.
Welcome to the Colliers International fourth quarter year end investors conference call.
Speaker Change: Our call. This morning is being webcast and is accompanied by a slide presentation.
This call is being recorded legal counsel recourse asked to advice that the discussion scheduled to take place today may contain forward looking statements that involve known and unknown risks and uncertainties.
Speaker Change: On this call we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance.
Speaker Change: Conciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website.
So, let's maybe materially different from any future results performance or achievements contemplated in the forward looking statements.
Information concerning factors that could cause actual results to materially differ from those in the flu, but kicking statements is contained in the company's annual information form as filed with the Canadian Securities administrators and in the company's annual report on form 40 F. As filed with the U S Securities and Exchange Commission.
Speaker Change: Please refer now to slide two of the presentation, which provides a reminder that our remarks.
Speaker Change: <unk> forward looking statements within the meaning of the private Securities Litigation Reform Act.
Speaker Change: These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward. Looking statements. These risks include among others matters that we have described in our most recent annual report on Form 10-K and in other filings, we make with the SEC, we disclaim any obligation to.
As a reminder, today's call is being recorded today Thursday February six 2025 and at this time for opening remarks, and introduction I would now like to turn the call over to the global Chairman and Chief Executive Officer, Mr. Jay Hennick. Thank you. Please go ahead Sir.
Speaker Change: Date these forward looking statements.
Speaker Change: We will be attending several investor conferences during February and March we look forward to meeting with many of you and before we start. Please note all comparisons are against the prior year period, unless stated otherwise now I'll turn it over to Eva.
Thank you operator, good morning, and thanks for joining us for the fourth quarter and year end conference call as the operator mentioned I'm, Jay Hennick, Chairman and Chief Executive Officer, and with me today is Christian Mayer, our Chief Financial Officer as always this call is webcast and available in the Investor Relations section of our website.
Eva: Thank you rich good morning, everyone and we appreciate you joining us today.
Speaker Change: Let's begin on slide three of the presentation.
Along with the presentation slide deck.
Speaker Change: And review what we've accomplished in 2024.
In the fourth quarter, Colliers delivered robust growth with strength and momentum across all business segments.
Speaker Change: The gates team globally made significant progress in 2024.
And generic revenues recorded the highest percentage increase driven by recent acquisitions in Canada, The U S and Australia.
We grew adjusted EBITDA margins by 140 basis points.
Speaker Change: Significantly exceeding our initial forecast while encountering in more challenging demand environment than we've expected at the outset of the year.
Real estate services performed strongly in both capital markets and leasing well investment management.
Berrien small this growth compared to the previous year.
Speaker Change: Our teams executed well on our enterprise initiatives and our focus enabled us to deliver strong gross margin expansion relative to 2023.
Over the past few years Colliers has become stronger and more resilient driven by three high value growth engines real estate services engineering and investment management, all supported by recurring revenues now account for more than 70% of our earnings.
Speaker Change: Our profit improvement helped us to generate record adjusted earnings per share and adjusted EBITDA dollars in 2024.
Speaker Change: Further we.
Speaker Change: We successfully refinanced our debt stack.
Looking ahead to 'twenty five we expect another solid year of growth and we're quite excited about our future prospects.
Speaker Change: Lowered our financing costs and reduced our net leverage ratio.
Speaker Change: Lastly, we supported Blackstone sell down during the year by repurchasing $175 million of our stock ultimately facilitating their exit prior to year end fundamentally we believe our business operations are positioned to capitalize on a potential industrial <unk>.
Our enterprising culture continues to thrive thanks to our experienced leadership that is fully aligned with shareholders. Our global teams have long tenure they operate in a decentralized way that is supported by long term incentive programs that foster an owner's mindset.
Speaker Change: <unk> recovery during 2025.
This unique culture provide significant competitive advantages to colliers that is extremely difficult to replicate.
Speaker Change: We've made strong headway towards achieving our mid term targets.
Speaker Change: Brooks and I will provide more color on the current state of our journey later in the presentation.
Our new engineering platform now boasts 8000 professionals is underpinned by a strong recurring revenue base and robust contractual backlogs offering significant growth opportunities on a global basis, both internally and through acquisition we.
Speaker Change: On slide four we summarize the key movements in our 2024 adjusted EPS.
Speaker Change: We delivered earnings per share growth led by operating income contribution.
Speaker Change: Augmented by lower interest expense and share count.
I also see three near term catalysts that drive even stronger growth in 2025 and beyond.
Speaker Change: Which more than offset a higher tax rate and lower contribution from other items.
Real estate services, our capital markets business is showing cyclical recovery as interest rates and asset valuations stabilize stabilize.
Speaker Change: We believe 2024 was indicative of our organizations operational strength and improved financial flexibility.
It's slower than we expected well performance hasn't yet reached the 2021 peak are significantly larger scale now positions us extremely well to deliver even stronger results in the future as the market recovers.
Speaker Change: On slide five.
Will review fourth quarter results.
Core revenue performance was consistent with our expectations, while the strengthening of the U S. Dollar during the quarter negatively impacted reported revenues.
In investment management improved fundraising effort efforts and the launch of several new vintages of our proven investment products set the stage for a robust revenue growth and a new step up in growth and profitability as we strategically deploy new capital in new investments.
Speaker Change: Our replacement channel posted growth supported by a mid single digit increase in out of replacement.
Speaker Change: Our OEM sales decrease primarily affected by volume reductions in the agriculture and construction end markets.
Speaker Change: Encouragingly personal mobility core growth increased for the first time in seven quarters and extended approximately 20%.
Going forward.
Finally, as always our 2025 outlook does not include the potential upside from additional acquisitions, which we might complete during the year and have historically been very accretive.
Speaker Change: Book to Bill remained above one at the end of the year.
Speaker Change: Our profitability performance was solid as adjusted EBITA margin expanded 30 basis points to 21, 8%.
Our pipelines remain strong and we expect to continue to scale and diversify each of our three business segments throughout the year.
Speaker Change: The increase was driven by 130 basis points increase in gross margin to 44%.
This year, we have also decided to accelerate our plans to streamline our investment management operations to take advantage of the synergies much faster than anticipated. This move will set the stage for future opportunities and create increased optionality as we continue to build.
Speaker Change: A record gross margin performance for a fourth quarter.
Speaker Change: Gross margin primarily benefited from ongoing contributions from our various enterprise initiatives, which supported improved operating performance and price realization.
One of the worlds largest mid market alternative asset managers with about $100 billion of assets under management.
Speaker Change: As well as favorable channel mix.
Speaker Change: Global volume was a drag.
Christian Mayer: Supported by visionary leadership significant inside ownership and approved in 30 year track record of delivering 20% annualized returns for shareholders. Colliers is extremely well positioned to continue to create value for shareholders for many years to come now let me ask Christian to.
Speaker Change: Our free cash flow conversion during the quarter was 168%.
Speaker Change: Which brought the full year to 74%.
Speaker Change: We believe we are at or near trough demand levels and some of our end markets and are seeing green shoots in others.
And have maintained our inventory levels to ensure that we fully capitalize on an expected cycle inflection.
Christian Mayer: This financial report then we'll open things up for questions Christian.
Christian Mayer: Thank you Jay and good morning, everyone. Please note that the non-GAAP measures discussed here today are as defined in the materials accompanying this call.
Speaker Change: Additionally, we have position inventory and invested capex to support our continued footprint optimization plans, which launched in earnest during the second half of 2024.
Christian Mayer: Revenues for the fourth quarter for $1 5 billion up 22% relative to the prior year period.
Speaker Change: Our net leverage ratio declined to two two times from two three times at year end 2023.
Christian Mayer: Local currency internal growth, 10% overall and was led by capital markets, which was up meaningfully against a low base in the prior year and engineering, which had strong gains in both the engineering and project management disciplines.
Speaker Change: We allocated $175 million of cash to share repurchases during the year.
Speaker Change: Our resources that would have reduced our net leverage ratio further.
Christian Mayer: The fourth quarter's adjusted EBITDA was $225 million up 14% over the prior year with internal growth and acquisitions contributed an era.
Speaker Change: We believe that we are in a strong position to hit our 2026 target net leverage ratio of one to two times.
Christian Mayer: Roughly even proportions.
Christian Mayer: Our real estate services operations had 13% revenue growth led by capital markets, which was up 25%.
Speaker Change: Please turn to slide six.
Speaker Change: Fourth quarter total revenue were $829 million, which represented a two 6% decrease on a core basis and.
Christian Mayer: Europe and the Americas drove the capital markets gained with sharp increases in transaction activity in office and industrial asset classes.
Speaker Change: And was slightly better than our expectations.
Christian Mayer: In Asia Pacific strong year over year capital markets growth in Australia was offset by Macroeconomically driven declines in China, Hong Kong and South Korea.
Speaker Change: Total revenues were down just under 4% inclusive of unfavorable foreign currency effects that incrementally worsened through the quarter.
Christian Mayer: Leasing revenues were up 14% with notable increases in activity in the office industrial and retail asset classes globally.
Speaker Change: Automotive grew low single digits on a core basis.
Speaker Change: This was offset by a mid single digit declines in industrial end markets, primarily driven by North America and Europe.
Christian Mayer: <unk> margin remained flat versus the prior year quarter with operating leverage from higher revenues.
Speaker Change: Our Asia business continues to see signs of industrial recovery.
Speaker Change: Our replacement sales grew modestly as we continue to see constructive demand in the automotive replacement business.
Christian Mayer: Offset by ongoing investments to recruit brokerage professionals.
Christian Mayer: Engineering performed well in Q4 with overall revenue growth of 61% with a bulk from acquisitions as well as high single digit percentage internal growth.
Speaker Change: OEM sales decreased in line with expectations as auto OEM builds were flat in agriculture, and construction industry inventories remained elevated.
The net revenue margin increased slightly decreased slightly to 12, 8% relative to 13, 5% in the prior year period, due mainly to weather related seasonality inherent in recently acquired businesses.
Speaker Change: Adjusted EBITDA was $181 million and yielded a margin of 21, 8% an increase of 30 basis points.
Speaker Change: The expansion was led by a solid 130 basis points improvement in gross margins.
Investment management revenues were up 6% overall and up 1% excluding pass through performance fees as expected.
Speaker Change: Benefits from our enterprise initiatives more than offset the adjusted EBITDA impact from lower core sales.
Christian Mayer: Q4, EBITDA was also up 1%, while the margin was flat relative to the comparable period driven by ongoing investments in our fundraising capabilities and cost to launch New fund products.
Speaker Change: Adjusted earnings per share was 36.
Speaker Change: Which was down 3% versus the prior year.
Speaker Change: Operating income was approximately <unk> <unk> headwind driven by lower sales volume and partially offset by initiatives savings.
Christian Mayer: And strategies.
Christian Mayer: We raised $1 $3 billion of new capital commitments during the quarter, bringing full year fundraising to $3 8 billion as we expected.
Speaker Change: And lower share count contributed one.
Speaker Change: On slide seven we will review our segment highlights.
Christian Mayer: We are in the process of deploying capital raised and have started to raise for new vintages launching in 2025.
Speaker Change: In our power transmission segment, we generated revenues of $520 million in the quarter, which translated to approximate 1% decrease on a quarter basis.
Christian Mayer: Assets under management at year end were $98 9 billion up slightly from September 30th.
Speaker Change: The replacement channel was up year over year supported by modest growth in automotive replacement and some stabilization in industrial replacement.
Christian Mayer: AUM gains came from fundraising and positive mark to market adjustments and then almost all asset classes.
Christian Mayer: Largely offset by asset realizations at older vintage funds with capital returned to investors.
Speaker Change: OEM demand was under pressure with both industrial and automotive posting declines.
Christian Mayer: Redemption activity, which is permitted certain restrictions in our perpetual funds was modest.
Speaker Change: Notably personal mobility returned to growth in the quarter with a double digit increase that lessens. The overall magnitude of the OEM channel decline.
Christian Mayer: Turning to our balance sheet during.
Christian Mayer: During the quarter, we upsized and locked in our revolving credit facility for a new five year term.
Speaker Change: Power transmission adjusted EBITDA margin declined 30 basis points impacted.
Speaker Change: Impacted by the lower top line.
Christian Mayer: We currently have over $1 2 billion of capacity to fund future growth.
Speaker Change: In our fluid power segment, our sales were $309 million.
Christian Mayer: Our leverage ratio defined as net debt to pro forma adjusted EBITDA was two times at December 31.
Speaker Change: On a core basis sales decreased approximately 5%.
As expected we deleveraged during the fourth quarter through a combination of EBITDA growth and seasonally strong free cash flow.
Speaker Change: The replacement business remained stable supported by automotive replacement, which grew high single digits.
For the first half of 2025, we expect leverage to remain in the two times range tend to decline to approximately one five times in the second half of.
Speaker Change: This was slightly offset by softness in the industrial replacement, which declined mid single digits.
Speaker Change: Industrial OEM sales declined high teens on a core basis, driven by continued demand pressure in agriculture and construction.
Christian Mayer: This of course assumes no material acquisitions.
Christian Mayer: We are introducing our outlook for 2025 with commentary by segment to provide additional clarity.
Speaker Change: Fluid power segment, EBITDA margins expanded 120 basis points benefiting from our enterprise initiatives and a higher replacement sales mix, which more than offset the volume declines.
Christian Mayer: The outlook reflects currently prevailing foreign exchange rates, which are closely tied to international trade uncertainty and are a headwind to our U S dollar reported results.
Brooks Mallard: I will now pass the call over to Brooks of further comments on our results.
Christian Mayer: We expect our real estate services revenues to grow at mid single digit percentage rate.
Speaker Change: Thank you levo.
Christian Mayer: With a modest margin increase.
Brooks Mallard: I'll begin on slide eight and review our core sales performance by region.
Christian Mayer: We expect engineering revenues to be up about 30% with about one fifth of that growth attributable to internal sources.
Brooks Mallard: China, and Eastern Asia performed well in the quarter delivering modest growth.
Brooks Mallard: This was more than offset by broad macro weakness in Europe, and soft industrial activity in the Americas.
Christian Mayer: Engineering margins are expected to increased nicely from the impact of higher margin acquisitions.
Brooks Mallard: In North America core sales declined approximately 3% and were primarily affected by lower OEM demand.
Christian Mayer: As well as margin expansion in our base business.
Christian Mayer: Our investment management Division is beginning a new cycle of fundraising with several new flagship long dated vintages launching in 2025, which should result in higher revenue streams as we progressed through the year.
Brooks Mallard: Industrial OEM channel sales decreased double digits with the agriculture and construction end markets most impactful to our performance.
Brooks Mallard: North American replacement channel sales expanded mid single digits.
Christian Mayer: And then to 2026.
Christian Mayer: Given our continuing investments and fundraising and our accelerated operational integration plans.
Brooks Mallard: With high single digit growth in auto replacement and a slight increase in industrial replacement.
Christian Mayer: 25 margins are expected to remain flat or modestly down relative to 2024.
Brooks Mallard: In EMEA core sales fell just over 6%.
Brooks Mallard: OEM sales decreased double digits with automotive experiencing significant weakness.
Christian Mayer: We are expecting a significant step change in investment management, EBITDA and margins in 2026 as capital formation strengthens.
Brooks Mallard: Industrial OEM sales were down low single digits.
Brooks Mallard: Replacement sales were mixed with automotive replacement core growth in the low single digits and industrial replacement down in the low teens.
Christian Mayer: On a consolidated basis for the full year 2025, we expect high single digit to low teens percentage revenue growth.
Brooks Mallard: At the end market level, agriculture, and energy were headwinds.
Christian Mayer: And low teens, adjusted EBITDA and adjusted adjusted EPS growth.
Brooks Mallard: While personal mobility returned to growth.
Christian Mayer: Okay.
Christian Mayer: That concludes my prepared remarks, we will now open the call to questions. Operator can you. Please open the line.
Brooks Mallard: China core sales grew modestly and benefited from strength in the replacement channel.
Brooks Mallard: Industrial replacement grew mid teens supported by demand strength and the diversified industrial end market.
Christian Mayer: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your telephone keypad.
Brooks Mallard: Automotive replacement expanded high single digits.
Brooks Mallard: The growth was slightly offset by a low single digit decline in OEM sales.
Speaker Change: You're a pump that Johanna speedways.
Speaker Change: Should you wish to come to your request. Please press star followed by Gucci and if you're using a speaker phone. Please keep the handset before pressing Amy keys.
Brooks Mallard: Given by the automotive softness.
Brooks Mallard: East Asia, India posted three 5% growth in core sales.
Speaker Change: Your first question comes from the line of Anthony Powell alone from J P. Morgan. Please go ahead.
Brooks Mallard: Automotive OEM sales declined low single digits, which was more than offset by growth in the automotive replacement channel and industrial end markets.
Anthony Powell: Great. Thanks, good morning.
Speaker Change: Wanted to start on the engineering side.
Brooks Mallard: South America core sales decline mid to high single digits.
Speaker Change: I'm wondering if you can give us a little bit more color on how integration is going.
Brooks Mallard: Primarily impacted by logistics disruptions in Brazil.
Speaker Change: Where you may have seen any headwinds.
Brooks Mallard: On slide nine we display the key components of our year over year change in adjusted earnings per share.
Speaker Change: And just movement toward pushing price in that business and just how it's coming along.
Brooks Mallard: Lower volume was a <unk> <unk> per share headwind to adjusted earnings per share was largely mitigated by contributions from our enterprise initiatives.
Speaker Change: Yeah.
Integration has been relatively simple actually because Anglo is a national player in Canada. There was no overlap with the U S business and it was a beautiful.
Brooks Mallard: Other items and a lower share count contributed <unk>.
Brooks Mallard: Yeah.
Brooks Mallard: Slide 10 has an update on our cash flow performance and balance sheet terms at year end.
Speaker Change: Okay.
As beautiful attachment to our base business the only integration that we're dealing with in the engineering area is Australia and New Zealand.
Brooks Mallard: Our free cash flow for the fourth quarter was $148 million, which represented 168% conversion to adjusted net income.
Speaker Change: Where we are continuing to build out a solid and more significant platform, it's going well the results are better than expected.
Brooks Mallard: As previously mentioned, we are keeping healthy inventory levels to help strengthen our ability to fully capitalize on an anticipated demand inflection.
Speaker Change: But over the next couple of years, we expect more.
Brooks Mallard: Also we pulled forward some capex investments to accelerate the timing of certain footprint optimization projects and deploy capital to certain systems enhancement programs.
Speaker Change: More growth and more.
Speaker Change: <unk> and technology to be sort of consistent with what we have both in Canada and the United States. So.
Speaker Change: We're excited about about that but integration is has not been an issue for us in engineering.
Brooks Mallard: Our net leverage ratio was two two times at the end of the year down slightly from two three times at the end of 2023.
Speaker Change: Is that investment Youre, making is that a margin headwind in the near term just trying to understand how to think about.
Brooks Mallard: We've made good progress with our balance sheet in 2024, specifically.
Speaker Change: Any pickup there in 'twenty five.
Brooks Mallard: Specifically, we lowered our gross debt by over $100 million and executed a successful refinancing of our full debt stack during the middle of the year.
Tony: Well Tony.
Speaker Change: <unk> impact.
Speaker Change: In engineering, it will come from the higher margin acquisitions completed during 2024.
Brooks Mallard: In the fourth quarter, we delivered a 50 basis point reduction on our term loan spreads, which will lower our interest expense for 2025.
Speaker Change: And also some organic margin improvement.
Speaker Change: Some of these integration efforts in Australia that they do take time and they do take energy and they do have.
Brooks Mallard: We believe that we were on a strong position to realize our 2026 net leverage target of one to two times.
Speaker Change: Despite adverse margin impact.
Speaker Change: We're also integrating our newly acquired <unk> business in the U S and that will take place over the next 12 months and there is considerable work to do to integrate these tuck in acquisitions, but not meaningfully impactful on our on our margins.
Brooks Mallard: Our trailing 12 month return on invested capital finished at 24%.
Brooks Mallard: A 100 basis point increase compared to year end 2023.
Brooks Mallard: We continue to deploy capital to support enterprise initiatives and system enhancements.
Speaker Change: Okay and then just my my second question just in investment management can.
Brooks Mallard: These internal projects are typically our highest return opportunities.
Speaker Change: Can you give us any just.
Speaker Change: Capital raising goals or net sort of AUM. You think you should end up with when you consider the new products, you're launching as well as net of any sort.
Brooks Mallard: On slide 11, we introduce our full year 2025 guidance and our expectations for the first quarter.
Speaker Change: Liquidations.
Speaker Change: Vehicles may be put aside.
Brooks Mallard: For 2025, we have initiated guidance for core revenues to be in the range of down <unk>, 5% to up three 5% relative to 2024.
Speaker Change: Market.
Speaker Change: <unk>.
Speaker Change: Yes, Toni as I mentioned, we raised $3 8 billion of capital in 2025, which is an increase from sorry in 2024, let me say that again, we raised $3 8 billion in 2024, which is an increase from 2023.
Brooks Mallard: Importantly at the midpoint of one 5% growth, we have assumed and market contribution as a slight headwind on a weighted average basis.
Speaker Change: Conditions have obviously been challenging the last couple of years. So that's the context.
Brooks Mallard: We anticipate year over year core growth will improve as the year progresses.
Speaker Change: For 2025, we are expecting to raise between five and $8 billion of capital.
Brooks Mallard: We are budgeting about a 3% headwind from foreign exchange for the year with greater impact expected in the first half of the year.
Speaker Change: And this is in new vintages.
Speaker Change: Funds. So these funds are going to have first closes and the <unk>.
Speaker Change: Mid year to late year.
Brooks Mallard: Our initial 2025 adjusted EBITDA guidance is in the range of $735 million to $795 million.
Speaker Change: This year, and then accelerating with additional fundraising as we head into 2026.
Speaker Change: So as I mentioned.
Speaker Change: Hey.
Speaker Change: A building year with a new fundraising cycle.
Brooks Mallard: At the midpoint, our guidance represents a 50 basis point year over year increase in adjusted EBITDA margin.
Speaker Change: Starting and we expect fundraising to pick up meaningfully.
Speaker Change: Into late 'twenty, five hopefully and certainly in 2026.
Brooks Mallard: Our adjusted earnings per share guidance is in the range of $1 36 per share to $1 52 per share.
Speaker Change: Okay. Thanks for the time.
Speaker Change: Thank you and your next question comes from the line of Stephen Macleod from BMO capital markets. Please go ahead.
Brooks Mallard: We are spending more on capital expenditures.
Brooks Mallard: 125 to support high return projects.
Stephen Macleod: Thank you good morning, guys.
Brooks Mallard: We anticipate our free cash flow to exceed 90% of our adjusted net income in 2025.
Stephen Macleod: I just wanted to follow up on the engineering business, which had a nice quarter and it seems like a decent outlook.
Brooks Mallard: For the first quarter, we estimate total revenues to be in the range of $805 million.
Speaker Change: Can you talk a little bit about just the margin dynamic in the first quarter and then and then you talked about.
Speaker Change: Two $835 million in core revenues to be down approximately 1% at the midpoint.
Speaker Change: Just the margin expectation for 2025, and just curious if you can put some color around how that is expected to evolve and what level that could potentially get to this year.
Speaker Change: For the first quarter, we expect our adjusted EBITDA margin to decrease in a range of 40 basis points to 80 basis points compared to Q1 2024.
Speaker Change: Yes so.
Speaker Change: Stephen our Q4 margin was impacted by newly acquired.
Speaker Change: Okay.
Speaker Change: Mrs.
Speaker Change: On Slide 12, we show a walk that helps explain the moving pieces in our Q1 adjusted EBITDA margin.
Speaker Change: During the year and as you know well does that.
Speaker Change: Second Canadian engineering firm and has weather related seasonality.
Speaker Change: Starting from the left our Q1 2024, adjusted EBITDA margin benefited 70 basis points from the realization of insurance proceeds.
Speaker Change: Cash to it.
Speaker Change: That is a and impacts that we saw in the 2024 quarter, but not in the 2023 quarter.
Speaker Change: Okay.
Excluding these nonrecurring proceeds our Q1 2024 adjusted EBITDA margin was approximately 22%.
Speaker Change: So as we look ahead to 2025.
Speaker Change: We will benefit from a full year effect.
Speaker Change: <unk> acquisitions, which are at higher margins than the base business. So certainly expect.
Speaker Change: At the midpoint of our Q1 guidance, we expect a 1% core sales decrease which we estimate impacts adjusted EBITDA margin by about 40 basis points.
Speaker Change: A.
Speaker Change: 150 basis points or so margin increase in 2025 in the engineering segment on an overall basis. The other thing you need that.
Speaker Change: We expect to more than offset the lower sales with contributions from our enterprise initiatives and improved mix.
Speaker Change: Think about here is that we report our revenues on a gross basis.
Speaker Change: As such we will be generating a 22, 6% adjusted EBITDA margin in the quarter without an estimated 50 basis point headwind from unfavorable foreign exchange rates.
Speaker Change: If you look at our revenues on a net basis and we did provide some information in our materials, but what those net revenues.
Speaker Change: R.
Speaker Change: Our engineering segment, our margin is two to 300 basis points higher on a net revenue basis. So we're going to continue to provide it.
Speaker Change: On slide 13, we provide a walk through our 2025 adjusted EBITDA at the midpoint.
Speaker Change: <unk> also.
Speaker Change: We expect the operational items to add a little over $50 million to our profitability with contributions from our enterprise initiatives and footprint optimization.
Speaker Change: There are pieces, when you're comparing us to the Canadian engineering firms.
Speaker Change: For us they do not include rent expense.
Speaker Change: As an expense against the EBITDA, so that again raises their margin profile relative to our U S. GAAP reported margin by another 100 to 200 basis points.
Speaker Change: FX is estimated to be about $34 million headwind to profitability based on about a $100 million reduction year over year to our topline.
Speaker Change: Right Okay.
Speaker Change: We also had some favorable items in 2024 that we don't expect to repeat in 2025, such as the insurance proceeds I just noted as well as a gain from the sale of real estate.
Speaker Change: Helpful.
Speaker Change:
And then just turning to the investment management business I think you characterized this year as a new cycle of fundraising and it sounds like you have a lot of.
Speaker Change: A lot of initiatives on the go.
Speaker Change: Unemployment.
Speaker Change: <unk> point on the slide is the profit headwind incurred from foreign exchange.
Speaker Change: As we think through the margin impact this year and next year do you foresee a scenario where investment management margins kind of get back into that 44, 45% range in 2026 once you've completed your fund raising and you really see that.
Speaker Change: The $34 million headwind is more than the difference between the consensus 2025, adjusted EBITDA and the midpoint of our guidance.
Speaker Change: On slide 14, we display and adjusted earnings per share walk for 2025.
Speaker Change: Revenue pick up.
Speaker Change: Steve The answer is yes, we see those margins.
Speaker Change: From left to right we project about a 12 set benefit from operational items.
Speaker Change: Proving.
Speaker Change: And principally today were impacted by additional investments in fund raising.
Speaker Change: Foreign exchange represents a <unk> <unk> headwind to adjusted earnings per share compared to the prior year period.
Speaker Change: Integration.
Speaker Change: Nonrecurring and below the line items net to a <unk> <unk> per share improvement.
Speaker Change: Which we've accelerated the process on so those are costs headwinds given the relatively modest revenue growth we've seen.
Speaker Change: On slide 15, we provide some more color and background on our Capex plans and our margin progress.
Speaker Change: But as that revenue growth accelerates with fund raising our margins should increase.
Speaker Change: In lockstep with that and certainly we would hope to be back at that mid Forty's.
Speaker Change: On the left you see we intend to spend above our depreciation expense in 2025, and 226 to support our footprint optimization projects and enhance our system capabilities.
Speaker Change: Hi, <unk>.
Speaker Change: Percentage margin over the next year or two.
Steve: Steve I would add.
Steve: I'd add something to that.
Steve: <unk> been a long analyst but.
In the Middle you see our March to 24, 5% adjusted EBITDA margin by 2026.
Steve: Okay.
Steve: We are being very aggressive in this segment this year.
Steve: As I sort of indicated in my comments there is a massive opportunity we have a significant business with great strategies.
Speaker Change: Our 2025 adjusted EBITDA margin guidance of 22, 8% includes a 40 basis point headwind from unfavorable FX and system investments.
Steve: Results for our investors.
Steve: And the fact that fund raising has been soft across the board I am just going to give you some additional color to it across the board what it's done is.
Speaker Change: Importantly, our margin progress to date has been achieved with no volume support and our footprint optimization savings are yet to be realized.
Speaker Change: As such we believe we are in good position to deliver our 2026 adjusted EBITDA margin target.
Steve: It has brought our strategies closer together the leaders of each of the strategies closer together and they spent a lot of time.
Evo Europe: I will now turn it back over to Evo.
Evo Europe: Thanks, Brooks Slide 16 provides a refresher on our 2026 gross margin target, which we introduced last year at our capital markets day.
Steve: <unk> about synergies fund raising and a variety of other initiatives that they believe that they can.
Steve: Significantly benefit from going forward, if they took certain strategic steps. These are steps that we always had anticipated as you know and building our platform. We always focused on doing it in partnership with the operating management teams, but what's happening interestingly in this set.
Evo Europe: As you can see we generated approximately 40% gross margin for the full year 2024.
Which puts us a little over 200 basis points away from our full year 2026 target.
Evo Europe: We expanded gross margins almost 200 basis points from last year, Despite a decline in our core sales.
Steve: <unk> is theyre, all coming together much faster than we expected primarily because of the macro conditions and thats, creating huge opportunity so although.
Evo Europe: We have made good progress with our material cost reduction initiatives and additional savings opportunities remains in front of us.
Evo Europe: To date, although we have not realized significant benefits from our operational excellence initiatives.
Steve: Yes, we have new.
Steve: New products launching this year, which will help our business and will return our emergence to 45%, but I think our.
Evo Europe: We anticipate those savings to pick up steam as our volumes recover.
Evo Europe: We also expect to realize initial savings from our footprint optimization initiative in 2025.
Steve: Our overall platform will accelerate materially.
Steve: Over the next 18 months and really positions us beautifully going forward based on what we're seeing.
Evo Europe: As a reminder, our footprint optimization initiative, if estimated to yield over 100 basis points of margin improvement at maturity.
Steve: <unk>.
Steve: Across the board in this segment of our business that could include name change that could include an integrated leadership team all of which creates more flexibility for us all of us.
Evo Europe: Further we believe there is a volume recovery ahead of us, which should result in a solid core operating leverage.
Evo Europe: With the progress made to date, we believe we are in a good position to achieve the gross margin target we outlined for 2026.
Steve: All of this creates new optionality for us and this business.
Steve: As you know is highly valuable.
Steve: And we were approached on an ongoing basis bye bye.
Evo Europe: Turning to slide 17, we highlight some of the key secular growth opportunities in front of us.
Steve: That would love to have this platform as part of their organization.
Evo Europe: Our mobility business continues to see strong design win activity and we have developed applications for new segments, such as E mountain bikes and incremental reducing the cost of our systems to penetrate lower priced higher volume areas of E bike and excluded applications.
Steve: On the other hand have a tremendous management team that believes that they can take this business to new Heights, and we made we made the executive decision to accelerate our players and get ourselves ready for 2006 and beyond.
Evo Europe: We expect our mobility business to generate solid growth in 2025.
Steve: Theres lots of exciting things happening so we're quite excited about it.
Evo Europe: In data centers, we are deep in the specification process across a variety of customers, including web hosting services providers and Hyperscale us as.
Steve: It will impact.
Steve: Our margins I believe in 25, not really don't really care about that too much to be honest as lobster as long term shareholders.
Steve: And business builders, but this will translate into huge value I think in the years to come.
Evo Europe: As well as server and rack manufacturers and cooling system integrators.
Evo Europe: We offer fluid conveyance products that support the major form of liquid cooling systems, including direct to chip immersion and rear door heat exchangers.
Speaker Change: Yeah, Okay, well, that's great color Jay Thank you and obviously consistent with your long term approach.
Speaker Change: So thank you very much for that color, maybe just one more question if I could just on the recruiting investments in the real estate services business I mean, what do you need to see to see returns on those investments.
Evo Europe: We believe that we have a good opportunity to capture a meaningful portion of the total addressable market for liquid cooling applications over the mid to long term should differentiated product performance and we are expanding our capabilities to fully capitalize on that opportunity.
Speaker Change: Well, we're seeing the returns already youre seeing strong leasing results.
The one thing Thats.
Speaker Change: Thats.
Evo Europe: The auto replacement market globally continues to offer multiple avenues for us to grow.
Speaker Change: That's become clear to us to over over the course of time is we've created and again I've mentioned it we've created a unique culture, which is which has been part of our way of operating for many many years.
Evo Europe: We added a major new channel partner in North America. During the second half of 2024, which we expect to be a nice contributor to our revenue base in 2025.
Speaker Change: Recruiting has been right up there colliers is.
Speaker Change: Hands down the third most recognized.
Evo Europe: We have opportunities to capture business with both new and existing channel partners in North America and EMEA.
Speaker Change: Firm in the World we operate in every city, we look at this business not dissimilar to the to the.
Evo Europe: In addition, we are expanding our product coverage in various emerging markets and intend to be well positioned to support demand as the car Park ages.
Speaker Change: Accounting industry I'm not sure there's much difference between price Waterhouse, Deloitte and the other accounting firms. There is for sure not that much difference between CB Jos lagging colliers our professionals are as good as their professionals, we have leading market positions in every major market around the world.
Evo Europe: Moving to slide 18, I'll offer some final thoughts before we take your questions.
Evo Europe: First our global team executed well in 2024, driving a margin increase and a softer than expected demand environment.
Speaker Change: And and we have a platform that continues to grow market for market. Despite.
Evo Europe: We are highly focused on serving our customers and.
Speaker Change: The headwinds that this industry is under.
Evo Europe: <unk> increased our service levels to best in class in 2024.
Speaker Change: So if.
Speaker Change: If we see capital markets returning as just one example.
Evo Europe: We also grew our design wins nicely and are deploying our material science and process capabilities to new markets that possess secular growth drivers.
Speaker Change: Two previous levels huge upside for us, but we also are taking advantage of other opportunities within that business too.
Evo Europe: Second we believe our business is well positioned for the potential industrial recovery.
Evo Europe: As I mentioned earlier, our margin expansion journey is ahead of schedule.
Evo Europe: Within our framework, we are making investments to improve the business for the mid to long term.
We believe that we have a good opportunity to capture a meaningful portion of the total addressable market for liquid cooling applications over the mid to long term should differentiated product performance and we are expanding our capabilities to fully capitalize on that opportunity.
Evo Europe: As Bruce referenced earlier, we are making investments in our systems to improve our organizational efficiencies and increasing our responsiveness to the evolving needs of our customers.
Evo Europe: In addition, we are adding commercial resources proactively to take advantage of secular growth opportunities available to us.
The auto replacement market globally continues to offer multiple avenues for us to grow.
We added a major new channel partner in North America. During the second half of 2024, which we expect to be a nice contributor to our revenue base in 2025.
Our balance sheet continues to improve which should help widen our capital deployment aperture over the next few years.
We have opportunities to capture business with both new and existing channel partners in North America and EMEA.
Evo Europe: Before taking your questions I want to extend my gratitude to the more than 14000 global gates associates for their commitment and perseverance applied towards fulfilling our strategic goals and meeting our customer needs.
In addition, we are expanding our product coverage in various emerging markets and intend to be well positioned to support demand.
Evo Europe: With that I will now turn the call back to the operator for Q&A.
Car Park ages.
Moving to slide 18, I'll offer some final thoughts before we take your questions.
Speaker Change: If you would like to ask a question a star followed by one on.
Evo Europe: Your telephone keypad.
First our global team executed well in 2024, driving a margin increase and a softer than expected demand environment.
Evo Europe: At that time, we ask that you. Please limit yourself to one question and one follow up thank you.
Speaker Change: Our first question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.
We are highly focused on serving our customers and increased our service levels to best in class in 2024.
Julian Mitchell: Hi, good morning.
Julian Mitchell: Maybe.
Julian Mitchell: Just a first question around the.
Julian Mitchell: <unk>.
We also grew our design wins nicely and are deploying our material science and process capabilities to new markets.
Julian Mitchell: Margin levels as you've given very good.
Julian Mitchell: Revenue in end market color.
Julian Mitchell: So looking at those slides on the margins I guess.
<unk> secular growth drivers.
Julian Mitchell: For example, slide 12.
Second we believe our business is well positioned for the potential industrial recovery.
Julian Mitchell: You've got the margin up around 50, 60 bps year on year in the first quarter.
As I mentioned earlier, our margin expansion journey is ahead of schedule.
Julian Mitchell: Underlying aside from FX and the insurance the full year guide I suppose stripping those out is up about maybe 70 bps or something so it doesn't look like you're embedding a big EBITDA margin improvement after Q1.
Within our framework, we are making investments to improve the business for the mid to long term.
As Bruce referenced earlier, we are making investments in our systems to improve our organizational efficiencies and increasing our responsiveness to the evolving needs of our customers.
Speaker Change: Even though I think volumes on the topline I meant to improve so maybe just help us understand is that conservatism or is there anything else moving around within the.
In addition.
We are adding commercial resources proactively to take advantage of secular growth opportunities available to us.
Julian Mitchell: EBIT Dol.
Julian Mitchell: What's the phasing of efficiency savings for example, any color on that please.
Our balance sheet continues to improve which should help widen our capital deployment aperture over the next few years.
Julian Mitchell: Okay, Yes, Julien So I think look if you. If you look on slide 13, I think that kind of lays out really the margin mall, we've got significant margin upside mostly coming from our.
Before taking your questions I want to extend my gratitude to the more than 14000 global Gates associates.
Their commitment and perseverance applied towards fulfilling our strategic goals and meeting our customer needs.
Julian Mitchell: Our enterprise initiatives and it continues to be very material oriented.
Julian Mitchell: Big headwind is FX as well.
Julian Mitchell: FX is really a pretty significant headwind.
With that I will now turn the call back to the operator for Q&A.
Julian Mitchell: As we've as we've got it modeled today based on the year I'm ready to try it we don't try to predict the approach right now.
If you would like to ask a question.
Star followed by one on your telecom to Todd and the interest of time, we ask that you. Please limit yourself to one question and one follow up thank you.
Julian Mitchell: Just model it based on the current.
Julian Mitchell: Going right so.
Julian Mitchell: The leverage haven't changed dramatically we have not embedded.
Our first question comes from Julian Mitchell from Barclays. Please go ahead. Your line is open.
Julian Mitchell: An inflection in terms of a market recovery in our numbers.
Hi, good morning.
Julian Mitchell: And we still continue to drive the enterprise initiatives within the four walls of days that are going to drive margin improvement year over year. So I think does that answer your question.
Maybe.
Just a first question around the.
<unk>.
Margin levels as you've given very good.
Revenue in end market color.
Speaker Change: Yeah, I think that's mostly I guess I was just trying to get to is there any sort of phasing difference in efficiency footprint first half second half, but perhaps it seems pretty well, yes, I think the FX impact is definitely going to hit us harder than the first half and then definitely the phasing on like some of the footprint.
So looking at those slides on the margins I guess.
For example, slide 12.
You've got the margin up around 50, 60 bps year on year in the first quarter.
Underlying aside from FX and the insurance the full year guide I suppose stripping those out is up about maybe 70 bps or something so it doesn't look like you're embedding a big EBITDA margin improvement after Q1.
Julian Mitchell: Optimization savings.
Speaker Change: <unk>.
Speaker Change: It's going to hit in the second half and so that's kind of the phasing first half versus second half the material savings was fairly linear as you move through the year.
Even though I think volumes on the topline I meant to improve so maybe just help us understand is that conservatism or is there anything else moving around.
Speaker Change: That's helpful and then just a follow up.
Topic.
Speaker Change: In terms of kind of your exposures on say Cogs I don't know if youre willing to give any color around the sort of Mexico, Canada, China grew paying of.
Within the.
EBIT Dol.
What's the phasing of efficiency savings for example, any color on that please.
Speaker Change: How much of your sort of total pie.
Speaker Change: Ah represents imports into the U S from those three or any sort of commentary you can make around the tariff backdrop.
Yeah, Julien So I think look if you if you look on slide 13, I think that kind of lays out really.
The margin mall, we got significant margin upsides, mostly coming from.
Julian Mitchell: Yes, Julien good morning.
And I would say that.
Julian Mitchell: And.
Our enterprise initiatives and it continues to be very material oriented.
Speaker Change: Excuse me, China, and Canada kind of de Minimis, that's not really a lots of lots of exposure.
Portland is FX as well.
FX is really a pretty significant headwind.
Speaker Change: I mean, obviously, we have a reasonably large footprint in.
As we've as we've got it modeled today based on the year I'm ready to try we don't try to predict right now we just model it based on the current going right. So the.
Speaker Change: In.
Speaker Change: Mexico.
Speaker Change: I would also say that we have.
Speaker Change: A good presence of assets in.
Speaker Change: In the United States that we would.
The levers havent changed dramatically we have not embedded.
Speaker Change: <unk> more on flex up and down as needed.
An inflection in terms of market recovery in our numbers.
Speaker Change: Yes.
Speaker Change: We have done we have we've gone through this process before.
And we still continue to drive the enterprise initiatives within the four walls of games that are going to drive margin improvement year over year. So I think does that answer your question.
Speaker Change: We have tools in place that.
Speaker Change: It would give us the opportunity to manage tariffs.
Speaker Change: Once we actually know what the actual situation would be Zavvi Darius.
Yeah, I think that's mostly I guess I was just trying to get to is there any sort of phasing difference of efficiency or footprint first half second half, but perhaps it seems pretty well, yes, I think that.
Speaker Change: Good.
Speaker Change: Likely.
Speaker Change: Are you surprised too.
Speaker Change: To offset any impact there.
The FX impact is definitely going to hit us harder than the first half and then definitely the phasing on like some of the footprint optimization savings and.
Speaker Change: Third we cannot rebalanced to production in between Mexico, and U S assets, but.
China and Canada, that's not really.
It's going to hit in the second half and so that's kind of the phasing first half versus second half the material savings as fairly linear as you move through the year.
And much of a concern for us.
Speaker Change: Great. Thank you.
John: Thanks, John.
Speaker Change: Our next question comes from Deane Dray from RBC capital markets. Please go ahead. Your line is open.
That's helpful and then just a follow up.
John: Thank you and good morning, everyone.
Topic.
In terms of kind of your exposures on say Cogs I don't know if youre willing to give any color around the sort of Mexico, Canada, China grew paying.
Jamie: Good morning, Jamie.
Jamie: Since we've been waiting seven quarters for personal mobility to have an uptick.
Jamie: They should get a little bit of spotlight here. So is this a turn or is it easy comps and where and how do you know.
How much of your sort of total.
<unk>.
Represents imports into the U S. Those three or any sort of commentary you can make around the tariff backdrop.
Jamie: What are the kind of key indicators that you're looking at.
Speaker Change: Yes, good morning, Deane I would say that.
Yes, Julien good morning.
Speaker Change: Yes, all of the above I mean, obviously <unk> became.
I would say that.
China and.
Excuse me, China, and Canada kind of de Minimis.
Speaker Change: Much easier, but that being said we have seen.
Not really a lots of lots of exposure.
Speaker Change: Very strong performance, primarily driven by EMEA and Asia broadly.
I mean, obviously, we have a reasonably large footprint.
<unk>.
In.
Mexico.
So very constructive Q4, we've also seen very constructive January so we are now starting to see very positive trend line.
I would also say that we have.
A good presence of assets in.
In the United States that we would.
<unk> more on flex up and down as needed but.
Speaker Change: On.
Speaker Change: The recovery in personal mobility, the inventories at manufacturers.
We have done we have we've gone through this process before.
Speaker Change: <unk> steadily declined since the peak in June of 'twenty three.
We have tools in place that.
Speaker Change: At this point in time, the inventories are more Alaska.
Would give us the opportunity to manage tariffs.
Speaker Change: Normalized levels active.
Once we actually know what the actual situation would be vis vis <unk>.
Speaker Change: Activity quota activities are very very strong we have talked in the past about the design wins that we've gotten so I would say that easier com business and flat.
Good.
Likely.
Use price to.
To offset any impact.
We cannot rebalanced to production in between Mexico, and U S assets, but.
Pretty broad strength in personal mobility, and we believe that.
Speaker Change: We will deliver very nice growth that we have also embedded in our guidance for 2025.
China, and Canada, that's not really yet.
And much of a concern for us.
Great. Thank you.
Very soon.
Speaker Change: Alright, I really appreciate that and I E Mail you teased us at the very beginning to say that there were signs of green shoots and maybe part of personal mobility countered the debt, but if you just kind of step back look at your verticals.
Speaker Change: Our next question comes from Deane Dray from RBC capital markets. Please go ahead. Your line is open.
Deane Dray: Thank you and good morning, everyone.
Jamie: Good morning, Jamie.
Speaker Change: Since we've been waiting seven quarters for personal mobility to have an uptick.
Speaker Change: Very short cycle, so at the margin any sort of activity can certainly.
Speaker Change: I should get a little bit of spotlight here. So is this a turn or is it easy comps and where and how to.
Speaker Change: Show up as a green shoots. So if you were kind of frame for us prioritize which are the green shoots that you were referring to.
Speaker Change: What are the kind of key indicators that you're looking at.
Speaker Change: And how meaningful are those embedded in terms of trajectory in your 'twenty guidance.
Deane Dray: Yes, good morning, Deane I would say that.
Speaker Change: Yes, all of the above I mean, obviously the comp became.
Speaker Change: Yes sure. Thank you for the question Dan look.
Speaker Change: Let me kind of start with more of the.
Speaker Change: Much easier, but that being said we have seen a very strong performance, primarily driven by EMEA and Asia broadly.
Speaker Change: The the purview of our customers, but our customers are very optimistic.
Speaker Change: Things are going to get better for them, but that being said, we're not really in it.
Speaker Change: So very constructive Q4, we've also seen very constructive January.
Speaker Change: Business of forecasting the recovery based upon how folks feel but it certainly is.
Speaker Change: We are now starting to see very positive trend line.
Speaker Change: Certainly is a good thing we manage what's in front of US we manage from the data points that we have as you as you know we look at very significant amount of forward looking indicators to give us a little bit of a better sense of what we think thats going to happen but.
Speaker Change: On.
Speaker Change: The recovery in in personal mobility, the inventories at manufacturers.
Speaker Change: Very steadily declined since the peak in June of 'twenty three.
Speaker Change: <unk>.
Speaker Change: At this point in time, the inventories are more Alaska.
Speaker Change: That being given industrial industry.
Speaker Change: Normalized levels active.
Speaker Change: Activity quota activities are very very strong we've talked in the past about the design wins that we've gotten so I would say that easier com.
Speaker Change: Industrial activity has been suppressed for over two years and certainly it would appear that inflection on industrials is much closer than than probably not.
Speaker Change: We were very encouraged by that.
Speaker Change: Business inflect, a pretty broad strength in personal mobility, and we believe that.
Speaker Change: Okay.
Speaker Change: So again.
Speaker Change: For the first time in a very long time.
Speaker Change: We will deliver very nice growth that we have also embedded in our guidance for 2025.
Speaker Change: What about 50 last month.
Speaker Change: New order component of the PMI and that is December component over the PMI started to inflect nicely above 50.
Speaker Change: Alright, I really appreciate that and I E Mail you teased us at the very beginning to say that there were signs of green shoots and maybe part of personal mobility countered the debt, but if you just kind of step back look at your verticals.
Speaker Change: We are starting to see.
Speaker Change: Good.
Speaker Change: Behavior in the industrial base of customers in Asia.
Speaker Change: Very short cycle, so at the margin any sort of activity can certainly show.
Speaker Change: <unk> seen pretty nice core growth in Q4.
Speaker Change: Show up as a green shoot so.
Speaker Change: So that certainly is giving us.
Speaker Change: If you were kind of frame for us prioritize which are the green shoots that you were referring to.
Speaker Change: I think we all saw data points that things should start inflicting.
And how meaningful are those embedded in terms of trajectory you're 25 guidance.
Speaker Change: Hello mobility as we discussed is definitely in that.
Speaker Change: Very strong green shoot.
Dan: Yeah sure. Thank you for the question Dan look.
Speaker Change: AG and construction activity is not I mean, that's that's really very dislocated.
Speaker Change: Let me kind of start with more of the.
Speaker Change: The the purview of our customers, but our customers are very optimistic.
Speaker Change: Our automotive replacement business is doing very strongly and we believe that.
Speaker Change: That things are going to get better for them, but that being said, we're not really in the <unk>.
Speaker Change: Scott.
Speaker Change: The Green shoots remain I would say no. They just show up so.
Speaker Change: Business of forecasting the recovery based upon how folks feel but it certainly is.
Speaker Change: It's a mixed bag, but we are starting to see more.
Speaker Change: Certainly is a good thing we manage what's in front of US we manage from the data points that we haven't.
Speaker Change: Green flashing on our screens than wrapped and we've done a really good job in 'twenty four offsetting couple of in a very very negative and markets. I think we have delivered very strong results we have managed.
As you know we look at.
Speaker Change: Very significant amount of forward looking indicators to give us a little bit of a better sense of what we think that's going to happen but.
Speaker Change: What is under control we have improved profitability, we have done that through.
Speaker Change: That being given industrial industrial activity has been suppressed for over two years and certainly it would appear that inflection on industrials is much closer than than probably not.
Speaker Change: Great.
Speaker Change: And improving our gross margins.
Speaker Change: We are very optimistic that at a time that inflection may occur and again, we have not embedded any inflection in our board guidance that we will see a very strong performance for the underlying business.
Speaker Change: We were very encouraged by it.
Speaker Change: January PMI readings.
Speaker Change: So again.
Speaker Change: For the first time in a very long time.
Speaker Change: What about 50 last month.
Speaker Change: That's all really helpful. Thank you.
Speaker Change: New order component of the PMI and that is December component over the PMI started to inflect nicely above 50.
Speaker Change: Our next.
Speaker Change: Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.
Andy Kaplowitz: Good morning, everyone.
Speaker Change: We are starting to see.
Speaker Change: Good morning.
Speaker Change: Good.
Speaker Change: Obviously sticking to your gross margin and adjusted EBITDA margin targets for 2006, despite the continued slower organic growth in pretty big FX headwinds and.
Speaker Change: Behavior in the industrial base of customers in Asia.
Speaker Change: <unk> seen pretty nice core growth in Q4.
Speaker Change: And you said you haven't really experienced big savings from operational excellence and footprint optimization, yet so it seems like material cost reductions and much bigger than you thought maybe you can comment on that.
Speaker Change: So that certainly is giving us.
Speaker Change: A degree of data points that things should start in black thing.
Speaker Change: And can you reached at 24, 5% adjusted EBITDA margin without resuming 3% to 5% organic growth in 2006.
Speaker Change: Well mobility as we discussed is definitely not.
Speaker Change: Very strong green shoots.
Speaker Change: Yes. Thank you for the question.
Speaker Change: AG and construction activity is not I mean, that's that's really very dislocated.
We definitely believe that we can get.
Speaker Change: Certainly very close to that 24, 5% adjusted EBITDA without the 3% to 5% organic growth.
Speaker Change: Our automotive replacement business is doing very strongly and we believe that.
Speaker Change: Scott.
Speaker Change: We would we would we did say is that we.
Speaker Change: The green shoots remain I would say not they just show up so.
Speaker Change: We need to see the organic volume declines to stop but.
Speaker Change: It's a mixed bag, but we are starting to see more.
Speaker Change: But we don't necessarily need to see.
Speaker Change: You can rebound.
Speaker Change: Green flashing on our screens than wrapped in we've got a really good job in 'twenty four offsetting a couple of the very very negative and markets I think we have delivered.
Speaker Change: Growth for us to deliver on that commitment.
Speaker Change: Coming back to the.
Speaker Change: First part of your question is definitely the material cost out has been.
Speaker Change: Very strong results we have managed.
Speaker Change: Executed really well our teams are doing fantastic job, we believe that we have a terrific runway to continue on the trajectory.
What is under control, we have improved profitability, we've done that through.
Speaker Change: Just grit and.
Speaker Change: A further improving our efficiency.
Christian Mayer: And improving our gross margins.
Speaker Change: Raw materials.
Speaker Change: We are very optimistic that at.
Speaker Change: You did state that.
At a time that inflection may occur and again, we have not embedded any inflection in our forward guidance that we will see a very strong performance for the underlying business.
Speaker Change: We believe that we have about 100 basis points of margin improvement.
Speaker Change: Coming from our restructuring activities that will be run rated by the end of next year. So all in we believe that we are in a position to be able to deliver on.
Christian Mayer: That's all really helpful. Thank you.
Christian Mayer: Our next.
Speaker Change: Our next question comes from Andy Kaplowitz from Citigroup. Please go ahead. Your line is open.
Speaker Change: Mid term commitment that we have made to our shareholders at the capital market update last year without necessarily significant rebound.
Andy Kaplowitz: And good morning, everyone.
Andy Kaplowitz: Good morning.
Obviously sticking to your gross margin and adjusted EBITDA margin targets for 26, despite the continued slower organic growth in pretty big FX headwinds and.
Speaker Change: Very helpful. And then I think one of the big drags on the business that you. Just mentioned has been construction AG I think the presentation mentioned energy a little bit on the trend in Q4, too, but maybe you could talk about what you are baking in for expectations on those businesses and 25 did they stopped going down in 2005, we still have them.
Christian Mayer: And you said you haven't really experienced big savings from operational excellence and footprint optimization, yet so it seems like material cost reductions and much bigger than you thought maybe you can comment on that.
Christian Mayer: And can you reach that 24, 5% adjusted EBITDA margin without resuming 3% to 5% organic growth in 'twenty six.
Speaker Change: Going down in the first half of the year for instance, can you talk about inventory in the channel that you're seeing in those markets does that inventory is it bottomed out here and do you have any more confidence that in turn is eminent in these businesses.
Christian Mayer: Yes. Thank you for the question.
Christian Mayer: We definitely believe that we can get.
Christian Mayer: Certainly very close to that 24, 5% adjusted EBITDA without the 300% to 5% organic growth.
Aegean constructions, having super negative right I mean, I think that you have.
Speaker Change: Sin.
Speaker Change: <unk> reporting over the last few days.
Christian Mayer: We would we would we did say is that we.
Speaker Change: Those numbers are pretty staggering right.
We need to see the organic volume declines to stop but.
Speaker Change: Just had a really dislocated market and we've managed through that really well.
Christian Mayer: But we don't necessarily need to see.
Christian Mayer: <unk> rebound.
Speaker Change: Our business is down significantly less than.
Christian Mayer: <unk> growth for us to deliver on that commitment.
Speaker Change: Anything that you see coming out of out of those two verticals by sense Andy is that.
Christian Mayer: Coming back to the first part of your question is definitely the material cost out has been.
Speaker Change: The end market the AG and commercial construction end market is going to be.
Christian Mayer: Executed really well our teams are doing fantastic job, we believe that we have a terrific runway to continue on the trajectory of <unk>.
Speaker Change: Ask that in 25 than it was in 2024.
Speaker Change: But we still believe that it will be down kind of mid single digits versus what.
Christian Mayer: Further improving our efficiency.
Christian Mayer: Raw materials.
Christian Mayer: You did state that.
Christian Mayer: We believe that we have about 100 basis points of margin improvement.
Versus.
Speaker Change: Prior year.
Speaker Change: It's still no good.
Christian Mayer: Coming from our restructuring activities that will be run rated by the end of next year.
Speaker Change: I mean, I think that first half is going to be significantly dislocated for those customers still they are still reasonably high levels of dealer inventories.
All in we believe that we are in a position to be able to deliver on our midterm commitments that we have made to our shareholders at the capital market update last year without necessarily significant rebound.
Speaker Change: With the equipment that has been put on the dealer lot I think that that's going to still take some time to to work through I would say that.
Speaker Change: Perhaps by the end of Q1 of this year the dealer inventory should be a much healthier position. So we anticipate that that's going to be still a pretty tough market, but it should start getting less bad in second half of 2025.
Christian Mayer: Very helpful and then even though I think one of the big drags on the business that you. Just mentioned has been construction AG I think on the presentation, you mentioned energy a little bit of a drag in Q4 too, but maybe you could talk about what you're baking in for expectations on those businesses and 25 did they stopped going down in 'twenty five we still have them.
Speaker Change: I appreciate all the color.
Speaker Change: Thanks, Jamie.
Speaker Change: Our next question comes from Jeff Hammond from Keybanc Capital markets. Please go ahead. Your line is open.
Christian Mayer: Going down in the first half of the year for instance, can you talk about inventory in the channel that you're seeing in those markets does that does inventory is it bottomed out here and do you have any more confidence that in turn is imminent to these businesses.
Jeff Hammond: Good morning, guys.
Jeff Hammond: Maybe just to start on this FX dynamics. So you called out I think a $100 million topline and 34 million EBITDA. So I just wanted to understand.
Speaker Change: Aegean constructions have been Super negative right I mean, I think that you have seen.
Speaker Change: The drop through there just seems very harsh I don't know if theres translation and transaction just just walk me through why why such a high drop through on the bottom line.
Speaker Change: <unk> reporting over the last few days.
Christian Mayer: Those numbers are pretty staggering right.
Speaker Change: No you hit it on the head, it's a combination of translation and transactional.
Christian Mayer: That really dislocated market and we've managed through that really well.
Christian Mayer: Our business is down significantly less than.
Speaker Change: That doesn't repeat that we don't have modeled them repeating in 2025.
Christian Mayer: Anything that you see coming out of out of those two verticals by sense Andy is that.
Speaker Change: So that's exactly what it is.
Speaker Change: Okay.
Christian Mayer: The end market the AG and commercial construction end market is going to be.
Speaker Change: Okay and then.
Speaker Change: Maybe just speak to where you think inventories are particularly in auto replacement industrial replacement in just.
Christian Mayer: Ask that in 25 than it was.
Christian Mayer: 24.
Speaker Change: Auto aftermarket seems like it's been a bright spot.
Christian Mayer: But we still believe that it will be down kind of mid single digits versus what.
Speaker Change: The OE side, obviously, you have some challenges, but just just.
Christian Mayer: Versus.
Speaker Change: Wondering if youre seeing any cracks or if it's just simply.
Christian Mayer: Prior year.
Speaker Change: People extend the life that aftermarket holds up.
Christian Mayer: It's still no good.
Christian Mayer: I mean, I think that first half is going to be significantly dislocated for those customers still they are still reasonably high levels of dealer inventories.
Speaker Change: Yes look the aftermarket is doing a really terrific for us.
Speaker Change: And that's really kind of how we have all of this.
Christian Mayer: With the equipment that has been put on the dealer lots I think that it's going to fill it takes some time to to work through I would say that.
Speaker Change: Envisage that that our portfolio is going to perform a little more stability through this through these different cycles.
Christian Mayer: Perhaps by the end of Q1 of this year the dealer inventories should be a much healthier position and so we anticipate that that's going to be still pretty tough market, but it should start getting less bad in second half of 2025.
Speaker Change: The inventories in the channel are not out of line for the automotive replacement side of the business.
Speaker Change: So my sense is that that's going to continue.
Speaker Change: And of that GDP plus.
Speaker Change: Growth.
Speaker Change: For the baseline of that business.
Speaker Change: I appreciate all the color.
Speaker Change: Obviously, we're taking market share and adding new customers and broadening our presence globally with existing and new accounts. So we are very.
Speaker Change: Thanks Amy.
Christian Mayer: Our next question comes from Jeff Hammond from Keybanc Capital markets. Please go ahead. Your line is open.
Jeff Hammond: Good morning, guys.
Jeff Hammond: Maybe just to start on this FX dynamics. So you called out I think a $100 million top line and $34 million EBITDA. So I just wanted to understand.
Speaker Change: We're very bullish on what is happening in the automotive replacement side of our business the industrial businesses, we've been talking about.
Speaker Change: The the drop through there just seems very harsh I don't know if theres translation and transaction just just walk me through why why such a high drop through on the bottom line.
Speaker Change: Feeling that the destocking is going to be.
Speaker Change: Dan I think that we are approaching.
Speaker Change: That destination again.
Christian Mayer: No you hit it on the head, it's a combination of translational and transactional.
Speaker Change: I always hate to state that we out there, but my sense is that we have.
Speaker Change: We are not there we are very near the bottom and we should start seeing a little better performance as we move through progressively through 2025.
Christian Mayer: That doesn't repeat but we don't have modeled them repeating in 2025.
Christian Mayer: So thats exactly what it is.
Christian Mayer: Yeah.
Christian Mayer: Okay and then.
Speaker Change: Okay.
Christian Mayer: Maybe just speak to where you think inventories are particularly in auto replacement industrial replacement in just.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Thanks, Joe.
Our next question comes from Mike Halloran from Baird. Please go ahead. Your line is open.
Christian Mayer: Auto aftermarket seems like it's been a bright spot.
Mike Halloran: Good morning, everyone.
Speaker Change: Hey, good morning.
Speaker Change: The OE side, obviously, you have some challenges, but just just wondering if youre seeing any cracks or if it's just simply as people extend the life that aftermarket holds up.
Sure.
Mike Halloran: How do you think about that.
Mike Halloran: The customers hanging on and answer your question there is more optimism in the channel with your customers.
Speaker Change: Is there anything different that they are based on the optimism on relative to what you were what you referenced earlier Evo.
Christian Mayer: Yes look the aftermarket is doing a really terrific for us.
Mike Halloran: And what do you think it takes for that from their perspective.
Christian Mayer: And that's really kind of how we have all of this.
Mike Halloran: <unk> optimism turn into actual purchasing and accelerating the demand curve.
Christian Mayer: Envisage that that our portfolio is going to perform a little more stability through this through these different cycles.
Speaker Change: Yes, Mike I think that.
Christian Mayer: The inventories in the channel or not.
Mike Halloran: <unk>.
Mike Halloran: I will say that the.
Mike Halloran: General.
Christian Mayer: Out of line.
Mike Halloran: We take customer feelings under at Cowen.
Christian Mayer: The automotive replacement side of the business.
So my sense is that that's going to continue at kind.
Mike Halloran: Tried to take a look at the hard data.
Speaker Change: Kind of GDP.
Mike Halloran: Because sentiment and optimism.
Christian Mayer: GDP plus.
Christian Mayer: Growth.
Christian Mayer: For the baseline of that business.
Mike Halloran: All of this go hand in hand, with kind of what's happening in the end markets, but I think that the folks are.
Christian Mayer: Obviously, we're taking market share and adding new customers and broadening our presence globally with existing and new accounts. So we are very.
Mike Halloran: <unk> about some of the industrial policy that may come their way, maybe some tax certainty.
Speaker Change: We're very bullish on what is happening in the automotive replacement side of our business the industrial businesses.
Mike Halloran: Ability to.
Mike Halloran: To actually put money to work investing capex.
Speaker Change: Been talking about.
Get some of these bigger projects of the books that have been in planning stages stages for a while we certainly see that.
Speaker Change: Feeling that the destocking is going to be.
Speaker Change: Dan I think that we are approaching.
Speaker Change: That destination again.
Mike Halloran: The activities in places like data centers remain quite robust.
Anthony Powell: I always hate to state that we out there, but my sense is that we have.
Mike Halloran: I think that people start getting little more optimistic and it's been it's been hard to 'twenty eight 'twenty nine months.
Speaker Change: If they're not there we are very near the bottom and we should start seeing a little better performance as we move through progressively through 2025.
Mike Halloran: Looking at the deceleration in the manufacturing PMI. So the thing that folks who are just ready to feel better but again as I said, we just want to make sure that we see hard evidence of things turning and the things that I am looking at certainly would give you an indication that things should.
Speaker Change: Okay. Thanks, a lot.
Speaker Change: Thanks, Joe.
Speaker Change: Our next question comes from Mike Halloran from Baird. Please go ahead. Your line is open.
Speaker Change: Good morning, everyone.
Speaker Change: Hey, good morning.
Mike Halloran: Improve but again, we're not embedding improvements into how we think about our guidance for 2025, I think that we have.
Speaker Change: No.
Speaker Change: How do you think about the customers and you know an answer earlier question, there's more optimism in the channel with your customers.
Speaker Change: Is there anything different that they are based on the optimism on relative to what you were what you referenced earlier Evo.
Mike Halloran: We're in a position to wait and see when it turns we will let everybody know.
Speaker Change: Thanks for that and then just on the capital deployment side any any shift in the thought process willingness to continue to be a little more aggressive on the buyback side with where leverages and just thoughts on the M&A cycle.
Speaker Change: And what do you think it takes for that.
Speaker Change: Their perspective that optimism turn into actual purchasing and accelerating the demand curves.
Speaker Change: Yes, Mike I think that.
Speaker Change: I will say that the.
Speaker Change: Let me take the first part and I'll, let Dave I'll hit the M&A part so.
Speaker Change: General.
Speaker Change: We take customer feelings under account, but.
Speaker Change: Look.
Speaker Change: We've been pretty evenly distributed and capital deployment.
Speaker Change: Tried to take a look at the hard data.
Speaker Change: Because sentiment and optimism.
Between stock buybacks.
Speaker Change: Debt.
Speaker Change: All of this go hand in hand, with kind of what's happening in the end markets, but I think that the folks are.
Speaker Change: Pay down.
Speaker Change: We still have a $125 million of authorization for stock repurchases.
Speaker Change: We still think.
Speaker Change: <unk> about some of the industrial policy that may come their way, maybe some tax certainty.
Speaker Change: Returning.
Capital to shareholders.
Speaker Change: With that Rob.
Speaker Change: Very good return for us So we'll continue to look at that.
Speaker Change: Ability to.
Speaker Change: To actually put money to work invest in Capex.
Speaker Change: We've continued to work on our balance sheet from a debt perspective, we refinanced our debt stack. So we've got no maturity is until.
Speaker Change: Get some of these bigger projects of the books that have been in planning stages stages for a while we certainly see that.
Speaker Change: I think 2029 and <unk>.
Speaker Change: We've got a.
The activities in places like data centers remained quite robust.
Speaker Change: We saved about 50 bps off of our term loan in Q4. So we continue to do work there having said that we've committed to getting our gross debt below $2 billion. So that's something we're going to continue to work on and then we've got great investments internally you can see that our capital spending is going to be up over the next couple of years well that's the highest.
Speaker Change: So I think that people start getting little more optimistic and it's been it's been hard to 'twenty eight 'twenty nine months of looking at the deceleration in the manufacturing PMI. So the thing that folks are just ready to feel better but again as I said, we just want to make sure that.
Speaker Change: Return on invested capital money, we can spend items. So we're going to continue to.
Speaker Change: We see hard evidence of things, earning and the things that I am looking at certainly would give you an indication that.
Speaker Change: We'll work on that for footprint optimization and some of the other things we've talked about so all three of those all three of those are capital deployment options are very very good for our shareholders. So we're going to continue.
Speaker Change: Things should improve but again, we're not embedding improvements into how we think about our guidance for 2025 I think that.
Speaker Change: To go down that path.
Speaker Change: Great. Thanks, I appreciate it.
Speaker Change: Okay.
Speaker Change: We are in a position to wait and see when it turns we will let everybody know.
Speaker Change: Our next question comes from Stephen Volkmann from Jefferies. Please go ahead. Your line is open.
Speaker Change: Thanks for that and then just on the capital deployment side.
Speaker Change: Great. Thanks for fitting me in just one quick follow up I'm, just curious historically your distributors tend to restock inventory when they start feeling better about the world or.
Speaker Change: Any shift in the thought process willingness to continue to be a little more aggressive on the buyback side with where leverages and just thoughts on the M&A cycle.
Speaker Change: Is it more just kind of a quick pass through for them.
Speaker Change: Yeah, Let me take the first part and I'll, let you go ahead.
Speaker Change: I think Stephen I think it's more quick pass through I mean, our service levels have gotten so good.
Speaker Change: <unk> part so.
Speaker Change: Look.
Speaker Change: We've been pretty evenly distributed and capital deployment.
Speaker Change: Service and extremely high fill rates and everybody is looking at optimizing their working capital. They know that they don't have to be a restocking significantly in advance of end market recoveries. So my sense is that.
Speaker Change: Stock buybacks and debt.
Speaker Change: Debt pay down.
Speaker Change: We still have a $125 million of authorization for stock repurchases.
Speaker Change: We still think the.
Speaker Change: Returning.
Speaker Change: No capital to shareholders.
Speaker Change: It's much shorter fuse so to speak as to the restocking.
Speaker Change: With that route as a as a.
Speaker Change: Very good return for us.
Speaker Change: We will continue to look at that.
Speaker Change: We've continued to work on our balance sheet from a debt perspective, we refinanced our debt stack. So we've got no maturity is until you know.
Speaker Change: <unk>.
Speaker Change: Again like I said, our performance is just terrific reasonably fulfillment. So my sense is that the net.
Speaker Change: To see the turn before they'll start acquiring more inventory.
Speaker Change: I think 2029.
Speaker Change: <unk>.
We got a.
Speaker Change: We saved about 50 bps off of our term loan in Q4. So we continue to do work there having said that we.
Speaker Change: Super Thank you good luck.
Speaker Change: Thanks, Steve.
Speaker Change: Our next question comes from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.
Speaker Change: We've committed to getting our gross debt below $2 billion. So that's that's something we're going to continue to work on and then we've got great investments internally you can see that our capital spending is going to be up over the next couple of years well. That's the highest return on invested capital money, we can spend and so we're going to continue to work on that footprint.
Speaker Change: Thanks, Good morning, just a couple of cleanups here.
Speaker Change: Total ophthalmology was was actually really strong.
Speaker Change: In the fourth quarter.
Speaker Change: Mid single digits.
Speaker Change: Did you have any benefit from this retail conversion that you talked about so I don't think I think it is meant to be more kind of <unk> and beyond.
Speaker Change: Jason that some of the other things we've talked about so all three of those all three of those are capital deployment options.
But can you just remind us how much of a tailwind you expect from this in 2025.
Speaker Change: Very very good for our shareholders. So we're going to continue.
Speaker Change: Yes.
Speaker Change: To go down that path.
Speaker Change: Good morning, Nigel Yes, we did have some benefit and we spoke about accelerating the fulfillment into Q4. So we have seen some of that benefit I mean it wasn't.
Speaker Change: Great. Thanks, I appreciate it.
Speaker Change: Okay.
Speaker Change: Our next question comes from Stephen Volkmann from Jefferies. Please go ahead. Your line is open.
Speaker Change: Massive.
Speaker Change: It was good to see it and we started to.
Speaker Change: Great. Thanks for fitting me in just one quick follow up I'm, just curious historically your distributors tend to restock inventory when they start feeling better about the world or.
Speaker Change: Convert.
Speaker Change: Of the Cup.
Speaker Change: A couple of the Dcs would it put it account then.
Speaker Change: We will start seeing more significant ramp up in Q1 by end of Q1, which should be fully ramped up with a business that was allocated and then we go into straight line just replenishment model from second quarter on and we anticipate that that was I think we said it's about.
Speaker Change: Is it more just kind of a quick pass through for them.
Speaker Change: I think Stephen I think it's more quick pass through I mean, our service levels have gotten so good.
Speaker Change: Service and extremely high fill rates and <unk> everybody is looking at optimizing their working capital they know that.
Speaker Change: 100 basis points to 150 basis points of incremental growth.
Speaker Change: They don't have to be a restocking significantly in advance so.
Speaker Change: On the company.
That's the that's the scope of that design win.
Speaker Change: End market recoveries. So my sense is that.
Speaker Change: Okay. Thanks Eva.
Speaker Change: It's much shorter fuse so to speak.
Speaker Change: And then my second question's around the liquid cooling commentary in the slides, but maybe.
Speaker Change: Through the restocking and.
Speaker Change: Can we just clarify about FX margin comment was that a prior year gain. So therefore, we're lapping that gain just I didn't quite understand that but.
Speaker Change: Again like I said, our performance is just terrific visa the fulfillment. So my sense is that they'll want to see the turn before they'll start.
Speaker Change: The question is really around you talked about.
Speaker Change: Becoming specified with our customers. So I'm just wondering if you could just maybe add a bit more color in terms of.
Speaker Change: Wiring more inventory.
Speaker Change: Super Thank you good luck.
Speaker Change: Thanks, Steve.
Speaker Change: Where we are in the process of getting specified.
Speaker Change: Our next question comes from Nigel Coe from Wolfe Research. Please go ahead. Your line is open.
Speaker Change: And whether <unk> has any benefit from DC ramp.
Speaker Change: Thanks, Good morning, just a couple of cleanups here.
Speaker Change: Yes, so to your first question on the Opex, Yes, that's exactly right we had some some unfavorable transactional.
Speaker Change: Total aftermarket was a was actually really strong.
Speaker Change: In the fourth quarter.
Speaker Change: The mid single digits.
Speaker Change: And then the way the hedges all worked out in 2024 count we lapped that in addition to the translational part.
Speaker Change: Did you have any benefit from this retail conversion that you talked about so I don't think I think it is meant to be more kind of <unk> and beyond.
Speaker Change: The $100 million and then the fall through on the EBIT on that in 2025.
Speaker Change: Can you just remind us how much of a tailwind you expect from this in 2025.
Speaker Change: Don't model the.
Speaker Change: Kind of the hedging activity as we as we look out into 2025.
Speaker Change: Yes.
Speaker Change: Uh huh.
Speaker Change: Good morning, Nigel Yes, we did have some benefit and we spoke about accelerating the fulfillment into Q4. So we have seen some of that benefit I mean it wasn't.
Speaker Change: Let me take the data center.
Speaker Change: Part of your question Nigel.
Speaker Change: We have.
We have significantly ramped up our engagement with them.
Speaker Change: Massive.
Speaker Change: It was good to see it and we started to.
Speaker Change: Pretty broad based.
Speaker Change: Set of customers from server manufacturer a system integrator. So the way to data center operators and we are in a very.
Speaker Change: Convert cut.
Speaker Change: A couple of the.
Speaker Change: Couple of the Dcs for that put an account then.
Speaker Change: We will start seeing more significant ramp up in Q1 by end of Q1 that should be fully ramped up with the business and was allocated and then we go into straight line just replenishment model from second quarter on and we anticipated that was I think we said it's about.
Speaker Change: Various stages of design and testing across the full spectrum of these customers we have.
Speaker Change: Projects that are on the process from.
Speaker Change: From validation testing thats being completed by potential customers to getting pre specified by a number of server guys to working.
Speaker Change: 100 basis points to 150 basis points of incremental growth.
Speaker Change: Our negotiations with our business awards that.
Speaker Change: On the company.
Speaker Change: So that's the that's the scope of that design win.
Speaker Change: That very late stages so its.
Speaker Change: Okay. Thanks Eva.
Speaker Change: It's a full spectrum of.
Speaker Change: And then my second question's around the liquid cooling commentary.
Speaker Change: Of effort here and we certainly believe that we are very well positioned to take advantage on the available applications.
Speaker Change: But so maybe.
Speaker Change: Can we just clarify about FX margin comment was that a prior year gain. So therefore, we are lapping about gaining just I didn't quite understand that but.
Speaker Change: And we will advise you when we are in a position.
Speaker Change: The question is really around you talked about.
Speaker Change: Of the awards.
Speaker Change: Get becoming specified with our customers.
Speaker Change: We've certainly seen revenue start trickling in in 2024 nicely, but we.
Wondering if you can just maybe add a bit more color in terms of where we are in the process of getting specified.
Steve: And on weather.
Speaker Change: We believe that we will be in a position to make some announcements much taken on awards.
Steve: <unk> has any benefit from D C Ram.
Steve: Yes, so to your first question on the Opex, Yes, that's exactly right. We had some some unfavorable transactional things and then the way the hedges all worked out.
Speaker Change: As we progressed to 'twenty five.
Speaker Change: Hoping that thats not going to be too fine in the future.
Speaker Change: Great. Thank you.
Steve: 24, count we lapped that in addition to the translational part.
Speaker Change: Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead. Your line is open.
Steve: The $100 million.
Steve: I'll throw on the EBIT down bond in 2025.
Yes, hi, good morning, everyone.
Speaker Change: I'm wondering if you could just talk about the.
Steve: We just don't model.
Steve: The hedging activity as we as we look out into 2025.
Speaker Change: As you can see gains.
Speaker Change: As you ramp up over the course of the year it looks like the margin tailwind from the Green bar is higher for the full year than the first quarter can you just talk about how much of that is margin improvement versus operating leverage.
Steve: Let me take the data center.
Speaker Change: Part of your question Nigel.
Steve: We have.
Steve: Have significantly ramped up our engagement with.
It's pretty broad based.
Speaker Change: Question for Us So we gave some momentum into 2006.
Steve: Customers from server manufacturer a system integrator, so the way to data center operators and we're in a very very stages of design and testing across the full spectrum of these customers.
Speaker Change: Yes, I'd say the way to think about it is like I said.
Speaker Change: I talked about FX, a little bit.
Speaker Change: Bigger number this year.
Speaker Change: Bigger than the first half versus the second half.
Steve: Projects that are on the process from.
Speaker Change: The efficiency is pretty linear because it's mostly coming from materials savings and then I would say kind of a little bit of improvement is getting some operating leverage.
Steve: From validation testing thats being completed by potential customers to getting prints specified by number of server guys who are working.
Speaker Change: Q1 is still is still a little bit down in our guidance from an organic growth perspective, largely on AUM.
Steve: Our negotiations with our business awards that.
Steve: That are in very late stages. So its.
Speaker Change: It's just not cycling up to the normal seasonality typically youll see them build.
Steve: Full spectrum of effort here.
Steve: And we certainly believe that we are very well positioned to take advantage on the available applications in.
Speaker Change: A little bit faster in Q1, but.
Speaker Change: We've talked about industrial OEM being down in construction and AG.
Speaker Change: So as we kind of lap the comps and as we.
Steve: We will advise you when we are in a position.
Speaker Change: Start to get some.
Steve: Of the awards.
Speaker Change: Additional shipping for the.
Steve: We've certainly seen revenue starts trickling in in 2024 nicely, but we.
Speaker Change: No.
Speaker Change: Our customer that we got for the balance of the year, we continue to see mobility improve that a little bit of volume uptick will give us a little bit of operating leverage as we move through the year.
Steve: We believe that we will be in a position to make some announcements much bigger awards.
Steve: As we progress to 'twenty five.
Speaker Change: Super.
Speaker Change: Okay can I ask you another question on the datacenter side.
Steve: I'm, hoping that that's not going to be too far in the future.
Speaker Change: Laid out the Tam at $1 5 billion for your range of products can you just talk to us about.
Steve: Great. Thanks.
Jerry Revich: Our next question comes from Jerry Revich from Goldman Sachs. Please go ahead. Your line is open.
Speaker Change: Are you thinking about in terms of dollar per megawatt given the evolving range of estimates.
Jerry Revich: Yes, hi, good morning, everyone.
Speaker Change: The magnitude of the build out and in terms of the <unk>.
Speaker Change: Brooks I'm wondering if you could just talk about the efficiency gains as you ramp up over the course of the year. It looks like the margin tailwind from the Green bar is higher for the full year than the first quarter can you just talk about how much of that is <unk>.
Speaker Change: Better positioning you folks versus John folks versus Parker anything that you'd point out on the gates offering versus your major competitors.
Speaker Change: Yes sure look.
Speaker Change: I don't think that our thinking has changed on the size of the on the size of the Tam at this point in time.
Steve: An improvement versus operating leverage.
Speaker Change: Could you flesh that out for us so we can gauge the momentum into 'twenty six.
Speaker Change: What we actually see is that there is a.
Speaker Change: Yes, I'd say the way to think about it is like I said.
Speaker Change:
Speaker Change: The commitments to liquid cooling remains pretty pretty firm out there.
Steve: I talked about FX, a little bit.
Steve: A bigger number this year.
Speaker Change: For us look we.
Steve: Bigger than the first half versus the second half.
Speaker Change: We have interesting technologies.
The efficiency is pretty linear because it's mostly coming from material savings and then I would say kind of a little bit of improvement is getting some operating leverage.
Speaker Change: Both on kind of the.
Speaker Change: And just a normalized.
Speaker Change: Liquid cooling are calling all the way to immersion liquid liquid cooling across the spectrum of the products. So we have launched late last year, our fluid conveyance hose and that can be used in both of these applications.
Steve: Q1 is still is still a little bit down in our guidance from an organic growth perspective largely on.
Speaker Change: OEM is just not cycling up to their normal seasonality typically youll see them build.
Speaker Change: That data center specific and we are starting to see good amount of them good amount of enthusiasm building around that from our customer base. We are definitely demonstrating that our industrial pumps that we have designed in conjunction with <unk>.
Speaker Change: <unk> faster in Q1, but we will talk about industrial OEM being down in construction and AG. So.
So as we kind of lap the comps and as we are.
Speaker Change: Starting to get some some additional shipping for the.
Speaker Change: Our.
Speaker Change: Presently probably best in class in terms of.
Speaker Change:
Speaker Change: A customer that we got for the balance of the year, we continue to see mobility improve that a little bit of volume uptick will give us a little bit of operating leverage as we move through the year.
Speaker Change: Ah.
Speaker Change: Sure.
Speaker Change: Power per cubic inch of space. So that's highly differentiated than we are in the specification.
Speaker Change: Super and Evo.
Speaker Change: Process with.
Speaker Change: Can I ask you another question on the datacenter side.
Speaker Change: Dozens frankly dozens of people that are in that space from servers to the backdoor cooling.
Speaker Change: Laid out the Tam at $1 5 billion for your range of products can you just talk to us about how youre thinking about in terms of dollar per megawatt given.
Speaker Change: Folks.
Speaker Change: And.
Speaker Change: We are working on our own coupling presently we are working with a partner on a coupling for.
Speaker Change: <unk> range of estimates.
Speaker Change: <unk>.
Speaker Change: The magnitude of the build out and in terms of the competitive positioning you folks versus <unk> versus Parker anything that you'd point out on the gates offering versus your major competitors.
Speaker Change: For liquid cooling applications, but we are also working on a highly differentiated unique.
Speaker Change: Sign that we believe we will be able to bring to the marketplace, sometimes latter part of this year. So.
Speaker Change: Yes sure look.
Speaker Change: Don't think that our thinking has changed on the size of the on the size of the Tam at this point in time.
Speaker Change: We are well positioned but it's all within our wheelhouse of what we believe we have a right to play from pumps to debt convents.
Speaker Change: We actually see is that there is a.
Speaker Change: The commitments to liquid cooling remains pretty pretty firm out there.
Speaker Change: For us look we.
Speaker Change: In the Rockies.
Speaker Change: Interesting technologies.
Speaker Change: Thank you.
Speaker Change: Both on kind of the just the normalized.
Speaker Change: Our next question comes from Chris Snyder from Morgan Stanley. Please go ahead. Your line is open.
Speaker Change: Excluding a cooling all the way to immersion liquid cooling across the spectrum of the products. So we have launched late last year, our fluid conveyance hose that can be used in both of these applications.
Chris Snyder: Thank you.
Chris Snyder: First one quick on China, I know you guys said modest growth in Q4. It seems like that was led by replacement, but any just color on specific end markets that are driving the growth in China.
Speaker Change: Data center specific and we are starting to see good amount of them a good amount of enthusiasm building around that from our customer base. We are definitely demonstrating that our industrial pumps that we have designed in conjunction with call. It.
Chris Snyder: Yes look.
Chris Snyder: I think that.
Chris Snyder: Now we are pretty proud of what our team in China has delivered China has been tough as you well know for some time and I think that gates has delivered differentiated results in China.
Speaker Change: Our.
Speaker Change: Presently probably best in class in terms of.
Speaker Change:
Chris Snyder: Predominantly driven by yeah, I mean, we have pretty broad based.
Speaker Change: Power per cubic inch of space. So that's highly differentiated than we are in specification.
Chris Snyder: Strong performance I mean mobility was up quite substantially personal mobility.
Speaker Change: Process with dozens frankly dozens of people that are in that space from servers to the backdoor cooling.
Chris Snyder: Substantially we've had terrific performance with our diversified industrial.
Chris Snyder: Sure.
Chris Snyder: Even add was.
Chris Snyder: Of course with AD and commercial constructions were both constructive in China.
Speaker Change: Folks.
Speaker Change: And.
Speaker Change: We are working on our own coupling.
Chris Snyder: <unk> saw automotive replacement so it's been quite.
Speaker Change: Presently we are working with a partner on a cop one four.
Speaker Change: For liquid cooling applications, but we're also working on a highly differentiated unique.
Chris Snyder: Quite good pretty much across most of the end markets that.
Chris Snyder: We.
Chris Snyder: Our presence with in China.
Speaker Change: Sign that we believe we will be able to bring to the marketplace, sometimes latter part of this year. So.
Chris Snyder: Thank you by the way.
Chris Snyder: Okay.
Chris Snyder: Yes.
Speaker Change: We are well positioned but it's all within our wheelhouse of what we believe we have a right to play from pumps to debt convents.
Chris Snyder: My view is that I think it's really important to start seeing the turn in Asia.
Chris Snyder: Industrial because generally speaking Asia as it is in early.
Chris Snyder: Early precursor I think what's going to happen in more of the developed economies.
Speaker Change: In the Rockies.
Speaker Change: Thank you.
Chris Snyder: Yeah, no. It's a great great point there it makes a lot of sense I do wonder in this kind of a particular time period.
Speaker Change: Our next question comes from Chris Snyder from Morgan Stanley. Please go ahead. Your line is open.
Speaker Change: Thank you.
Chris Snyder: Some of that early cycle, China screen could be maybe tariff pre buy.
Speaker Change: First one quick on China, I mean are you guys.
Speaker Change: Modest growth in Q4, it seems like that was led by replacement, but any just color on specific end markets that are driving the growth in China.
Chris Snyder: Better.
Chris Snyder: Boeing into I guess at least the U S. In the developed world in that context, any any views on that thank you.
Chris Snyder: I do not believe its a pre buy by the way.
Chris Snyder: We are in China for China predominantly.
Speaker Change: Yeah look.
Speaker Change: I think that.
Speaker Change: We are pretty proud of what our team in China has delivered China has been tough as you well know for some time and I think that gates has delivered differentiated results in China.
Chris Snyder: Our predominant presence is frankly with Chinese oes.
Chris Snyder: So less so with kind of the large multinationals, but I would kind of point out to another and other item and that is that our.
Speaker Change: Predominantly driven by yeah, I mean, we have pretty broad based.
Chris Snyder: Core growth in East Asia, and India verses constructive as it was in China in Q4, so that would kind of tell you that.
Speaker Change: Our strong performance.
Speaker Change: Mobility was up quite substantially personal mobility.
Chris Snyder: More broadly across Asia.
Speaker Change: Substantially we've had terrific performance with our diversified industrial are.
Chris Snyder: As a more ubiquitous.
Chris Snyder: Region, you are seeing kind of a similar strength.
Speaker Change: There.
Speaker Change: You know even add was.
Speaker Change: Close to add and commercial constructions were both constructed in China.
Chris Snyder: So I wouldn't I wouldn't say that.
Chris Snyder: Specifically, China, driven and pre Bit's, driven we have not seen evidence of that.
Speaker Change: As Wausau automotive replacement so it's been quite.
Thank you I appreciate that.
Speaker Change: Quite good pretty much across most of the end markets that we.
Speaker Change: Our last question will come from David Raso from Evercore ISI. Please go ahead. Your line is open.
Speaker Change: Our presence with in China.
David Raso: Yeah, just wanted to let you expand a little bit upon the comment in our as our balance sheet continues to improve it will help widen our capital deployment aperture of the next few years I'm just curious to get a little more color on how do you think about sort of what level of financial leverage is clearly more of a time to lean forward.
Speaker Change: Thank you by the way.
Speaker Change: By the way.
Speaker Change: Yeah.
Speaker Change: My view is that I think it's really important to start seeing the turn in Asia in industrial.
Speaker Change: Because generally speaking Asia as it is.
Speaker Change: Early precursor I think what's going to happen in more of the developed economies.
Speaker Change: Maybe the.
Speaker Change: Situational Blackstone sort of being in the past how that also might change how you're thinking about utilizing the balance sheet and then just what are you seeing and opportunities. If you at least been kicking the tires a little bit.
Speaker Change: Yeah, no. It's a great great point there it makes a lot of sense I do wonder in this kind of a particular time period some of that early cycle, China streams that could be maybe tariff pre buy.
Speaker Change: M&A.
Speaker Change: Better.
Speaker Change: Yes look.
Speaker Change: Going into I guess at least the U S. In the developed world in that context.
Speaker Change: We believe that.
Speaker Change: Any views on that.
Speaker Change: We have gotten the balance sheet too.
Speaker Change: Thank you.
Speaker Change: Good place again in.
Speaker Change: I do not believe its a pre buy by the way.
Speaker Change: In general.
Speaker Change: All else being the same we have an ability to reduce our leverage by about half a turn a year.
Speaker Change: We are in China for China predominantly.
Speaker Change: Our predominant presence is frankly with Chinese.
Speaker Change: Two very strong cash generation capability of this business.
Speaker Change: So less so with kind of the large multinationals.
Speaker Change: We still believe that our stock is significantly undervalued.
Speaker Change: Kind of point out to another and other item and that is that our core.
Speaker Change: From where I sit I have a significant amount of strategic initiatives that add.
Speaker Change: Core growth in East Asia, and India, most as constructive as it was in China in Q4, so that.
Speaker Change: Tremendous.
Speaker Change: Manav.
Speaker Change: Improvements to our financial metrics you take a look at our ROIC every project that we do gives us the ability to drive better returns, which is something that we are very laser focused on.
Speaker Change: That would kind of tell you that.
Speaker Change: More broadly across Asia.
Speaker Change: As a more ubiquitous.
Speaker Change: Region, you are seeing kind of a similar strength.
Speaker Change: We have opportunities to invest.
Speaker Change: So I wouldn't I wouldn't say that it's specifically, China, driven and pre buy driven we have not seen evidence of that.
Speaker Change: <unk> into getting.
Speaker Change: More exposed to Haile.
Speaker Change: Sure.
Speaker Change: Positive and.
Speaker Change: Thank you I appreciate that.
Speaker Change: End markets with strong secular drivers. So we continue to do that we continue to evolve organically our portfolio gives us the ability to position us and during the next cycle to deliver much stronger topline generation capability and.
Speaker Change: Our last question will come from David Raso from Evercore ISI. Please go ahead. Your line is open.
David Raso: Just wanted to let you expand a little bit upon the comment in our as our balance sheet continues to improve it'll help widen our capital deployment aperture of the next few years I'm just curious to get a little more color on how do you think about sort of what level of financial leverage is clearly more of a time to lean forward.
Speaker Change: B, obviously are looking at M&A, but we think that there is more opportunity to invest in our business.
Speaker Change: These are the stock buybacks and or internal investment then if we can find businesses that we believe that a highly accretive.
Speaker Change: Maybe the Citral.
Speaker Change: Situational Blackstone sort of being in the past how that also might change how you're thinking about utilizing the balance sheet and then just what are you seeing and opportunities. If you at least been kicking the tires a little bit.
Speaker Change: That we can buy at a reasonable multiple.
Speaker Change: We are right. There we are happy to take a look at that.
Speaker Change: M&A.
Speaker Change: Thank you very much.
Speaker Change: Yes look.
Speaker Change: Thanks.
Speaker Change: We believe that we.
Speaker Change: We have no further questions I'd like to turn the call back to rich <unk> for closing remarks.
Speaker Change: We have gotten the balance sheet too.
Speaker Change: Good place in.
Speaker Change: In general.
Speaker Change: Alright. Thanks, everyone. If you have any follow up questions feel free to reach out to me and have a great rest of the week.
Speaker Change: All else being the same we have an ability to reduce our leverage by about half a turn a year.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Two very strong cash generation capability of this business.
Speaker Change: Okay.
Speaker Change: We still believe that our stock is significantly undervalued.
Speaker Change: From where I sit I have a significant amount of strategic initiatives that add.
Speaker Change: Yeah.
Speaker Change: Tremendous.
Speaker Change: Manav.
Speaker Change: Improvements to our financial metrics you take a look at our ROIC every project that we do gives us the ability to drive better returns, which is something that we are very laser focused on.
Speaker Change: Yeah.
Speaker Change: We have opportunities to invest.
Speaker Change: <unk> into getting.
Speaker Change: More exposed to Haile.
Speaker Change: Positive.
Speaker Change: End markets with strong secular drivers. So we continue to do that we continue to evolve organically our portfolio gives us the ability to position us and during the next cycle to deliver much stronger topline generation capability.
Speaker Change: <unk>.
Speaker Change: <unk> be obviously are looking at M&A, but.
Speaker Change: We think that there is more opportunity to invest in our business.
Speaker Change: These are the stock buybacks and or internal investment then if we can find businesses that we believe that a highly accretive.
Speaker Change: We can buy at a reasonable multiple.
Speaker Change: We are right. There we are happy to take a look at that.
Speaker Change: Thank you very much.
Speaker Change: Thanks.
Speaker Change: We have no further questions I'd like to turn the call back to Mr. Clark for closing remarks.
Speaker Change: Alright. Thanks, everyone. If you have any follow up questions feel free to reach out to me and have a great rest of the week.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [noise].