v3.25.1
Segment information
 3 Months Ended
Mar. 29, 2025
Segment Reporting [Abstract]  
Segment information Segment information
A. Background
The segment information provided in these condensed consolidated financial statements reflects the information that is used by the chief operating decision maker for the purposes of making decisions about allocating resources and in assessing the performance of each segment. The chief executive officer (“CEO”) of Gates serves as the chief operating decision maker. These decisions are based principally on net sales and Adjusted EBITDA (defined below).
B. Operating segments and segment assets
Gates manufactures a wide range of power transmission and fluid power products and components for a large variety of industrial and automotive applications, both in the aftermarket and original equipment manufacturer (“OEM”) channels, throughout the world.
Our reportable segments are identified on the basis of our primary product lines, as this is the basis on which information is provided to the CEO for the purposes of allocating resources and assessing the performance of Gates’ businesses. Our operating and reporting segments are therefore Power Transmission and Fluid Power.
Segment asset information is not provided to the chief operating decision maker and therefore segment asset information has not been presented. Due to the nature of Gates’ operations, cash generation and profitability are viewed as the key measures rather than an asset-based measure.
C. Segment net sales and disaggregated net sales
Sales between reportable segments and the impact of such sales on Adjusted EBITDA for each segment are not included in internal reports presented to the CEO and have therefore not been included below.
Three months ended
(dollars in millions)
March 29, 2025March 30, 2024
Power Transmission$527.2 $532.8 
Fluid Power320.4 329.8 
Net sales
$847.6 $862.6 
Our commercial function is organized by region and therefore, in addition to reviewing net sales by our reportable segments, the CEO also reviews net sales information disaggregated by region and by channels.
The following table summarizes our net sales by key geographic region:
Three months ended March 29, 2025Three months ended March 30, 2024
(dollars in millions)
Power Transmission
Fluid Power
Power Transmission
Fluid Power
U.S.$154.3 $168.0 $141.0 $172.0 
North America, excluding the U.S.
54.5 44.3 63.1 50.5 
South America21.8 10.0 27.8 9.2 
United Kingdom (“U.K.”)10.3 15.4 10.6 15.8 
Luxembourg62.8 22.8 61.7 22.9 
EMEA(1), excluding the U.K. and Luxembourg
85.2 27.7 91.3 29.1 
East Asia & India69.2 20.4 68.6 19.9 
Greater China69.1 11.8 68.7 10.4 
Net sales$527.2 $320.4 $532.8 $329.8 
(1)    Europe, Middle East and Africa (“EMEA”).
The following table summarizes our segment net sales into OEM and Replacement channels:
For the three months ended
March 29, 2025March 30, 2024
(dollars in millions)Power TransmissionFluid PowerPower TransmissionFluid Power
Replacement$349.9 $226.1 $348.6 $221.9 
OEM177.3 94.3 184.2 107.9 
Net sales$527.2 $320.4 $532.8 $329.8 
D. Measure of segment profit or loss
The CEO uses Adjusted EBITDA, as defined below, to measure the profitability of each segment. Adjusted EBITDA is, therefore, the measure of segment profit or loss presented in Gates’ segment disclosures.
“EBITDA” represents net income from continuing operations for the period before net interest and other expenses (income), income taxes, depreciation and amortization.
“Adjusted EBITDA” represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, the items excluded from EBITDA in computing Adjusted EBITDA primarily included:
•non-cash charges in relation to share-based compensation;
•transaction-related expenses incurred in relation to major corporate transactions, including the acquisition of businesses, and equity and debt transactions;
•asset impairments;
•restructuring expenses, including severance-related expenses;
•credit loss related to a customer bankruptcy; and
•inventory adjustments related to certain inventories accounted for on a Last-in First-out (“LIFO”) basis.
Adjusted EBITDA by segment was as follows:
Three months ended
(dollars in millions)
March 29, 2025March 30, 2024
Power Transmission$116.7 $119.0 
Fluid Power 70.6 76.6 
Adjusted EBITDA
$187.3 $195.6 
The table below represents the segment profit or loss provided to the CEO on a quarterly basis:
Three months ended
March 29, 2025March 30, 2024
Power TransmissionFluid PowerTotalPower TransmissionFluid PowerTotal
Net sales$527.2 $320.4 $847.6 $532.8 $329.8 $862.6 
Adjusted cost of sales (1)
(308.8)(194.0)(502.8)(318.5)(200.3)(518.8)
Adjusted selling, general and administrative expenses (2)
(114.4)(66.6)(181.0)(108.3)(64.9)(173.2)
Depreciation and software amortization12.7 10.8 23.5 12.9 12.0 24.9 
Credit gain related to customer bankruptcy (included in SG&A) (3)
— — — 0.1 — 0.1 
Adjusted EBITDA$116.7 $70.6 $187.3 $119.0 $76.6 $195.6 
(1)    Adjusted cost of sales excluded inventory impairments and adjustments primarily related to the reversal of the adjustment to remeasure certain inventories on a LIFO basis, and restructuring-related expenses (included in cost of sales).
(2)    Adjusted selling, general and administrative expenses excluded acquired intangible assets amortization, share-based compensation expense, and restructuring-related expenses (included in SG&A).
(3)    On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we preliminarily evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded an initial pre-tax charge to reflect our estimated recovery. We continue to monitor the circumstances surrounding the bankruptcy and adjust our estimate as necessary.
Reconciliation of net income from continuing operations before taxes to Adjusted EBITDA:
Three months ended
(dollars in millions)
March 29, 2025March 30, 2024
Income from continuing operations before taxes$93.8 $80.7 
Interest expense29.6 37.5 
Other expenses (income)1.3 (1.5)
Operating income from continuing operations124.7 116.7 
Depreciation and amortization52.2 54.6 
Transaction-related expenses (1)
0.4 0.4 
Asset impairments0.6 — 
Restructuring expenses1.6 1.2 
Share-based compensation expense6.1 8.6 
Inventory write-offs and adjustments (included in cost of sales) (2)
(1.0)13.9 
Restructuring-related expenses (included in cost of sales)1.2 — 
Restructuring-related expenses (included in SG&A)1.5 0.1 
Credit loss related to customer bankruptcy (included in SG&A) (3)
— 0.1 
Adjusted EBITDA$187.3 $195.6 
(1)    Transaction-related expenses relate primarily to advisory fees and other costs recognized in respect of major corporate transactions, including the acquisition of businesses, and equity and debt transactions.
(2)    Inventory write-offs and adjustments include the reversal of the adjustment to remeasure certain inventories on a LIFO basis. During the three months ended March 29, 2025, the Company experienced a decrease in inventory values, that resulted in the liquidation of a LIFO inventory layer. This LIFO liquidation did not have a significant effect on net income.
(3)    On January 31, 2023, one of our customers filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In connection with the bankruptcy proceedings, we preliminarily evaluated our potential risk and exposure relating to our outstanding pre-petition accounts receivable balance from the customer and recorded an initial pre-tax charge to reflect our estimated recovery. We continue to monitor the circumstances surrounding the bankruptcy and adjust our estimate as necessary.