Thank you for being here. My name is Eric, and I will be your conference operator today. I would like to welcome everyone to the Gates Industrial Corporation Q2 2025 Earnings Call. I will now turn the call over to Rich Kwas, Vice President of Investor Relations. Please go ahead.

Greetings, and thank you for joining us on our second quarter 2025 earnings call. I'll briefly cover our non-GAAP and forward-looking language before passing the call over to our CEO, Ivo Jurek, who will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our second quarter 2025 results. A copy of the release is available on our website at investors.gates.com. Our call this morning is being webcast and is accompanied by a slide presentation. On this call, we will refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non-GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to Slide 2 of the presentation, which provides a reminder that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward-looking statements. These risks include, among others, matters that we have described in our most recent annual report on Form 10-K and in other filings we make with the SEC, including our Q1 quarterly report on Form 10-Q that was filed in April 2025. We disclaim any obligation to update these forward-looking statements. This quarter, we will be attending the Jefferies Industrials Conference, the Morgan Stanley Laguna Conference and the RBC Capital Markets Global Industrials Conference all in September and look forward to meeting many of you. Before we start, please note all comparisons are against the prior year period unless stated otherwise. And now I'll turn it over to Ivo.

Thank you, Rich. Good morning, everyone, and thank you for joining us on our call today. Let's begin on Slide 3 of the presentation. In the second quarter, Gates delivered solid results as revenues outperformed our guidance, supported by more favorable currency trends. Core revenue performance was in line with our April guidance. Core growth in our replacement channel was up, supported by low single-digit growth in both automotive and industrial. In the industrial end markets, personal mobility had another quarter of double-digit growth and off-highway was flat with growth in agriculture, offsetting a decline in construction. We delivered solid operating performance in the quarter with adjusted EBITDA margin solidly exceeding 22%, in line with our expectations. Gross margin expanded 40 basis points, and we continue to make progress with our various enterprise initiatives. Our balance sheet continues to trend towards our short-term target of below 2x net leverage. Our net leverage declined to 2.2x at the quarter end. Our free cash flow grew year-over-year. We have updated our 2025 guidance, raising our adjusted EBITDA midpoint to $780 million and our adjusted EPS midpoint to $1.48. We have maintained our core growth midpoint of 1.5% and narrowed the range. Brooks will discuss the updated guidance in more detail later in the presentation. We continue to execute well in an uncertain macro environment, and we are focused on what we can control. Our in-region, for-region operational structure is proving itself effective as the enacted tariffs continue to fluctuate, and we have been able to mitigate the impact to our business. Please turn to Slide 4. Second quarter total sales were $884 million, which represented a 0.6% decline on a core basis. Foreign currency was slightly positive versus the prior year period. During the second quarter, underlying demand conditions for our products were as expected. We experienced strong growth in personal mobility, which we had anticipated at the start of the year. Our replacement channels were constructive, posting low single-digit growth. Notably, the industrial replacement channel realized positive core growth for the first time since Q1 2023. Our automotive end market was approximately flat with growth in auto replacement offset by a decline in auto OEM. Additionally, industrial OEM sales were under pressure, primarily due to soft demand in construction and on-highway. Adjusted EBITDA was $199 million with adjusted EBITDA margin coming in at 22.5%, a decrease of 30 basis points. Of note, a one-time $7 million gain on a real estate transaction recognized in the year-ago period had an 80 basis point impact on the adjusted EBITDA margin comparison. Gross margin was 40.8% in the quarter and has remained above 40% for five consecutive quarters despite uneven demand trends. We continue to progress towards our mid-term margin targets for both gross profit margin and adjusted EBITDA margin. Adjusted earnings per share was $0.39, an increase of approximately 8%. Underlying operating performance contributed $0.04, partially offset by the nonrecurring real estate gain of $0.02 recognized in the year-ago period and unfavorable foreign exchange of $0.01. Lower interest expense and lower share count contributed about $0.02 on a combined basis. On Slide 5, we'll review our segment highlights. In the Power Transmission segment, we generated revenues of $550 million in the quarter and were up slightly on a core basis. High single-digit growth in industrial OEM sales was mostly offset by a decline in automotive OEM sales. Personal Mobility grew 18% in the quarter, and we continue to execute well on the ramp-up of new design wins. The replacement channel was stable with slight growth year-over-year. We are investing in our commercial front end and innovation in areas of strategic growth potential to position the company to capitalize on opportunities ahead of us. In the Fluid Power segment, our sales were $334 million, which translated to a 2.5% decrease on a core basis. End market dynamics were mixed in the quarter. On Highway was incrementally weaker as commercial truck production forecasts have been revised lower, particularly in North America. Softer construction demand continued. However, this was partially offset by low single-digit growth in agriculture, which is the first positive read since Q4 2022. We believe the ag market is close to the bottom of the current destocking cycle. Demand in the replacement business was healthy, supported by automotive and industrial, which each grew low single digits. Industrial OEM sales declined low double digits on a core basis. Additionally, we are beginning to see a meaningful acceleration of quoting and booking activity in the data center market, which we expect to positively benefit the Fluid Power segment towards the end of this year and mainly as we enter 2026. Adjusted EBITDA margin for the Power Transmission segment declined 50 basis points year-over-year, partly due to higher spending on research and development projects to support new product development in personal mobility and industrial chain development. Fluid Power expanded adjusted EBITDA margins by 10 basis points and benefited from more stable revenue performance in the off-road markets and favorable replacement activity, partially offset by investments in data center initiatives. I will now pass the call over to Brooks for further comments on our results.

Thank you, Ivo. I'll begin on Slide 6 and review our core sales performance by region. Our key Asian geographies grew, contributing nicely to the quarter. This was offset by mixed macro conditions in the Americas and EMEA. In North America, core sales declined 1.3% and were primarily affected by lower OEM demand. Industrial OEM channel sales decreased low teens and were most impacted by lower demand in construction and on-highway. North American replacement channel sales expanded low single digits, led by mid-single-digit growth in industrial replacement, demonstrating a gradually improving trend. Auto replacement increased low single digits. At the end market level, personal mobility and diversified industrial were solid contributors. In EMEA, core sales fell just over 1%. OEM sales were down mid-single digits with automotive weakness more than offsetting low single-digit growth in industrial. Replacement sales were mixed with automotive replacement core growth in the low single digits and industrial replacement down mid-single digits. The energy and diversified industrial end markets were also down year-over-year. East Asia and India posted approximately 4% core growth and saw growth across all industrial end markets. Automotive OEM sales were down slightly, but this was more than offset by mid-teens growth in automotive replacement. China core sales expanded slightly year-over-year with growth in industrial end markets, partially offset by declines in automotive. South America core sales declined low single digits. On Slide 7, we lay out the key drivers of our year-over-year change in adjusted earnings per share. Underlying operating performance contributed approximately $0.04 per share, driven by gross margin expansion. The operating performance was offset by a $0.02 headwind from the nonrecurring favorable benefit realized in the prior year period. Foreign exchange was a $0.01 drag on earnings per share. Lower interest expense and a lower share count contributed $0.02 on a combined basis. Slide 8 offers an overview of our cash flow performance and balance sheet metrics for the second quarter. Our free cash flow was $74 million, growing 11% year-over-year and represented 73% conversion to adjusted net income. Our last 12 months' free cash flow conversion is also trending up, reaching 80% in the quarter. Our net leverage ratio declined to 2.2x, which was a 0.1x improvement compared to the prior year period as well as the first quarter. Our cash balance continues to build and exceeded $700 million in the quarter. Furthermore, we intend to pay down an additional $100 million of gross debt at the end of July. Through a balanced capital deployment strategy, we believe we are on track to reduce our net leverage below 2x by year-end 2025. Our trailing 12-month return on invested capital was 21.3%, and we continue to invest in high-return internal projects that we believe will improve our competitive position. Turning to our updated 2025 guidance on Slide 9. We have increased our adjusted EBITDA and adjusted earnings per share guidance at the midpoint. We are updating our full-year 2025 core revenue growth expectation to be in the range of 0.5% to 2.5%, maintaining the midpoint at 1.5%. We have increased our adjusted EBITDA guidance to a range of $765 million to $795 million, a $15 million increase at the midpoint due to more favorable foreign currency trends since the beginning of the year. Please recall, heading into the year, we had about a $10 million profit headwind on foreign exchange relating to favorable hedge impacts that we realized in 2024. As FX rates have swung to be favorable from a translation perspective, we have seen it roll through and have adjusted our guidance upward $15 million. Embedded in the adjustment is the realization of some actual and expected unfavorable FX hedge impacts that we should realize in 2025. We now expect adjusted earnings per share to be in the range of $1.44 per share to $1.52 per share, an increase of $0.04 at the midpoint. Our guidance for capital expenditures and free cash flow conversion remains unchanged. For the third quarter, we estimate total revenues to be in the range of $845 million to $885 million and core revenues to be up approximately 3% at the midpoint. For the third quarter, we expect our adjusted EBITDA margin to increase in a range of 50 basis points to 90 basis points compared to Q3 2024. Before I turn the call over to Ivo, I'll provide a brief update on tariffs. At current tariff rates, we now expect an annualized impact of approximately $50 million and anticipate incurring approximately 35% to 40% of the impact in the second half of 2025. We intend to cover 85% to 90% of the projected impact of price and employ various operational and supply chain actions to cover the remainder. We continue to expect to be neutral for the year on a dollar basis. I will now turn the call back to Ivo.

Thank you, Brooks. On Slide 10, we outline our data center product portfolio and the types of customers we are presently supporting. On the left side, you see a sample of our product portfolio. We launched our Data Master Hose last year and added larger sizes to accommodate the increased flow requirements required by the industry. Earlier this month, we introduced our universal quick disconnect fitting specified for the data center environment in multiple sizes. Our electric pump is gaining traction, and we continue to scale up the pump portfolio to accommodate the higher flow rates required in liquid-cooled data centers while preserving a compact size and energy efficiency. On the right side, you see we are serving a wide array of customers from data center operators to service contractors and everyone in between. Currently, we are in negotiations with a major hyperscaler to supply in 2026. We have also secured a design win for our data center electric pump with an Asian-based EMS supplier in support of a large U.S.-based server manufacturer that we estimate could be worth multiple millions of dollars in revenues as we get into full production in 2026. We have developed relationships with service contractors and engineering firms that are actively involved in the build-out of data centers, and one additional business to supply our Data Master Megaflex hose in support of a data center campus project located in Texas. Additionally, we have established close working relationships with the critical infrastructure providers to the data center market and anticipate having additional design wins awarded through these partners in the near future. We are pleased with the momentum in our product development and commercial coverage, and we believe that our revenue base is poised to inflect nicely over the next couple of years. On Slide 11, I'll provide a brief update on our personal mobility business. We continue to make investments to enter new applications and support new product development as well as expand and scale commercial competencies to drive penetration. Our innovation efforts are translating into relevance across new applications. We have product offerings available for e-mountain bikes and value e-bikes, relatively new markets for us that are gaining traction and augment our mid- to long-term penetration opportunity. Our innovation efforts are centered on adding incremental performance at lower cost. At Gates, we are redefining how designers achieve the transmission of power to motion while enhancing look and feel. Our opportunity pipeline currently exceeds $300 million, and we believe the business is well positioned to exceed $300 million of revenues by 2028, which implies a compound annual growth rate of approximately 30%. I'll summarize our thoughts and views on Slide 12. First, we believe that we are managing the business well through the current economic uncertainties. We are preparing the company for an anticipated acceleration in core growth over the midterm. Recovery in personal mobility is well underway, and we anticipate growth to inflect higher in the second half of the year. Our data center opportunity pipeline continues to expand, now approaching $150 million. The auto replacement market remains constructive, and we see further opportunity for us to leverage our brand, product portfolio, and fulfillment capabilities to drive further market outgrowth. Of note, we believe the industrial off-road markets have started to bottom, and we realized core growth in agriculture for the first time in two years this past quarter. Concurrently, we remain highly focused on improving our gross margins through a mix of material cost savings, footprint optimization, and productivity. Second, our business possesses multiple secular growth opportunities. In personal mobility, the design wins we have achieved over the last couple of years are fueling outgrowth as the 2-wheeler market has stabilized. Moreover, our opportunity pipeline exceeds $300 million, which provides us good visibility to our future outgrowth potential given our historical win rates. As we discussed previously on the data center slide, we are beginning to book relevant wins. We believe the expansion of the liquid cooling market, coupled with the product development and people investments we are making, positions us to organically grow the business nicely through the end of the decade. Both personal mobility and data centers add a secular growth algorithm to our shareholder value proposition. Lastly, we anticipate our investments in the new belts and sprockets are going to bring belt drives close to prosperity with chains over the next few years and potentially unlock a meaningful uptick in the chain-to-belt conversions across stationary industrial automation applications. Our new product innovation pipeline is growing to support new applications as well as to improve existing ones. And I am optimistic that our vitality rate is poised to increase nicely over the midterm. Third, our balance sheet continues to strengthen, which enhances our capital allocation optionality. While our equity valuation has improved over the past several quarters, we believe our shares remain undervalued and share repurchases are a good use of excess capital. We have taken a balanced approach to capital allocation historically and intend to reduce our gross debt in Q3 and made further progress towards our goal of lowering our gross debt below $2 billion. Before taking your questions, I want to thank the 14,000 Global Gates associates for their effort and hard work towards satisfying our customers' needs on a consistent basis. With that, I'll now turn the call back over to the operator for Q&A.

Your first question comes from the line of Nigel Coe with Wolfe Research.

I would like to begin with a question about your confidence in the shift towards growth in the third quarter, specifically the 3% increase. I'm curious about the factors at play here, such as order rates and backlog, considering that the year-over-year comparisons are becoming easier. Additionally, could you provide insights on the price contribution for the third quarter compared to the second quarter? Any information on this would be appreciated.

Yes, Nigel, thank you for your question. Our order rates have aligned with our expectations as we entered the second quarter and exited July. We are observing a significant part of our end market that appears to be reaching a low point, with the on-highway segment continuing to slow down somewhat, alongside oil and gas which are also experiencing a decline. However, industrial replacement is showing slight improvements in demand. Automotive replacement remains stable and beneficial for us globally. Additionally, personal mobility has noticeably accelerated after a two-year period of destocking we faced in the last two years. We are reasonably confident that we will start to see substantial growth rates, which we believe will be steady. As you noted, the easier comparisons are a factor in this. Personal mobility is expected to keep advancing and accelerating into the second half. We've also had a modest increase in price. Overall, we feel quite positive about the guidance we have provided to the market.

That's great. And my follow-on is, shock a surprise on data centers. I mean, really appreciate the color on the pipeline. I think you've said in the past, Ivo, that this could easily be similar in scale to the personal mobility market, so call it, $100 million, $150 million in the next two or three years. Has your view changed on that opportunity set based on what you've seen out there?

I want to be very careful how I represent it, Nigel, but I would probably say that I maybe see it even more bullishly than at that point in time. Obviously, there's no linear path from where we sit today up. But look, we are invoicing dramatically more revenue today than we have done prior year from a very small base, obviously. But the amount of programs that we are involved with across the portfolio that we have delineated, and I would be remiss if I didn't throw our belts in there that go into the industrial HVACs. So our entire portfolio of products participate in data center cooling. And I think what the inflection that we see, Nigel, is driven by the more rapid adoption of liquid cooling now as everybody is realizing that just air is not going to get you there. That's evolving super-fast and it's putting actually quite a bit of strain on our organization, and that's why we spoke a little bit about more investment to be able to keep up with it, to sample, to get certified, qualified, put on a spec. It's looking quite all right for us. So I think that certainly that $150 million that I spoke in the past is totally doable.

Your next question comes from the line of Deane Dray with RBC Capital Markets.

Just want to circle up on the auto OE softness. And look, everyone is seeing that. But what I think is unique about Gates is historically, you've always had strategically selectivity in terms of what auto OE first-fit business you would go after. So is the softness in any way reflected on some of the discretionary business that you have declined to pursue? Or is it entirely just lower production?

Thank you for your question, Deane. I believe you are correct. I have discussed selective participation for many years, and we plan to maintain that approach going forward. It's not a significant part of our revenue stream. To remind everyone, we've reduced it from about 17% to 18% at the IPO down to under 10% currently, and we will continue our selective participation strategy. We have many organic growth initiatives that we believe will further dilute that revenue mix. However, I would also note that there is a weakness, particularly in Europe related to production. North America has seen slightly lower volumes than our original assumptions, but that's not the main concern. The primary issue has been in Europe, particularly due to the impact of tariffs on production intended for exports.

That's really helpful. My second question is about your point on the chain-to-belt conversion. You mentioned that belts and sprockets are approaching the cost of legacy chains. What has been driving that trend? Additionally, could you provide some comparisons between those two cost points? Does this make the conversion even more enticing and promote a faster transition?

Yes. Thank you for the question. It's a little more complex question, and I'll try to be brief. Look, when we started this journey in 2018, 2019, the cost premium of belt drive to a chain drive was about 2.5x of a chain drive if you use a belt drive. But the payback on switching away from chain drive to a belt drive was very, very good because of the value we provide uptime, no need to tension the drive, no need to lubricate, lower energy consumption. So the payback was very good for the installed base. But when we've talked to machine builders, machine builders really wanted us to get much closer to the cost parity so that when they design belt drive in, there would not be a cost premium. And as you can imagine, there are two different end users and OEMs that are building the equipment that have different value drivers versus the end user that's utilizing the apparatus that is really more focused on efficiency and reduced maintenance amount. So we've worked quite diligently over the last four or five years investing in alternative technologies of manufacturing, construction, and we are coming up with a sprocket technology that we believe is going to give us a rather substantial cost advantage and is the sprocket in particular that is required to drive that cost down. And so while we are not at cost parity yet, and as I indicated in my prepared remarks, we are probably 12 to 24 months away from that. We believe that we are making rather meaningful progress with our cost structure and the technology evolution that will get us so much closer to that cost parity and open doors to adoption at the OEMs on the industrial side and stationary application side.

Your next question comes from the line of Jeff Hammond with KeyBanc.

Just on this industrial recovery, I think you gave us some good color on the end markets. But outside of just ag bottoming, what other areas are you seeing kind of more signs that this kind of industrial replacement or industrial recovery is starting to take hold? And is it just simply getting clarity on tariffs or something else that's driving it?

Yes, Jeff, that's a great question. I'll try to keep my response brief. The demand environment is evolving mostly as we expected at the beginning of the year. We didn't anticipate the tariffs that brought significant volatility and uncertainty during the second quarter, and people are still figuring out what the second half of the year will look like. We're quite optimistic about agriculture, which has seen over two years of negativity, and we are beginning to notice stability in that area. Although PMI numbers have been poor, there are signs of stabilization, even if they are still below 50. Our industrial replacement order rates suggest that while the situation isn't outstanding, it's not worsening either. In fact, we saw a positive trend in industrial replacement during the second quarter. Off-road markets, especially in construction, remain challenging, and on-road conditions are slightly worse. However, our automotive replacement sector is thriving, providing significant stability to our revenue both historically and looking ahead. Personal mobility is also performing strongly, rebounding well, which helps counterbalance some weaknesses in other markets. Hopefully, that gives you a clearer picture.

That's good. Can you discuss your thoughts on buybacks for the second half of the year and your confidence in achieving your free cash flow conversion? I know there are considerations around the tax bill, but how confident are you in reaching your free cash flow targets?

Yes. So look, I think from a buyback versus debt paydown, first of all, look, we take a balanced approach. We are committed to getting our gross debt below $2 billion. We're committed to getting our leverage below 2, right? And so that means we have to lock in some of the cash generation by paying down debt, which we're going to do in Q3. We still think our stock is undervalued. So stock buyback remains a good option for us. So from a capital deployment perspective, all options are on the table as we continue to generate cash. From generating our 90% cash conversion, look, over the past 1.5 years, we've invested in working capital. We've improved our service levels dramatically. We think it's paid dividends for us, particularly on the replacement business. Now that, that's leveled off and some of our enterprise initiatives around supply chain are working, we feel like we'll be able to dial down that investment, certainly not increase it and dial it down some and drive working capital down and maintain our service levels and be able to serve our replacement customers as well as we ever have. So we've got good conviction that not only can we continue to invest from a capital spending perspective, where we've been investing more over the past six quarters, but we can continue to deliver very nice cash generation and cash conversion for 2025 and onward.

Your next question comes from the line of Julian Mitchell with Barclays.

Maybe just the first question around the EBITDA margin outlook. So I think the second half guide is embedding a sort of high 30s operating leverage year-on-year in both quarters. I just wanted to make sure that, that's roughly accurate. And is that a good sort of placeholder when we start to think about 2026, assuming that, that sort of low single-digit organic sales growth backdrop can remain intact?

No, you're spot on. The kind of high 30s, almost a 40% leverage, both in how we're thinking about the back half of the year is where we should be. Yes, and I think about '26 and going forward, we're going to continue to drop through on core growth at kind of that mid-30s level plus the enterprise initiatives should put us in that kind of 40 handle range in terms of the drop-through on the additional sales. And you look at where our growth opportunities are in mobility, the replacement business is doing well, and that's a little bit of a favorable mix kicker in there. So we feel pretty confident about that from an incremental earnings perspective.

That's helpful. And then maybe one for Ivo more on the sort of demand backdrop. I guess one part is just have you seen anything interesting in terms of recent sort of cadence of demand moving around in the last month or two? And then maybe related to that, when you look at your sort of half a dozen main end market verticals, have you changed the perspective on any of them today in terms of the year's outlook versus January or April? It sounded like perhaps On Highway North America is one that's changed for the worse. Any others to call out?

Yes, Julian, not significantly. I believe the end markets are still somewhat stable, as you mentioned, but perhaps On Highway has worsened a bit to mid-single-digit declines. Other markets are holding steady. However, we are focused on our growth opportunities. For instance, with mobility, while the end units are not increasing, we are achieving substantial penetration following the post-COVID destock. Even though the market is slightly positive, we are realizing significant growth due to the design wins from the past few years. Our main focus is on self-improvement, where we aim to achieve revenue growth above the market rate. We are also paying attention to feedback received over the past couple of years. Notably, in the data center liquid cooling market, there is currently a surge in opportunities. We expect to start recognizing some revenue from ramping up products in Q4. While it won't be substantial, it will be preproduction revenue, and we anticipate a significant increase in 2026.

Your next question comes from the line of Mike Halloran with Baird.

I just want to clarify something. Other than possibly personal mobility, it seems that you're not indicating a significant change in fundamentals in your guidance. You're expecting more of a steady trajectory with normal sequential performance in the latter half of the year against easier comparisons, along with some growth initiatives. Is that an accurate summary?

Yes, it is.

Okay. And then second question on the data center side of things, just curious what the opportunity set looks like either organically or inorganically, either new product development or acquisitions layer on kind of broaden out the exposures there relative to what you're already doing. Obviously, very exciting. I'm curious if there's other tangential areas you see that complement what you're already pushing forward on.

Yes. Look, I think it's a terrific question. I would probably punt on the M&A side, to be honest with you, because our opportunity set organically is rather significant. I think that when we start talking about the build-out of our portfolio about one year, one and a half years back or whenever it was, we were kind of scoping certain penetrations of liquid cooling of new data center space. I would venture to say that it's going to be dramatically bigger than what we thought it would be a couple of years ago. So in essence, I think that there's going to be a lot more liquid cooling penetration on a forward-going basis than I think anybody anticipated. We have built a really nice portfolio around the core competencies that we have as a company. So we are not really stretching ourselves and reaching out to any sort of adjacent technologies. We are just chopping wood and keeping our head down with our core portfolio, tailoring our products around the requirements of liquid cooling, obviously, high degree of requirements, high reliability, precision, reliability of supply. Those are our core strengths at Gates Corporation. That's where we are good. and we believe that we will have a meaningful opportunity to deliver nice growth as we move forward over the next 12, 24, 36 months.

Your next question comes from the line of Damian Karas with UBS.

It's Zach Walljasper standing in for Damian today. I have a quick question regarding the guidance for the year. I heard earlier comments about foreign exchange being a factor in the upward revision of EBITDA, but I'm curious about the comparison between FX and operational efficiency. My second question is about pricing. You implemented significant price increases earlier this year, but now with rising costs for copper and steel, what actions are you considering? Additionally, how has customer feedback been regarding the pricing adjustments?

Yes. So yes, on the guidance, the $15 million midpoint raise was related to FX, and that's really kind of in the back half of the year where the dollar is going to be weaker this year versus what it was last year, right? I think we were pretty clear on that in terms of the remarks. But that's where the revision to the upside is coming, both from an earnings per share and from an EBITDA perspective. On the pricing side, look, we waited to roll out our pricing until significantly later than we usually do because of the impact of tariffs. And so we're going to see sequentially as we move from Q2 to Q3, a little bit more upside than we would normally see. Having said that, we've dialed our pricing back based on some of the tariff changes and based on some of the other things that are going on. And so we've said from the beginning, we're going to be dollar neutral on tariffs. We don't have to do as much stuff operationally because of some of the changes. And we don't need quite as much pricing as we thought we did because of some of the changes. And so we feel like we're in a really good spot on tariffs. And then, as we talk about the growth algorithm in the second half being a little bit higher, that's part of it as well. We're getting a little bit of a bump from a little bit more second half pricing relative to the first half than we normally see.

Your next question comes from the line of David Raso with Evercore ISI.

I was just curious, the cadence for the rest of the year on the organic. Obviously, PT has been outgrowing FP for a while. I'm just curious, given some of the bigger deltas potentially with the off-highway OEMs, do you expect fluid to outgrow PT in the fourth quarter? I'm just getting a sense of the growth rates exiting '25 into '26. Any help between the business segments would be helpful.

Yes. I don't think so, Dave, because Fluid Power is pretty significantly represented with On Highway in construction, obviously, as you know, big hydraulics consumer and so on and so forth. So I think that PT has the opportunity to continue to outperform, particularly taking into account personal mobility. But we do see that most of our data center revenue, obviously, is going to be in FP, so that that's going to be accretive predominantly in 2026.

Okay. So the ag improvement, we don't see construction up in the fourth quarter. I mean it sounds like you think ag might be up, but just trying to extrapolate that topic versus PT.

I am not able to provide further guidance at this time beyond what we have shared regarding commercial construction. There is a possibility that we may begin to notice some changes as we approach the end of the year, but I would like to see another quarter of market performance before considering offering more details.

Yes. I mean we had embedded some of the things that we've already done in '25 into our guidance. So that's already in there for '25. There'll be a slight bit of carryover as you move from '25 to '26, but as we said in our earnings presentation, because of all the moving parts with tariffs and the trade negotiations and things like that, things have just taken a little bit longer. And so we're not going to see the full throughput of some of our restructuring activities until the end of '26, right? So we'll start to generate those through '26, but we won't see the full impact until the end of '26.

I'll now turn the call back over to Rich Kwas for closing remarks. Please go ahead.

All right. Thanks, everyone. If you have any further questions, please feel free to reach out. Otherwise, have a great rest of the week. Take care.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.