CMI - Cummins Inc.

Operator: Greetings, and welcome to the Q3 2025 Cummins Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nick Arens, Executive Director of Investor Relations. Thank you, sir. You may begin. Nicholas Arens: Thank you, Maria. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the third quarter of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors and section of the most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Nick. Good morning, everyone. I'll start with a summary of our third quarter accomplishments and financial results. Then I will discuss our sales and end market trends by region. Finally, I'll provide an update on how we are navigating the evolving trade and policy landscapes, along with our market outlook for the remainder of the year. Mark will then take you through more details of our third quarter financial performance. Before getting into the details of our results, I want to take a moment to highlight a few major accomplishments from the third quarter. In September, we announced a collaboration with Komatsu to develop hybrid powertrains for surface haulage heavy mining equipment. This joint development effort will leverage the breadth and scale of Komatsu's and Cummins' global capabilities to enable the acceleration of optimized hybrid solutions for mining. Retrofit hybrid solutions hold the potential to help mining customers accelerate their decarbonization journey today while lowering the cost of operations of their installed fleet assets. We are excited about this opportunity to bridge current operational needs with future low-carbon goals to support our customers' sustainability efforts. Additionally, our latest 15-liter engine delivered standout results during this quarter's Run on Less –- Messy Middle event hosted by the North America Council for Freight Efficiency. Three of the 13 participating fleets ran the new X15N natural gas engine through some of the most demanding duty cycles of the demonstration, showcasing its ability to deliver true heavy-duty performance while unlocking the cost and emissions benefits of natural gas. At the same event, our X15 diesel led in fuel economy and operational efficiency, reinforcing its position as a benchmark for dependable high-performance power. These results highlight the growing adoption of Cummins' technologies and the tangible value customers are experiencing from our advanced powertrain solutions, all produced here in the U.S. Now I will comment on the overall company performance for the third quarter of 2025 and cover some of our key markets. Sales for the third quarter were $8.3 billion, a decrease of 2% compared to the third quarter of 2024. Lower sales were primarily driven by weaker North America heavy and medium-duty truck demand with unit volumes declining 40% from a year ago, which was largely offset by continued strength in our global power generation markets, higher light-duty truck volumes and favorable pricing. EBITDA was $1.2 billion or 14.3% compared to $1.4 billion or 16.4% a year ago. Third quarter 2025 results included $240 million of noncash charges related to our electrolyzer business within the Accelera segment, reflecting lower demand expectations due to reduced U.S. government incentives and slower market development internationally. Excluding those charges, EBITDA was $1.4 billion or 17.2% of sales, an increase of 80 basis points from a year ago as the benefits of higher power generation and light-duty truck volume, pricing, operational efficiencies and lower compensation expenses more than offset declines in North American truck volumes and the unfavorable impact from tariffs. We did increase the proportion of tariff costs recovered through pricing and other mitigation actions in the third quarter compared to the second quarter. However, the magnitude of total tariff costs increased from Q2 as expected and the net impact to Cummins was negative year-over-year. Our third quarter revenues in North America decreased 4% compared to 2024. Industry production of heavy-duty trucks in the third quarter was 46,000 units, down 34% from 2024 levels. While our heavy-duty unit sales were 16,000, down 38% from a year ago. Industry production of medium-duty trucks was 20,000 units in the third quarter of 2025, a decrease of 51%, while our unit sales were 17,000, down 55% from 2024. We shipped 40,000 engines to Stellantis for use in their Ram pickups in the third quarter of 2025, up 44% from 2024 levels, driven by a ramp-up of model year '25 product, which was launched earlier this year. Revenues for North America power generation equipment increased 27%, driven by continued strength in data center demand. Our international revenues increased by 2% in the third quarter of 2025 compared to a year ago. Third quarter revenues in China, including joint ventures, were $1.7 billion, up 16% from a very weak quarter last year as stronger unit demand was partially offset by unfavorable product mix and weaker part sales. Industry demand for medium- and heavy-duty trucks in China was 311,000 units, an increase of 50% from last year. Our sales and units, including joint ventures, were 41,000, an increase of 35%. The increase in the China market size was primarily due to higher-than-expected domestic demand driven by NS4 scrapping incentives. Industry demand for excavators in China in the third quarter was 54,000 units, an increase of 22% from 2024 levels. Our units sold, including joint ventures, were 9,000, an increase of 18%. The increase in the China market size is primarily driven by domestic rural development and small infrastructure projects as well as strong export demand. Sales of power generation equipment in China increased 26% in the third quarter due to accelerating data center demand. Third quarter revenues in India, including joint venture, were $713 million, an increase of 3% from a year ago as stronger demand across markets was partially offset by depreciation of the rupee against the dollar. Industry truck production increased 6% from 2024, while our shipments increased 8%, driven primarily by domestic demand recovery as well as a pre-buy in advance of the potential goods and service tax rate changes. Power Generation revenues increased 41% in the third quarter, driven by strong data center demand. To summarize, we achieved strong results led by record performance in our Power Systems and Distribution segments, which were offset by sharp declines in the North America heavy- and medium-duty truck demand, which negatively impacted our Engine and Components businesses. We expect the near-term weakness in North America on-highway truck markets to persist at least through the end of this year. Across all North America on-highway applications, we anticipate unit shipments declining approximately 15% from third quarter levels with most of the reduction expected in light- and heavy-duty trucks. This reflects some normalization in light-duty trucks after a strong Q3 ramp-up in the new model production along with fewer production days in the quarter and continued weakness in heavy-duty trucks. While we believe Q4 on-highway Engine production could mark the bottom of this cycle, the pace of recovery in these markets will depend on broader economic sentiment and the clarity of trade and regulatory policies. While near-term challenges remain in our shorter cycle markets, we continue to see strong demand for power generation equipment beyond this year. The global trade and policy landscapes remain dynamic, presenting ongoing challenges across our industry. As anticipated, tariff costs increased in the third quarter. We are nearing full recovery for those tariffs announced prior to the third quarter and are currently assessing any incremental impacts from the more recent announcements, including the medium- and heavy-duty vehicle Section 232 proclamation. We believe, overall, we are well positioned to support our customers and keep the U.S. economy moving with our long-established strategy of making products in the U.S. for the U.S. market. Rising geopolitical tensions could also pose risks to semiconductor supply and other products that utilize rare earth minerals, potentially impacting our supply chain and broader industry production. So far this year, we have not experienced significant disruptions to our production, and we are actively monitoring this evolving situation and taking steps to mitigate risk where we can. The reduction of government incentives in the U.S. to support the adoption of green hydrogen, along with slower-than-expected market development in some international markets has contributed to significantly lower demand for our electrolyzer products. As a result, we are undergoing a strategic review of our electrolyzer business to assess the best path forward, and there may be further charges as we respond to a very weak demand outlook. 2025 has presented significant challenges for our industry, as I've outlined, requiring us to focus even more on cost containment and risk mitigation than we had anticipated at the start of the year. Our experienced leadership team and dedicated employees have worked tirelessly to navigate these dynamics and also capitalize on the growing demand for power generation equipment and significantly improve company performance cycle over cycle. Looking ahead, we are hopeful that global trade policy will stabilize and that the administration's review of the 2027 EPA regulations will conclude in the coming months. This clarity will be critical for our industry and will support our plan to reinstate guidance for 2026 in February. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered strong results in what can be best described as a tale of 2 economies, certainly here in the U.S. Key takeaways today are: number one, business trends in the third quarter played out as we communicated at a high level 3 months ago. Demand for our Power Systems and Distribution businesses remains very strong, driven in part by rising demand for backup power for data centers. U.S. truck production, on the other hand, slowed sharply with our shipments in heavy- and medium-duty truck engines down 27% from the second quarter, right in the middle of our uninspiring projection of a decline of between 25% and 30%. Our margins were strong with sales growth in Power Systems and Distribution converted into EBITDA margin expansion and cost containment efforts across the company helped mitigate the impact of declining truck volumes in the U.S. And thirdly, also as we projected, the negative impact of tariffs continued to grow in the third quarter. However, we managed the net hit to our profitability through price recovery and other actions, and the proportion of cost recovery in the third quarter increased sequentially. Fourth, our operating cash flow was strong at $1.3 billion in the quarter. Amongst those highlights, it's worth reinforcing that we're extending our track record of meaningfully improving our performance cycle over cycle. Now let's take a little closer look at our results. Our revenues were $8.3 billion, down 2% from a year ago. Sales in North America decreased 4%, while international revenues increased 2%. EBITDA was $1.2 billion or 14.3% of sales for the quarter compared to $1.4 billion or 16.4% of sales a year ago. Third quarter 2025 results included $240 million of noncash charges related to our electrolyzer business within the Accelera segment. Excluding those charges, EBITDA was $1.4 billion or 17.2% of sales. The higher EBITDA percent, excluding the noncash charges, was driven by higher power generation demand and light-duty truck volumes, pricing, strong operational efficiencies and lower compensation expenses, all of which was partially offset by lower North American truck demand and the unfavorable impact of tariffs. Now I will go into more -- a little bit more detail by line item. Gross margin for the quarter was $2.1 billion or 25.6% of sales compared to $2.2 billion or 25.7% of sales last year. 2025 margins included a $30 million noncash charge for inventory write-downs for our electrolyzer business, which were part of the previously mentioned noncash charges for Accelera. Excluding those charges, gross margin percent was 26%, improved from the prior year as a result of higher power generation demand and light-duty truck volumes, pricing, operational improvements, all offsetting negative truck and tariff impacts. Selling, admin and research expenses were $1.1 billion or 13.6% of sales compared to $1.2 billion or 13.8% of sales and reflected strong cost control across the company. Joint venture income of $104 million increased $5 million from the prior year. This increase was driven by higher China volumes within our Engine and Power Systems segments. That was the primary driver. Other income decreased to a negative $186 million compared to $22 million of income from the prior year, which was primarily a result of the $200 million noncash goodwill impairment to the electrolyzer segment. Interest expense was $83 million, flat with the prior year. The all-in effective tax rate in the third quarter was 32.7%, which included $36 million or $0.26 per diluted share of increased tax expense related to the One Big Beautiful Bill Act as a result of reduced foreign income deduction and research and development credits. We do anticipate cash benefits from our elections under this recent U.S. tax legislation, but the current period income statement impact was negative. All-in net earnings for the quarter were $536 million or $3.86 per diluted share compared to $809 million or $5.86 per diluted share a year ago. Accelera noncash charges were $240 million or $1.73 per diluted share. Excluding the Accelera charges and the impact of adopting the recent U.S. tax legislation changes, our net earnings were $812 million or $5.85 per diluted share, down just $0.01 on a 40% decline in U.S. truck volumes. Operating cash flow was $1.3 billion compared to $640 million a year ago. We have significantly improved our credit metrics since absorbing the Meritor acquisition and are now in a position of greater flexibility for capital allocation. Now let me comment a little bit more on segment performance and the remainder of 2025. Tariff costs impacted all of our operating segments. In the interest of time, I'm not going to call that out 5 times as I discuss each individual segment performance. For the Engine segment, third quarter revenues were $2.6 billion, a decrease of 11% from a year ago. EBITDA was 10%, a decrease from 14.7% as weaker North American and heavy-duty truck volumes, the costs and additional overhead of investing and deploying new engine platforms ahead of the 2027 emissions regulations, some weaker aftermarket sales were partially offset by higher volumes and pricing related to the launch of updated products in light-duty markets and overall disciplined cost management. Components segment revenue was $2.3 billion, a decrease of 15% from a year ago. EBITDA was 12.5% compared to 12.9% of sales a year ago as weaker on-highway demand in North America was partially offset by operational efficiencies, tight cost management and lower product coverage costs. In the Distribution segment, revenues increased 7% from a year ago to a record $3.2 billion and EBITDA was also a record 15.5% compared to 12.5% of sales a year ago, driven by higher power generation demand and higher aftermarket earnings. In the Power Systems segment, revenues were a record $2 billion, an increase of 18% from a year ago. EBITDA dollars were also a record at $457 million, increasing as a percent of sales from 19.4% to 22.9%, driven by strong volume, particularly in data center applications, positive pricing and effective capacity expansions in a cost-effective way. Accelera revenues increased 10% to a record $121 million as increased e-mobility sales partially offset lower electrolyzer installations. Our EBITDA loss, excluding noncash charges, of $96 million compared to an EBITDA loss of $115 million a year ago, reflecting a lower cost base resulting from the actions that we took in the fourth quarter of 2024. In summary, we delivered strong profitability for the third quarter as a result of improved operational execution, strong demand in power generation markets and pricing that more than offset the sharp declines in North American truck markets and unfavorable impacts from tariffs, although it has to be noted that all of these factors were not uniform across each individual segment. While we saw an increased impact from tariffs in the third quarter, we've worked hard to mitigate the impact and expect to enter the fourth quarter close to a price/cost neutral position for tariffs or for those tariffs that were announced prior to the third quarter. The ongoing addition and adjustment of tariffs continues to present challenges. In summary, our third quarter results underscored Cummins' strong financial position and ability to navigate ongoing uncertainty. Our diversified portfolio and global network leave us well positioned to support our customers and continue to drive improvement in performance cycle over cycle. As we've discussed, we expect demand for Power Systems and Distribution to remain strong through the fourth quarter and going into 2026. At the risk of sounding cautiously optimistic, I hope that demand in North American on-highway markets is close to bottoming in the fourth quarter in what has been a protracted and difficult slowdown. We do anticipate a further 15% decline in our engine shipments to on-highway markets in the fourth quarter compared to the third quarter. We are hopeful of reinstating our guidance in February as we have more -- we hope to have more clarity on trade and regulatory policies that hopefully will provide stability for the North American truck industry and the broader industrial economy. As these markets recover, we are confident in our ability to build on this year's strong performance and continue delivering value to shareholders. Now let me turn it back over to Nick. Nicholas Arens: Thank you, Mark. [Operator Instructions] Operator, we are ready for our first question. Operator: [Operator Instructions] Our first question comes from Jamie Cook with Truist Securities. Jamie Cook: Congratulations on a nice quarter. I guess 2 questions. One, Mark, how you're thinking about Engine margins in the fourth quarter and the ability to cover tariff costs or how to think about margins would be my first question. I guess then just my second question. As we think about Power Systems, obviously, the margins were very strong in the quarter. Just trying to think through how we think about 2026, the ability to ramp production more? How you're thinking about price cost? And I guess, Mark, do we need to raise the margin targets in Power Systems? Mark Smith: High-quality questions to answer. Let's start with the Engine business, and then Jen can comment on Power Systems. Yes, I think there are a number of things that the Engine business is dealing with that provide great complexity, right? We've got product changeover. We're preparing, hopefully, to launch new platforms. We've got some additional extra costs. We saw some slowdown in parts in the third quarter, and we're having to maintain this higher engineering budget until we get through the product launches. Having said all that, they're doing a lot. The leadership team within the Engine business across the company doing a lot to manage their costs. Hopefully, we're getting towards the low point. So I think, yes, I wouldn't expect with what I know right now to see a dramatically different performance from the Engine business, albeit on lower volumes in the fourth quarter. Clearly, volume is a temporary downward pressure given short quarters and inflated ramp-up, which we're excited about on the Ram pickup, which will kind of ease a bit. But overall, I think, well, hopefully, we're moving towards the bottom in terms of the pressures on the Engine business and Components. Jennifer Rumsey: And Jamie, on the power gen, we've -- obviously, we've seen really strong performance from both Power Systems and Distribution business. In Power Systems, in particular, we've been on a couple of year journey to really fix some of the underlying performance of that business, look at rationalizing the products that we're offering, how do we leverage the footprint that we have, get more strategic on how we're pricing in the market. And we did that at the same time that the power generation demand has grown at a really high rate, and we've been able to invest modestly in capacity expansion, about $200 million, bringing in new products kind of exactly the right time. So that really has been firing on all cylinders, if you would, and delivering incremental margins that are touching on 50%. So what I would say is we are committed to continuing to invest for profitable growth in that business. We had record order intake in Q3. So we think that the demand remains strong, in particular for data centers and that we will continue to invest as it makes sense in capacity and products to profitably grow and improve business performance, but I would not expect it to stay at that trajectory of incremental margin improvement as we go into future years. Operator: Our next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Congrats on another strong quarter here. Jen, I was hoping you could just kind of expand on your last comments that you just made about capacity additions. I think at this point, you're well kind of ahead of your expectations at Investor Day on data center sales. And as you mentioned, you already have that doubling of kind of large diesel engines capacity underway. But just in light of kind of the stronger demand, can you maybe walk us through what work or kind of assessments you might be doing on the back end to understand whether there is a need or a desire to kind of do either additional capacity investments in large diesel engines or potentially and maybe more importantly, are you exploring any potential for expanding your lines on the natural gas engine to kind of increase to the larger engine sizes to perhaps pursue some of the kind of prime power opportunities that we're seeing out there for data centers as they look for other prime power kind of speed to power opportunities? So just kind of any comments on the kind of this longer-term backdrop given the strong demand we're seeing? Jennifer Rumsey: Yes. So first, I'd say our focus has really been on this capacity investment that we've talked about. We're reaching the end of that doubling in capacity on large engines, as you noted, and position has heavily been in the backup power for data centers with the products that we have that we're selling into the market today. I'm really pleased with the execution of that team. We've tracked kind of ahead of schedule on that capacity expansion. We're reaching the end as we come to the end of the year. And just to give you a sense, in 2024, for data center power generation, our total revenue for the company was $2.6 billion. About half of that was in Power Systems. About half of that was in DBU because one of the unique things that we have is engine, some of the key components and auxiliaries that we sell to that market plus the channel. So we're getting benefit in both PSU and DBU. For '25, we expect that revenue into the data center market is going to be up 30% to 35%. It's been ramping up Q4 last year. We had a nice bump up, continuing to ramp up this year. And so we'll be kind of at that full run rate on that product expansion for data centers. And then that leads to kind of the second part of your question is really focused now on what's next? Are there additional places where we want to do a capacity expansion of the products that we have because we think that, that demand in that market is going to remain strong? So we're actively looking at that. With the products that we have, engines for peak shaving, should we invest in prime power engines or more natural gas engines? So no decisions there. But certainly, those are things that we're looking at, and we'll continue to share as we make decisions on where we want to go next in the data center. Mark Smith: Yes. And then just on the component technologies, we're also selling to other customers as well, somewhat akin to the components business story. So yes, it's exciting to be talking about investment with visibility and the returns in that business. Angel Castillo Malpica: That's very helpful. And then just for my follow-up, Mark, on the Section 232, could you help us quantify, I guess, how much the headwind is in 3Q and 4Q on kind of a gross basis? And any comments or kind of way to maybe put guardrails around the potential for getting a similar rebate on engines manufactured in the U.S. as we've seen, I think, the U.S. trucks manufacturers get? And what is kind of the financial impact of that as we think about potentially 2026 if getting such a rebate? Mark Smith: Tell you what, I've got exactly the same questions that you've got. And we've got -- we need to know a lot more details than we've currently got to be able to predict that. What I will say is we're in a -- we are a strong manufacturer of engines in our plants here in the U.S. So we're really well positioned to help our customers and navigate through. But honestly, all these modelings, I know it's important in some regards, but the actual details, there's 5 or 6 questions that we need a lot more details to be able to calculate it, let alone communicate it. So what I would say is we're in a strong position given our footprint, and we'll remain a strong partner to our customers through all of this. And you can generally tell from our tone that stability going forward would be really, really helpful. For what is outside of a broad economic recession or what I'd call a hard emissions change, this is the sharpest decline in truck orders that many of you who have been here a long time have witnessed. And it's not all down to tariffs, but they also don't help with that uncertainty. So look forward to more clarity, even more so the stability, but we're in a good position overall. And we're trying to work through all these collaboratively with customers and suppliers. It's been a huge demand on all participants. Operator: Our next question comes from David Raso with Evercore. David Raso: Thinking about a delta between '25 and '26, the actions taken in Accelera sort of set up an interesting dynamic there. What percent of the losses right now are electrolyzers? How should we think about the actions taken sort of the decision around that business? How much that can improve the size of the losses from '25 to '26? Mark Smith: Yes. What I would say is all we've recorded in this quarter, the really noncash impairment charge is mostly goodwill write-down, which is disappointing, but necessarily given the weaker outlook. So I would say what we've done really doesn't so far, David, hasn't -- doesn't do much to change the trajectory. But as Jen pointed out, we obviously have been and continue to look very closely at further actions we can do to reduce the rate of losses. It's less than half of the total of the overall Accelera segment. But yes, watch for updates on that from us. David Raso: Okay. And actions that would help reduce that loss. I mean once you make that decision on the write-down, I would think there's harder decisions playing out behind the scenes on cost. Are those actions that could help '26 or is there a longer time frame when I think of the delta between '25 and '26? Mark Smith: There are different types of actions, but we are conscious if there's a lower demand environment, we're not -- nobody is comfortable sitting at the losses that we're at when the demand environments change. So we're looking at all that, and we'll be transparent when we've concluded that here, but we're working on it right now. Jennifer Rumsey: It's fair to say strategically, we're continuing to look at the Accelera portfolio in light of how markets are moving, slowdown that's happening and what technologies we think are most likely to win. And then investing in the places that we see the opportunity to position ourselves for the medium and long term and looking at how we reduce losses in other areas. At the end of last year, we did that in the fuel cell part of the business, and we're continuing to execute some of those changes. And now we're looking at electrolyzers, as Mark noted. Mark Smith: It's fair to describe the decline in revenue outlook as sharp and dramatic and merits further close review, which is ongoing right now. Operator: Our next question comes from Rob Wertheimer with Melius Research. Robert Wertheimer: Thanks for all the comments on direction. It's very helpful. On nat gas and data centers and prime power, I mean, Cummins obviously has very successful nat gas platforms in different engines. So I wonder if you could give us a mini teach-in on what that entails? Is it a hard engineering challenge to bring it to large engines? Is it you need a lot of operating hours? Maybe what goes into that decision? And then I wonder if you could just talk about any changes. I mean you guys were ahead of the data center boom or capitalizing on that. Anything shifting now? Any change in data center design? Is it all of them use -- back up the ratio? Just maybe what's evolved in the market over the last few months? Jennifer Rumsey: Yes. So as you said, I mean, Cummins has strength in engine, research and development and manufacturing capability. We understand natural gas. So the question is, we have a certain portfolio of natural gas products today and assessing what is -- if there's demand for natural gas for data centers, what's the right product? If we don't have it today -- our development is a multiyear development cycle, typically, but we have the capability to do that if we think that, that is going to be attractive growth opportunities. So that's how I would think about natural gas. In terms of the data center landscape, what you see is high reliability is absolutely critical. So the need to have backup power to ensure that high reliability is not going to go away. They don't run that often. Really, where the challenge is, is more on the prime power and can the grid support it and how do they solve the prime power challenge. And so that's where using a backup genset maybe for peak shaving or additional sources of prime power or what data centers are out exploring. And as I mentioned in my comments earlier, I think we have ability to do some peak shaving with products that we have today. We've started to invest in some stationary energy storage solutions that could be used in data center applications, and we're continuing to evaluate where else we think we're positioned to invest and get attractive returns. Operator: Our next question comes from Kyle Menges with Citigroup. Kyle Menges: I was hoping if you could just talk a little bit more about Accelera and actually just looking at the performance and -- I mean, it seems like you're actually still on track to hit the midpoint, if not a little bit above the full year guide within Accelera on revenues for this year. It sounds like e-mobility had some nice growth in the quarter as well. So it would be helpful just to hear about the growth you're seeing in new mobility versus electrolyzers and then also maybe at a high level, the differences in profitability that you're seeing right now between the e-mobility piece of Accelera and the electrolyzer piece. Mark Smith: Yes. I would say most of the actual sales in e-mobility are bus applications, a lot of it here in the U.S. and that's continuing, and we're in a great position there. There's lots of other explorations and discussions. There's been a big shakeout even in the e-mobility industry given, I would say, lower prospects for accelerated growth, even though we're growing the overall -- everybody's projections for growth has come down, and that's led to a shakeout certainly in a lot of the start-up, some of the less well-capitalized participants. So I think there's still a lot of discussion and future opportunity for Cummins in e-mobility. And I think that's been generally been a good story that as the volumes and we've released new iterations of products that we've moved from, yes, significant losses and negative gross margin to something a lot more stable and sustainable going forward. It's still somewhat muted, right, in the grand scheme of a $35 billion company, but we've seen clear progress there, and we're positive and staying invested there. On electrolyzers, we went back a couple of years, we had pretty ambitious targets for growth and we were tracking that trajectory every quarter. It was -- we were tracking years out where do we need to be, and we were on that curve for significant revenue growth for quite some time. And the reality is, yes, it's dried up faster than anything I have seen in my career for a variety of reasons, especially here in the U.S., but also some of the adoption in international markets. So whilst, yes, we probably guided a little cautiously going into the new year, not knowing exactly what would happen. So we're not way off on the revenue from the guidance that we no longer have, but the one that we originally gave. But yes, it's just internally, it's surprised even us to the downside. And so that's why. It might look to you like we're on track, but electrolyzer is way off. And it's not just for now, but then that leaves the orders as a big gestation period between taking an order, shipping a product, having it installed, recognizing the revenue. And so not only is that shorter orders now, that's leaving like a hole in the projections going forward for the next couple of years. So that's why we're acting now. So it's tough, very tough in ex e-mobility, but we're pleased with the progress, and I don't want that to be lost from the e-mobility team. Kyle Menges: That's helpful, Mark. And then just a follow-up on clarifying some of your comments on the emission margins and maybe just thinking about some of the puts and takes into the fourth quarter on Engine margins as you start to neutralize tariffs even though volumes could still be down sequentially. I mean, I guess the question when you said Engine could be kind of similar to the third quarter, does that mean that you have confidence in doing roughly 10% EBITDA margin again in the fourth quarter? Or are we talking about similar decrementals in which case you could be talking about 8% EBITDA margins for Engine in the fourth quarter based on volume... Mark Smith: I'll just say it out here and this -- you can all -- I don't expect to have 8% margins in the fourth quarter in the Engine business, but some of the factors -- the volume is going down, not we expect it to. I'm unfortunately, confident, but we hope that's a bottoming. We also saw a slowdown in parts. We hope that doesn't continue. And then, yes, all the other things that we're doing on cost, productivity, managing through tariffs can all help mitigate. It's certainly not going to be dramatically better. We're dealing with more headwinds. I've tried to be clear about that. So hopefully, that helps. I would just say, there's always a bit of seasonality, fourth quarter going into the holiday period. Those usually get exaggerated when you're in a weak economic environment. But just now, we're working hard. The Engine business is working hard every day to get this balance right. And what you can see from our financial reports that we disclosed the engineering costs by segment, by quarter. You can see our engineering costs are up year-over-year because we're still in this prelaunch development, not yet final certain regulations. So that's got to continue, but that shouldn't be a step worse in the fourth quarter. So don't expect magic, but don't expect 8% EBITDA with what I know right now. Jennifer Rumsey: I'll just add a couple of points. I mean we've been working to flex down plants and so seeing that action coming through the full Q4 as well as the Engine business has seen more than its share of the net tariff impact that impacted them in Q3, but we get to more full recovery. In Q4, it will reduce. Mark Smith: Yes. I mean there's always some natural variation across some of the businesses. In general, as we've said, we expect Power Systems and Distribution to be strong. It's -- no quarters are ever identical to the prior one, even if it looks similar on the top line. Pressure is still there on Engine business and Components. We still got a tight control on costs and we're figuring out what else we can do on Accelera. That's the headline. And then as I mentioned, we've also done a lot to improve our credit metrics, which gives us flexibility for capital allocation going forward. So as much as troughs are tough, they also give you -- working through them effectively gives you that platform and that confidence to move forward when demand improves. Unfortunately, I wish I could be more bullish and say we're super confident. We feel like we're getting to the closer -- to the bottom of the trough on on-highway. We think the trends on power generation, data centers, which benefit Power Systems and Distribution are going to continue. So hopefully, we get this coming together of strong demand across the company at some point here in the not-too-distant future. It's a little elusive right now on trucks. But we feel, given how long it's been and how far it's been down, that is a question of time in a cyclical business. But it's not imminent that it's going to turn up. Operator: Our next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: Great quarter, and thanks for your time. Are you able to speak to the distribution or services opportunity you see long-term as you're selling these gensets and probably have a very sizable installed base right now? What is the typical expectancy of these? Is there a scenario where we would see the first wave of aftermarket services picking up for those units that you've sold over the last 12 to 24 months? So any way to comment on that or quantify that? Jennifer Rumsey: So Tami, for data centers, the distribution business gets revenue on the front end for a lot of the customers as they do the installation and some of the additional components and product around the engine and the genset in the data center. There's not a lot of aftermarket revenue in data center backup power because they don't run that often. So there's some service and support that we provide to those customers to ensure they stay up. It's not the same if you think about like a mining application or a heavy-duty truck application. That said, our installed base has been growing and those other applications that do drive more aftermarket content. So we believe aftermarket, in general, will be a tailwind for the Distribution business and especially as customers come back, there's a little bit of waiting on service that isn't necessary right now because of business financial conditions, but we think that we'll see some improvement in aftermarket as Mark had noted. Tami Zakaria: Understood. That's very helpful. And if NOx 2027 is not delayed after review, how are you thinking about the cadence of any product launches in 2026 tied to that? Jennifer Rumsey: Yes. Great. Well, we continue to maintain our focus on development of the new products that we're launching for '27 and feel good about how we're positioned with the new platforms and technology that we're bringing to our customers. It's important to understand, we've never had this level of uncertainty around regulation. So that's certainly been challenging and keeping our team focused on the launches ahead, starting to work with our supply base on different scenarios and what that could mean to try to ensure we can offer a product to our customers as we understand that decision. And really, we've been engaging closely with the EPA as they look at opportunities to try to take some cost out of that rule and also just emphasizing the need to get certainty as soon as possible. And I think everybody, all the OEMs in the industry are pushing on that certainty point. So we're prepared to launch, really hoping to give that certainty on direction in the not-too-distant future. And assuming that the '27 regulations largely stay in place as they are today, we'll be ready to launch our products into the market in '27. Operator: Our next question comes from Steven Fisher with UBS. Steven Fisher: Congrats on the power results. Just curious on the international data center opportunities relative to the U.S., how do you see those being different? And is there any difference in the momentum there? And how are the competitive dynamics differ internationally versus on the domestic side? Jennifer Rumsey: If you look at the data center market, I mean, we see strong and growing demand in U.S. and China. Those are the kind of the standouts. There's growth globally. You heard in some of my numbers on how the market is moving. We're seeing investment in data centers and other markets around the world. But the 2 biggest areas are really U.S. and China. And of course, everybody is trying to figure out how to get in and compete in that market. So we're well -- very well positioned today and really trying to focus on continuing to maintain a strong position with our products as others try to figure out how do they take advantage of those market opportunities. Mark Smith: Okay, and then... Steven Fisher: Go ahead, Mark. Mark Smith: I was going to say, obviously, in China, you tend -- in most of our markets, you tend to see more presence of local competition or trying to get in than we do in the U.S. or in other markets. Steven Fisher: That makes sense. And then on the Power Systems margins in general, obviously, still very strong, and you talked about the 50% incrementals before. I guess just noticing as the year has progressed, the segment's margins have kind of flattened out a little bit. I'm just kind of curious what's driving that? Are there other things outside of data centers that are restraining that? I know at the beginning of the year, we talked a lot about the aftermarket components in there. Maybe that was just fluctuating a little bit. Just curious how to think about sort of that flattening that we're seeing over the course of this year. Mark Smith: I would say the general -- so that's the great news. There is some natural variation between aftermarket, all goods segments. So some of that sometimes is at play a little bit. The good news, Steve -- back to somebody asking that should we raise the targets? I really like the way you think. I'm sure Jenny and the team might be dialing in. If not, we'll relay that to them later. But yes, really proud of the work that we've done there. And with rising demand, yes, there's some capacity investment. We're expecting earnings growth. Let's just put it out there. We're expecting earnings growth from here going into next year with what we know right now. Operator: Our next question comes from Noah Kaye with Oppenheimer. Noah Kaye: Jen, I think you framed it well and talked about the level of uncertainty right now as you prepare for next year's product launch vis-a-vis the regulations. But as you kind of get into year-end budgetary planning, is it fair to think of as a baseline that engineering and development spend can be a potential tailwind into next year? Or would you expect it to be a headwind if the base case of unchanged regulations goes forward? Jennifer Rumsey: In the base case of unchanged regulation, I would think of our research spend is pretty flat through next year when we launch the product, and then we'll have the ability to start decreasing that after that. And then I would think about just in terms of demand, that's where our -- as we're planning for next year, that's where the highest error bars are is what's going to happen in on-highway demand. As Mark noted, we think we're reaching the bottom. We think there's some upside. When does that happen given the capacity that's been taken out as we've responded to this big down cycle, how quickly will capacity be added back once demand starts to come up? So I'm thinking about some revenue increase at some point in the year, but R&D is staying pretty flat. Mark Smith: Yes. Accelera probably won't be growing, and there's always the question of what are we investing in the future, whether that's in Engines and Components or in Power Systems or future technologies. But yes, not a dramatic change for the next year. There's just natural inflation because a lot of those costs are people costs. There is some natural inflation that we're always counting against. So it will not be a significant tailwind, let's put it like that. Longer term, yes, but not tomorrow. Jennifer Rumsey: Yes. Noah Kaye: Yes, yes, yes. And on that topic of investing, and I want to tie it back to the discussion around the prime power opportunity. 30% of data center sites could be using prime power in some form 5 years out from now. You've got fuel cell in the portfolio. You've got battery. You've got natural gas and diesel gen. How do you think about tying together some of those elements, including what might sit in Accelera today to go after expanded wallet share if prime power becomes more of a growth opportunity? Jennifer Rumsey: Yes. Well, our strategy really has been to maintain a portfolio of solutions likely across different customers and markets. There's not going to be one answer. I think our strong position in engines as power demand grows and as energy transition pushes out, positions us really well. We're really more focused, frankly, in both power generation and in mobile applications on the battery opportunities where we think there's more opportunity versus fuel cell. We -- as you know, we've slowed down some of the investment and work in the fuel cell side. And there'll be more to say if we have a clear investment that we think is going to be attractive on the prime side. But today, we're really focused on continuing to execute on some of the investments that we've made to expand capacity in standby and being disciplined in how we think about additional investments into that market. Mark Smith: Yes, I think the great thing with what we've done right now, it's relatively modest investments for a lot of growth with quite high predictability of returns. So we're definitely enjoying that in our financial results. Should do more going forward. Operator: Our next question comes from Scott Group with Wolfe Research. Cole Couzens: This is Cole on for Scott. Maybe just to expand on Engine margins, it sounds like the net tariff impact peaked in 3Q as you recover more price and ramp down facilities in 4Q. But as you look ahead to 2026, a 3.75% rebate is not immaterial. How much could this positively impact margins in 1Q or throughout 2026, all else equal? Mark Smith: I just can't -- I simply can't answer that. I wouldn't be thinking about tariffs as margin improvement things. It's been a big cost headwind that we've been trying to recover and work with all that we can to mitigate the cost. I think -- I understand why you're asking it, but we are not framing tariffs as a margin opportunity in any way, shape or form. It's been a big hindrance to our industry. And hopefully, we get stability and relief. Cole Couzens: Okay. Fair enough. Mark Smith: You're right. Going into Q4, we are -- it is true, we're catching up more with the recovery of the tariffs. I'd correct myself, but anything incremental, that's not the way we're thinking about it. We're hoping there's a platform for greater demand for the end user customers. Jennifer Rumsey: Yes, just to reiterate Mark's point, the way to think about it is if we get stability in tariffs and customers start ordering again, that will help our margins because we'll be utilizing our plants more, but by itself as a margin improvement. We're just trying to cover the cost basically. Mark Smith: Yes. And we don't know enough to know all these -- the nuances of any recently announced things, rebates or other things. There's just a lot more detail. Even the emissions regulations, it's great to get the headline. There's a gazillion things that you need to know between that as to how that actually works financially, practically and other things. So we'd love to give you more clarity, we just can't. Cole Couzens: Yes, all makes sense. And maybe just on the competitive dynamic, there's like a lot of moving pieces with certain OEMs now either in a better or worse competitive position due to these new Section 232 tariffs. How do you expect this to impact your share position across the Engine business moving forward? Mark Smith: We are in a strong position to support all of our customers with our U.S. base, and we've got -- the great news is we've got great penetration across multiple brands and OEMs and our -- generally, the trend has been for our customer demand for Cummins products has been rising in heavy- and medium-duty truck over the last few years. So we feel like we're really well positioned, but it's obviously been very complex for all involved and continues to be so. Operator: Our final question comes from Chad Dillard with Bernstein. Charles Albert Dillard: So just given the market demand for standby power, I think you guys talked about record level of orders this past quarter. Does Cummins need to expand capacity beyond what you've already announced? And then I was hoping you could comment on, I guess, the role of standby power as more prime power moves behind the meter. Jennifer Rumsey: Yes. So from a capacity perspective, certainly, we're looking at in addition to evaluating our -- if we do anything on the prime power side, which we've talked a lot about this morning. We are evaluating are there places that we can continue to invest in capacity because we do see such strong demand and whether it's orders we took last quarter, it's the conversations we are having with some of our customers around the world, we think that, that demand is going to continue. And so if there's places that we think we can invest and take capacity up, we will be evaluating that, certainly. And we still think that in the coming years, this demand for prime power is going to continue. While I do think that there tends to be a hype cycle around technology, fundamentally, the need to store more data in the cloud, whether it's AI or other driven is a trend that's going to continue to grow. Charles Albert Dillard: And then second question, just on tariffs. So can you quantify the gross tariff impact in 2025? And then what's the split between IEPA versus 232? And if we do get IEPA rollback, I mean, should we consider this more like a pass-through? Mark Smith: We have not provided the guidance on the gross amounts generally, but the net position has been negative for the company, and we're in the tens of millions of dollars of negative impact each quarter so far. That's what I can tell you. And what happens, I'm just not going to speculate. We just don't know enough for what happens. But we -- as we said, as clear as I possibly can, we've been battling to offset costs on the industry. It's not a margin -- it's a margin dilutor even if we recover it, right? Jennifer Rumsey: There's a lot of moving parts between IEPA and 232 tariffs and uncertainty around that. So really, we want to understand the details on that before we provide any color on what that looks like. The great news is we make our engines and our gensets for the U.S. here in the U.S., and the team has done an outstanding job of navigating a lot of change and challenge and working to recover the cost of those tariffs. So really proud of what they've done given the environment that we've been navigating this year. Mark Smith: All right. Appreciate it, everybody. Thanks for joining us. Nicholas Arens: That concludes our teleconference for today. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings. Welcome to Cummins Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the call over to Nick Arens, Executive Director of Investor Relations. Thank you. You may begin. Nicholas J. Arens: Thank you. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the second quarter of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for a reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer W. Rumsey: Thank you, Nick. Good morning, everyone. We delivered impressive results in the second quarter, led by record performance in our Distribution and Power Systems segments that more than offset continued softening in the North America truck market. The record financial performance from these 2 segments, along with strong operational execution across our entire company, led to EBITDA increasing 310 basis points year-over-year despite North America heavy- and medium-duty truck volumes declining 30% from a year ago. I am incredibly proud of our employees' continued focus on meeting customer commitments and delivering our priorities, and I'm confident that our efforts will allow us to continue to operate from a position of strength. Now, I will move on to some highlights from our second quarter. Then I will discuss our sales and end market trends by region. Finally, I will provide an update on how uncertainties in our current environment may impact our end markets for the remainder of the year. Mark will then take you through more details of our second quarter financial performance. In the second quarter, we continue to make progress in the execution of our Destination Zero strategy with the introduction of a new product in our Power Systems segment. Expanding on the success of our acclaimed Centum Series generator sets, we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power. The S17 Centum genset was developed to produce a larger power output within a compact footprint to meet the growing power demands in urban environments, where compact design and high performance is critical. The new genset is designed to support a wide range of critical market segments such as commercial properties, health care facilities and water treatment plants. In July, we also announced a 10% increase in our quarterly dividend from $1.82 to $2 per share, the 16th consecutive year in which we have increased the dividend. During the quarter, we returned $251 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. Now I'll comment on the overall company performance for the second quarter of 2025 and cover some of our key markets. Revenues for the second quarter were $8.6 billion, a decrease of 2% compared to second quarter of 2024. EBITDA was $1.6 billion or 18.4% compared to $1.3 billion or 15.3% a year ago, and gross margin improved 150 basis points from a year ago. This improvement in profitability was driven by the benefits of higher Power Generation demand, operational efficiencies, pricing and lower compensation expenses, which more than offset lower North America truck volumes and the unfavorable net impact from tariffs. We see a marked contrast in demand between longer-cycle sectors such as Power Generation, which also continues to benefit from some well-established secular themes and declining confidence in some of our more economically sensitive shorter-cycle markets in North America, particularly truck, pickup and consumer-related markets. We anticipate this contrast will become more pronounced in the second half of the year. Our second quarter revenues in North America decreased 6% compared to 2024. Industry production of heavy-duty trucks in the second quarter was 57,000 units, down 27% from 2024 levels, while our heavy-duty unit sales were 22,000, down 29% from a year ago. Industry production of medium-duty trucks was 28,000 units in the second quarter of 2025, a decrease of 36%, while our unit sales were 25,000, down 35% from 2024. We shipped 34,000 engines to Stellantis for use in the Ram pickups in the second quarter of 2025, down 18% from 2024 levels. Revenues for North America Power Generation equipment increased by 25%, driven primarily by continued strong demand in data centers and mission-critical applications. \ Our international revenues increased by 5% in the second quarter of 2025 compared to a year ago. Second quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9% as accelerating data center demand and higher domestic truck demand driven by government stimulus more than offset lower export demand. Industry demand for medium- and heavy-duty trucks in China was 304,000 units, an increase of 13% from last year. Our sales in units, including joint ventures, were 43,000, an increase of 31%. The increase in China market size was primarily due to higher-than- expected domestic demand driven by NS4 scrapping incentives. Industry demand for excavators in China in the second quarter was 59,000 units, an increase of 11% from 2024 levels. Our units sold were 11,000, an increase of 13%. An increase in the China market size is primarily due to domestic cyclical replacement demand, rural development and farmland renovation demand. Sales of Power Generation equipment in China increased 32% in the second quarter due to accelerating data center demand. Second quarter revenues in India, including joint ventures, were $699 million, a decrease of 1% from the second quarter a year ago. Industry truck production increased 1% from 2024. Power Generation revenues increased 31% in the second quarter, driven by increases in G-Drive and data center demand. To summarize, we achieved impressive results in the second quarter with record financial performance in our Power Systems and Distribution segments. As we look ahead to the third quarter, we expect North America heavy- and medium-duty truck volumes to decline 25% to 30% from second quarter levels as we have seen truck orders recently reached multiyear lows and OEMs have initiated reduced work weeks through the next 3 months. The duration of this reduced demand in North America truck markets will largely depend on the trajectory of the broader economy, the evolution of trade and tariff policies and the pace at which regulatory clarity emerges. Despite the challenges in the North America truck markets, we have the benefit of operating a diversified global business and expect continued strength in our Power Generation market in addition to stability in our aftermarket and industrial businesses. Tariffs are undoubtedly having an impact on Cummins, our suppliers, customers and end users, creating uncertainty over freight activity linked to the movement of goods and increasing costs. We did experience increasing tariff costs in the second quarter. However, as anticipated, we did not see the full impact of the current policies as supply chains work through existing inventory. We've been active in our efforts to mitigate tariff exposures and negotiate agreements with customers that position us to enter fourth quarter near full recovery. Additionally, although we primarily produce engines and gensets in the markets where we sell them, we are further mitigating our efforts by continuing to evaluate and implement dual sourcing where possible and economically viable for our supply base and component manufacturing. As we navigate these uncertainties, we will continue to maintain discipline by managing our costs while continuing to invest to meet our critical priorities so that we are well positioned as markets recover. In summary, we had a strong second quarter performance that demonstrates the earnings potential of Cummins at a time when demand in North America and China truck market sits at weak levels. While we expect demand in North America truck markets to decline significantly in the third quarter from second quarter levels, we remain well positioned with an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain our focus on our customers, employees and shareholders. I'm confident that we will further raise our performance when markets recover and look forward to reinstating guidance when some of the uncertainty has subsided. Now let me turn it over to Mark. Mark A. Smith: Thank you, Jen, and good morning, everyone. The highlight of the second quarter is our strong profitability delivered in the face of global uncertainty. Our revenues were $8.6 billion, down 2% from a year ago. Sales in North America decreased 6%, while international revenues increased 5%. EBITDA was $1.6 billion or 18.4% of sales for the quarter compared to $1.3 billion or 15.3% of sales a year ago. The higher EBITDA percentage was driven by higher Power Generation demand, strong operational efficiencies, positive pricing and lower compensation expenses, which were partially offset by lower North America truck volumes and the unfavorable impact of tariffs on all of our operating segments. Now I'll go into more detail by line item. Gross margin for the quarter was $2.3 billion or 26.4% of sales compared to $2.2 billion or 24.9% last year. The improved margins were driven by favorable pricing and operational improvements, especially in Power Systems and Distribution. Selling, administrative and research expenses were $1.1 billion or 13.1% of sales compared to $1.2 billion or 13.7% of sales. Lower compensation costs, primarily variable compensation, benefited both gross margin and operating expenses and the financial performance of all operating segments year-over-year. Joint venture income of $118 million increased $15 million from the previous year, primarily driven by higher China volumes within our engine business as demand improved compared to a weak 2024. Other income increased to $49 million positive compared to negative $3 million from the prior year, driven by the positive impacts of foreign currency valuation and gains on investments related to company-owned life insurance. Interest expense was $87 million, a decrease of $22 million from prior year, primarily driven by lower weighted average interest rates, partially offset by higher debt balances. The all-in effective tax rate in the first quarter was 24.2%, including $3 million or $0.02 per diluted share of favorable discrete tax items. All-in net earnings for the quarter were $890 million or $6.43 per diluted share compared to $726 million or $5.26 per diluted share a year ago. Operating cash flow was an inflow of $785 million compared to an outflow of $851 million a year ago, with the difference mainly driven by the $1.9 billion required by the previously disclosed settlement agreements with the regulatory agencies, which flowed out in Q2 last year. Excluding the settlement, operating cash flow was an inflow of $1.1 billion a year ago. I will now comment on segment performance and provide some comments for the remainder of 2025. For the Engine segment, first quarter revenues were $2.9 billion, a decrease of 8% from a year ago. EBITDA was 13.8%, a decrease from 14.1% a year ago as weaker North American truck volumes were partially offset by pricing related to the launch of updated products in light-duty markets, operational efficiencies and higher joint venture income in China. Components revenue was $2.7 billion, a decrease of 9% from a year ago. EBITDA was 14.7% compared to 13.6% of sales a year ago as lower product coverage costs, operational efficiencies and pricing more than offset lower on-highway demand in North America. In the Distribution segment, revenues increased 7% from a year ago to $3 billion. EBITDA was a record $445 million and improved as a percent of sales to 14.6% compared to 11.1% of sales a year ago, driven by higher Power Generation, strong parts demand and overall improvements in gross margin. In the Power Systems segment, revenues were $1.9 billion, an increase of 19% from a year ago. EBITDA dollars were also a record at $433 million, rising from 18.9% to 22.8% of sales, driven by strong volume, particularly in data center applications and other mission-critical applications, favorable pricing and a continued focus on productivity and other operational improvements. Accelera revenues decreased 5% to $105 million as increased e-mobility sales mainly to bus customers, partially offset lower electrolyzer installations. Our EBITDA loss was $100 million compared to an EBITDA loss of $117 million a year ago, reflecting a lower cost base resulting from the actions we took in the fourth quarter of 2024. In summary, we delivered strong profitability for the second quarter as a result of improved operational execution across our business that more than offset weaker demand in North America truck markets. For the third quarter, we expect North America truck demand to sharply decline from second quarter levels as recent truck orders are at multiyear lows driven by uncertainty due to trade tariffs, product regulation and caution about the prospects for freight. Since our last earnings call, we've seen a steady stream of updates from our OEM customers, extending the number of production down days through the third quarter. We view current order levels as unsustainably low, but immediate catalysts for recovery are not yet clear. We have not yet felt the full impact from tariffs, and there is still uncertainty about duration and ongoing levels, which was highlighted again last week with the flurry of new announcements. It remains to be seen what this will impact this will have on business confidence and the demand for capital goods beyond trucks. We've worked hard to mitigate the impact of tariffs. And while negative to profitability in the second quarter, we should enter the fourth quarter close to a price/cost neutral position with regard to tariffs. As you saw in our second quarter results, Cummins is in a strong position to navigate through this uncertainty. And with our industry- leading portfolio of products and our global network, we are well placed to support our customers. While we expect the coming months to be much more challenging, primarily for the Engine and Components segment, we are staying focused on our strategic priorities whilst also taking actions in the short term to reduce costs and lower inventory. We look forward to reinstating our outlook when the economic picture becomes clearer, and we are confident that as markets recover, we will continue to raise our performance as we have clearly done in the first half of this year. Thanks for joining us today. And now let me turn it back over to Nick. Nicholas J. Arens: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to 1 question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Operator: [Operator Instructions] Our first questions come from the line of Stephen Volkmann with Jefferies. Stephen Edward Volkmann: It seems like you have a little bit of feast and a little bit of fam in here. So I'll focus on the feast, if that's all right. Power Systems, let's talk about Power Systems. Big margin there, obviously, much higher than I think we expected. I know you've been doing a lot of work on this over the past few years, Jen. But at the end of the day, I'm curious if you think that is sort of the right margin level that we should be thinking about as we start modeling forward? Is that sustainable? Or was there anything in there that we should be aware of? Jennifer W. Rumsey: Yes. Thanks, Steve, for the question. And really pleased with the performance of the Power Systems business. As you noted, we started a couple of years ago on a journey to really improve operational performance and really coupled with the strong and growing demand in the Power Generation market has really benefited that business. So we've made many of the steps in really better leveraging the capacity that we have and trying to improve throughput and operational performance. And frankly, the team has outperformed in terms of the efforts for that, and that has led to the really strong margin improvement that you've seen over the last couple of years. We're continuing to focus on areas where we can improve operational efficiency and performance. We're continuing our investment in doubling the capacity in that business, which we expect to be fully online by the beginning of next year. So I think the pace of improvement has probably stabilized, but we will certainly continue to work on operational efficiencies and delivering value to our customers and being able to price for that and drive that mentality across all of our businesses. Mark A. Smith: And Steve, just to say there's nothing unique in there other than demand is strong for both generators and parts. But there's no one- timers in there or anything like that. Stephen Edward Volkmann: Right. Understood. And then I assume you must have pretty good backlog in that segment. Maybe you can comment on that. But do you have pricing flexibility in that backlog if you need it? Can you reprice this stuff, if necessary before delivery? Jennifer W. Rumsey: Yes. We have backlog out about 2 years in that business. And so we continue to see strong demand, strong backlog, and we've been working with customers where we have backlog on the tariff recovery and made some progress there. So typically, we're not repricing beyond that in existing orders that we've taken. We price in aftermarket as the market moves. And as I said, working on tariff recovery across all of our businesses. Operator: Our next questions come from the line of Angel Castillo with Morgan Stanley. Angel Castillo: Congrats on another strong quarter here. I wanted to ask a little bit of a bigger picture, sticking to the kind of Power Systems dynamic. Back at your Investor Day last year, you quantified that total data center, I think, business was $1.4 billion, I think, in sales, and that you were kind of 23% of the, I think, $6 billion global market for data centers. I think at the time, you also kind of noted that, that would be a $2 billion sales for you in 2026 and maybe a $9 billion market. I know it's difficult to quantify, and it's crazy [indiscernible] starting next year. But I guess, could you just comment on that? How are you seeing your business growth and demand and market share ultimately evolve toward that kind of $2 billion top line? And kind of where are we in terms of the size of your business within data centers? Jennifer W. Rumsey: Yes. Thanks for the question. So we are continuing to be very well positioned. We think the combination of our products, and we've launched the Centum series. We've continued to add some products, but the larger ones of those are quite popular in data centers, coupled with our distribution. Business provides Cummins an advantage. So we're a strong player in a growing backup power provider to data centers. We feel like we continue to maintain that position and take advantage of new products and capacity investment. We expect this year to be pretty stable in the second half with typical seasonality. But as I said, we'll have some additional capacity coming online as we go into 2026. Angel Castillo: That's helpful. And I guess, is it fair to assume then that $2 billion is still kind of the way to think about 2026? Jennifer W. Rumsey: Yes. Mark A. Smith: Yes. There's been no change in enthusiasm for demand. Operator: Our next question has come from the line of Jamie Cook with Truist Securities. Jamie Lyn Cook: I guess what struck me about the quarter is your margin performance even with North America truck going through a correction. So I guess the 2 areas that stuck out to me besides Power Systems was your distribution margins, which I'm assuming is getting the benefit of power. Are margins moving structurally higher there just because of the benefit that you get through -- from the Power System business? And then also on the component side, you were able to improve your margins despite sales declines. I think you noted lower product coverage. Is there any way you could quantify that? Just trying to think about the implications for margins in the back half. And then I guess my second question, Jen, just relates to sort of you know what I mean the cycle like in North America, obviously, we're seeing a big correction in 2025, lack of prebuy based on what you're hearing from your customers, how are you thinking about North America in 2026 and 2027? Mark A. Smith: Jamie, I'll start on the margin question. So on distribution, yes, the benefits of power, the benefits of strong parts business, and then we've got positive pricing in the distribution business as well. So all of those have combined to make for very positive results in distribution overall. Yes, in component, it's not reasonable to expect on significant continuing declines in truck volumes that we can maintain margins in the short run. We expect, obviously, margins to improve over the long run in Engines and Components. But you're right, we called out the product coverage numbers because that was a tougher quarter a year ago and a much cleaner quarter just within the components for the company overall, there really wasn't much difference in the product coverage numbers. But in the Components segment, that was probably worth something like 0.5 point. That was not one-time. It was more the absence of a problem from a year ago than something that's special that happened in this quarter. But just to be clear, given the rates of decline here in the third quarter from second quarter in Engines and Components, we should expect that there's going to be a negative impact on the profitability of those 2 segments. Jamie Lyn Cook: Okay. And then, Jen, just on the cycle? Jennifer W. Rumsey: Yes. On the cycle, Jamie, it's -- there's a number of typical factors and then some atypical factors that we see influencing the truck cycle. So spot rates continue to be low, economic demand isn't really growing for customers. Interest rates are still higher. And while the age of the fleet on average has gone up some, we still are seeing that kind of cyclical -- normal cyclical down in the truck market, which then add on top of it, this uncertainty around tariff policy, the impact that's going to have on price of trucks and regulatory uncertainty, which means customers are really just holding, waiting to see what happens, get more stability and clarity on orders. And in Q2, build rates held up okay. We saw some softening. But as Mark noted, we're seeing a lot more down days and our customers and us restructuring in our plants in anticipation of a much weaker Q3. How long will it last is a little bit hard to predict. The optimistic gen would say we get more tariff clarity and stability in Q3 and more certainty on regulation. We still believe today that we'll have '27 NOx regulation. And if we do, then that will likely drive demand back up. But it's uncertain right now. We're working closely with the EPAs to try to push for clarity and help them understand levers that they may have to reduce the total cost impact of that, in particular, longer emissions warranty, but it's really hard for me to predict. So the pessimist says it drags out longer, and that's part of why we're not giving guidance is it's just really difficult to predict. Mark A. Smith: And the pessimist sat next to us, I would just point out that more years than not, Q4 is not particularly stronger than Q3. So we're hoping for that. That would definitely help all industry participants, but we need to see a significant change in the momentum. The momentum for orders to us for engine systems is down, obviously, clearly down. Operator: Our next questions come from the line of Rob Wertheimer with Melius Research. Rob, could you please check if yourself muted? Robert Cameron Wertheimer: You guys just touched on the engine margins. And Mark, I take -- I understand your comments on where things have to go given volumes. But this quarter was pretty good and last quarter was great. And I wondered if you might comment on price that might influence that or anything else given a shallow margin decline on lower revenues in engines. And Jen just touched on EPA27. I wonder if you have any guess as to when we have at least clarity on what the resolution will be. Mark A. Smith: Yes. So a couple of factors on the engine margin. We called out in prior quarters because it's been a running theme. As we've launched new models in the light-duty segment, we have raised prices. Product quality has been very stable and positive. And then China, I don't want to get people overexcited on China, but stepped up a little bit from weaker levels. Now the engine business benefits a lot from the joint venture earnings in China, which are a little bit higher. So all those factors. And then when we say strong parts, that's flowing through the Engine business and Power Systems generally. So all those were factors. But the pricing primarily on new engines was around light duty. Jennifer W. Rumsey: I'll just add, we have -- the focus on operational efficiency coming through a couple of years, we had a lot of supply disruption and high demand. We've had a focus on really just improving the fundamentals of how our business operates and how our plants operate. And then we did do some targeted restructuring last year to optimize how our business operates and took advantage of the softening that we started to see last year to do that. So you're seeing some benefit of that across the company as well. Operator: Our next questions come from the line of Tim Thein with Raymond James. Timothy W. Thein: The first question was on the Power Gen business. And I guess, more domestically, this kind of speed to power theme is gaining a lot of momentum and traction in terms of operators that want to get up -- get power access quickly. And just given the long lead times for industrial gas turbines, it seems like you're starting to see and hear a little bit more of operators that are looking to leverage [indiscernible] as a way to kind of gain off-grid primary power. And I'm just curious if that's something that Cummins has seen or is expecting to see? Maybe just a comment on that. Jennifer W. Rumsey: I mean I think the trend certainly is need for more power, challenges of getting that power. Today, we are still primarily positioned in backup power. Certainly, strategically, we're looking at where we want to position ourselves for the future as that demand for power continues to exist, but it's not really meaningfully impacting our business today or in the near future. Timothy W. Thein: Okay. All right. Understood. And then just on distribution, I can remember years ago when double digits was talked about as kind of the aspirational target there. I'm just curious as the Power Gen business obviously has been growing for some time. Are there more -- just as the power demands increase and maybe as the data centers are consuming more and more power, is that bringing along more services and more kind of ancillary type revenues with those installations such that, that business carries higher margins? Or would that all be kind of reflected in Power Systems margins? I'm just curious as the parts part of distribution as a percentage has continued to decline, which I would think would be dilutive to the margin. So maybe just a comment on that would be helpful. Mark A. Smith: I think, yes, you're right. Any of those services and other things would show in distribution, not in Power Systems. But I think what lies beneath the surface a little bit, Tim, is just a more broad-based improvement in our international operations. I do also remember vividly those double-digit margin targets when we set them. There's been dramatic improvements in area like Africa, where we had high growth aspirations that quite frankly, had some risk management issues and execution issues early on, those are long behind us. So I think we've really more broadly improved the operational effectiveness and profitability focus outside North America in addition to improving North America. So I think it's a more broad-based phenomena that's really driven the results. Jennifer W. Rumsey: But typically, in the Power Generation market, if we're doing backup power, then there's minimal aftermarket parts demand, but the distribution business can do additional content on the installation and benefit from that work with the customer. Operator: Our next questions come from the line of David Raso with Evercore ISI. David Michael Raso: I know you don't want to give guidance, but I am curious just directly to ask the EBITDA margin for Engine in third quarter, fourth quarter, how are you thinking about that relative to -- we've been above 13% now for a while, haven't been below 12%, 11% since, I think, late 2021. And you mentioned the JV income maybe a little bit better as an offset. It's obviously more impactful, the lower the consolidated revenues are. Just because people are going to look at sort of at least a thought process of a bottoming truck in the next few quarters when it comes to margins and then sort of go from there on how to think about '26 earnings. Can you give us any quantification of how to think about the EBITDA margins in engines in the third quarter or back half of '24 -- '25? Mark A. Smith: Yes. We spend a lot of time, [indiscernible] at that, as you can imagine. And what I would say is I don't see a lot of momentum. China has improved off a very rough bottom, but we're going to come under pressure here in the second half. What I'd say is whilst the margins are going to go down, clearly, there's nothing structural about that. We just -- the volumes are going to go down significantly. I think if we looked on a full year basis, we might see -- there's no reason to see why the decrementals are very different on a full year basis from prior cycles. But clearly, for engines and components, they're going to come under significant pressure. And just to give a bit more technical -- not to be negative, just to give the fact. We already know what -- how many engines we produce in heavy and medium-duty truck in July. We can see the order build rate for August. It's going to be very depressed, as Jen said, down 25% to 30%. That's not surprising given how low the orders are. But I think as we look forward, we're confident that we -- margins will rebound quickly as the volume comes through. The other complexity that we're dealing with is a lack of clarity on emissions regulations means we've got to retain flexibility on the engineering side. And we said at our last Analyst Day, over time, we expect engineering to come down as a percent of sales in engines and components. We're not able to execute that side of it yet because of this lingering uncertainty. So clear reduction, but nothing structural, no significant changes to market pricing, which always could have an impact structurally. So we're going to go down and then we're going to rebound in those 2 businesses. And hopefully, that's quicker rather than later. History says we don't have that many quarters of down. We're a few quarters in already, but we're waiting for more momentum on the order side. But yes, it's going to be tough definitely a tough second half. David Michael Raso: The incremental margins, again, I know you're avoiding quantifying, but just so we can frame this a little bit, is the idea of the decremental margins and EBITDA for engines for the third quarter, it's that 35-ish, 40% kind of range. We're just trying to get some sense of... Mark A. Smith: Yes, they're going to be pretty heavy. They're going to -- I'm not trying to hide from it. They're going to be pretty heavy. These are some of the largest declines we've seen. If you look at the orders in the past 3 or 4 months, they're amongst the weakest 3- or 4-month periods we've had in the last 20 years. That's going to show up in our numbers, but it's going to be -- it's a cyclical business, and it will rebound. And just to reinforce, it's going to be tough. But then when the volumes come back, which they inevitably will, quite when, we can't say we'd expect performance to rebound as well. So hopefully, July is the trough. We started with a spreadsheet. Imagine a spreadsheet in front of you. I'm still old and I use spreadsheets where we've got customer down days by brand, by location. And when we sat here 3 months ago, it was modest for the third quarter, and now it's kind of a sea of red. But we'll come through this period, but the margins will come under pressure. We're not going to hide from that, but there's nothing structural changing. That's what I want investors to leave. If it was something structural, we would tell you, but it's going to be volume based and it's going to be tough. The good news is we've got 2 businesses that are performing at record levels where demand is high. That's what we look for and stronger than they have done in prior cycles. And we expect broadly demand for those businesses to remain stable for the remainder of the year. So I hope that helps a bit. I know it's tough. The reason why we haven't given guidance is, as you can see, we withdrew guidance. It was nothing to do with our performance in the second quarter, but the number of variables out there essentially remain the same from 3 months ago. Yes, we've got more visibility into Q3, and it's much worse than we would have imagined at the start of the year. It's worse than we would have imagined 3 months ago, but we hope this is the bottoming period and then we're moving on. And hopefully, the industry is set up for a better 2026, and we are well positioned with strong position in the markets, good relationships with excellent customers. So we look forward to that. But yes, this is going to be one of those tougher periods. Operator: Our next questions come from the line of Kyle Menges with Citi. Kyle David Menges: I was hoping, Mark, if you could just touch on your thoughts on capital allocation quickly and how you're thinking about leverage at current levels, appetite for share buybacks? And then I'm thinking you guys should be beneficiaries from the big beautiful bill and favorable cash taxes. And just have you tried to quantify that impact and thoughts on where you might deploy that excess cash to? Mark A. Smith: Yes. So we've had a pretty long track record of returning capital to shareholders. We set kind of this long-term benchmark of at least 50%, and we've been living up to that even during a period where we made a major acquisition. You saw we had a healthy increase in the dividend here. We've been working hard to improve our leverage metrics, and I feel good about where they are now. So really, the pace of capital allocation is really based on economy, prospects for the business. When we do capital allocation, we're also looking at making sure we're doing that in the most effective way that we can. So yes, incrementally, we should be looking for more of that going forward as a base case. The -- yes, if the taxes are the beautiful part, then the tariffs are definitely not, right? And the challenge is that the tariff costs have created great uncertainty. I'll just say a little bit about tariffs since haven't been asked about that yet. But the cost of the tariffs to Cummins, and I'll quantify the tax benefits in a moment, are multiples of the tax -- the pull forward of tax benefits that are allowed under accelerated depreciation. And whilst we've done a pretty good job in mitigating tariffs, it's placing a significant burden on the industries and all the participants that we play on. So all that weighs into all this calculus of liquidity, capital allocation. To answer you specifically on the Tax bill, I mean, we've got some choices to make and what elections we want to make through the various dynamics of tax legislation, you could reasonably expect $125 million to $250 million of cash benefit, but we haven't -- we'll finalize our choices in the third quarter. In taxes, inherently some strange trade-offs where cash benefits today can be negative for long-term tax rates. And then we have quite a relatively complex global business. So we've got to think all of that through. So I would say -- on the margin, could that be like 5% to 8% of our operating cash flow for the year? Yes. Does it fundamentally change any of our business plans for this year? No. We've invested a lot in North America to meet the upcoming emissions regulations. And quite frankly, we're looking for some clarity to be able to deploy that capital effectively with our new products going forward. So we're not rushing to spend more capital here. We're hoping for clarity on utilizing the capital we invested. So sorry for the long -- little bit of winding there, but just to reinforce the complexity that we're facing. Kyle David Menges: That's helpful. And then just it sounds like you're expecting to completely offset tariff impacts and pass through to the customer. You commented a little bit on how the industry is handling it. But maybe you could just expand on just what you're seeing and hearing from the customers and markets and how they're handling that pass-through of the tariff costs? And then is the plan still to roll out the EPA27 compliant engine in '26 and that will be additional pricing on that. So just, I guess, would love to hear your thoughts how you're thinking about that and the industry's ability to handle even more pricing. Mark A. Smith: So tariffs were negative to profitability for Cummins in the second quarter. So we did not fully recover. We're approximately $22 million negative net in the quarter. We've been working hard to mitigate the costs through managing when we're buying materials, where we're buying it from, resourcing where we can. We've done a lot, as you can imagine, making choices about supply chain is hard when the international tariff dynamic keeps changing. So it's hard to make any decisions to shift when you're not sure that we've reached a period of stability. So about $22 million negative, as we said 3 months ago, we didn't expect the full impact until the second half of the year. That's the case. So both the cost of Cummins and the degree of recoveries will be increasing in subsequent quarters. We expect to enter Q4 on a much closer to price cost neutral on tariffs starting in the fourth quarter. But there's a gap in Q2, will be a gap in Q3. Q4 will get close. But it's hard to underestimate the amount of resources and time that this is consumed amongst all industry participants. It is -- I do believe we don't know exactly what the end user prices are, but we do know that everybody is suffering with this. It doesn't help at a time when truck orders, in particular, had already been slowing. But that's maybe more than you wanted. I'll move on quickly from a very uncomfortable topic here. Jennifer W. Rumsey: And on the product launches, so the regulations are still in place today. We're continuing to work towards launching and we have our new platforms, of course, the helm engine platforms launching as a part of the 27 regulations. We are no longer launching the X15 earlier in the year. So at the end of next year, we'll be launching those new platforms to comply with the 27 regulation and continue to keep the team focused on that. Just as a reminder, those engines are all made in the U.S., and we're investing $1 billion in our engine plants `primarily because of the new platforms, which we believe will really position us with the most efficient, highest power density, best products in the market. Operator: Our next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: Yet one more question on Power Systems. Should we expect better cost absorption and improved incremental margin versus what we are seeing now when the remaining capacity goes live next year? The premise of the question is whether you're currently seeing some inefficiencies as you're building capacity and firing on all cylinders against robust demand. And so whether incremental margin could get even better once the new capacity is live and running at full rate. So if you could comment on that. Mark A. Smith: Perfectly reasonable question that makes the assumption that so many things are standing still, right? I mean there's always a million and one things going on. But if you ask us, do we have aspirations for the Power Systems margins over time to go high? Yes, we do, right? And yes, when capacity is fully installed and the demand is still there, usually, that's better. But there’s a lot of variation. We don't just make one engine in one facility, a lot of differences by end market and region. But just to be clear, do we expect over time, not -- what's been nice to see is this consistency now of higher performance quarter-on-quarter. Yes, we still think there's plenty of things to work on to take us high. We don't expect dramatic changes for the remainder of this year. Revenue should be relatively range bound, but as we go forward, yes, after absorbing investments, we'd hope to do better, all other things being equal. Operator: Our next questions come from the line of Steven Fisher with UBS. Steven Michael Fisher: Just wanted to start on Power Gen. You mentioned that you have backlog out 2 years. I'm assuming that's for the largest engines. Just curious what the lead times are on some of those. And obviously, you have the capacity coming online fully next year. How does that affect the lead times that you see there? Jennifer W. Rumsey: Yes. So obviously, as we're taking orders, we're considering the incremental capacity that we'll have coming online next year. So we are taking orders out in the '27 time frame now from our customers. If we have any movement in terms of current order backlog and order demand, we reallocate those slots and we work with our customers to do that. But if you want, in particular, the larger engine orders today, I'm happy to put you in the queue in '27 for that. Steven Michael Fisher: Okay. And then sorry to ask a follow-up on the uncomfortable topic. But in terms of the Q4 tariffs, you mentioned that you expect to kind of be price versus cost neutral there from customers. Is that sort of just contractually what you have embedded in these new agreements? Or is there a negotiation that has to happen there? Just curious how that should play out. Jennifer W. Rumsey: It is not contractual. And so in most cases, we've been out actively negotiating with our customers on tariff recovery time line. Operator: Our next questions come from the line of Noah Kaye with Oppenheimer Company. Noah Duke Kaye: I wanted to tie together a couple of points you mentioned earlier. I think, Mark, you highlighted that maybe engineering spend intensity is being negatively impacted by the uncertainty around the regs. And then, Jen, you mentioned some actual launch pushouts. So can you help us understand just operationally how your engineering and technology strategy are being affected at this moment? I mean are you doing sort of redundant or duplicative engineering development for a variety of outcomes? Just trying to get a better handle on how you're navigating the uncertainty. Jennifer W. Rumsey: So the majority of the work we're doing is focused on these new product launches. And so you've got a peak of investment in research and development as well as capital going in ahead of that launch at the end of next year. And we did delay by 6 months, one of the product launches because, frankly, the uncertainty around regulation and tariffs, which created an environment where even though it was a more efficient product that we thought could bring some value to customers, the demand was a concern. So we've delayed that, that then extends some of the R&D for that program. We're, of course, doing some additional work on contingency plans at a much lower level while keeping the team focused on the launches that we have beginning of '27. And then we anticipate following that, that the level of R&D and capital investment in engine business and components will start coming down. Noah Duke Kaye: Okay. Great. So '27 is really when we start to see some leverage there. And then just quickly shifting gears to power. As you mentioned, I mean, your content is primarily today around the backup gen set. With the shift towards more on-site direct power, I mean, you have an entire division that can do battery backup and fuel cell power. You're obviously very familiar with natural gas generation. And you've talked in the past, including Investor Day about microgrids. Just can you give us any color on trends in wallet share expansion with the data center customers and if you're seeing that, where it's coming from? Jennifer W. Rumsey: So we have launched in the last year a stationary energy storage product in the market. We have some limited offerings, I would say, today in both natural gas and stationary energy storage. And that's an area that we are continuing to evaluate our position, the products that we have in our portfolio and over time, how we might want to participate and if that's an area we want to expand. So no firm decisions or anything to give guidance on today, but that certainly is an area that could be interesting for Cummins in the microgrid space. given the growing demand for power and the challenges for customers to meet that. Operator: Our next questions come from the line of Chad Dillard with Bernstein. Charles Albert Edward Dillard: So you commented about tariff or the price cost being neutral by the fourth quarter. And I was just wondering whether that's true on a segment-by-segment basis or is it biased towards one versus the other? And then secondly, what was price cost in 2Q? And if you can share any thoughts on what it should look like in the third quarter, that would be helpful. Mark A. Smith: I mean I think it's a challenge in all segments of our business is what I would say for tariffs with the engine business and components, probably absorbing more than the rest of the company, but not dramatically different. Price cost overall, when we weigh in the actions that we've taken on parts, the actions that we've taken on light-duty engines, some of the improvements in Power Systems. I ignore -- if I ignore tariffs, then we were about 1.2% improvement overall across all the businesses, remembering that's a big step-up in Power Systems and Distribution in particular. You see that the Engine business and Components margins were down or flat, ex-product coverage not improved. Charles Albert Edward Dillard: And secondly, just on Accelera, just recognizing that we're in, I guess, a new regime when it comes to like alternative powertrains. I guess, how are you thinking about the growth trajectory, particularly maybe more so on the electrolyzer side and then like the path towards the long-term profit targets that you set out? Has that changed? Jennifer W. Rumsey: Yes. I mean it's fair to say the trajectory of growth in that business has slowed. You have seen us growing and reducing losses. We did a restructuring at the end of last year to try to focus on the areas, the technologies and products that we think will grow. And I do think it positions Cummins well because we're continuing to, of course, offer engine-based solutions. Start-ups are not surviving and many of our OEM customers don't really want to invest given the uncertainty. So we're really trying to position ourselves to pace investments but be able to be the provider as the market starts to develop. We're continuing to move forward with our partners in the Amplify Cell joint venture here in the U.S. with commercial vehicle cell and pacing investments in that together as well. So it's slowing, but we're committed to continue to reduce losses over time and grow as the market grows. And in the meantime, we'll sell more engines, which will be positive for our base business. Operator: We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Nick Arens for closing comments. Nicholas J. Arens: Thank you. That concludes our teleconference for today. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Operator: Thank you, ladies and gentlemen. That does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Operator: Greetings, and welcome to the Cummins Incorporated First Quarter Earnings Release. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like the turn the call over to your host, Mr. Chris Clulow, Vice President, Investor Relations. Chris Clulow: Thank you, Rob. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the first quarter of 2025. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that, some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation is available on our website within the Investor Relations section at cummins.com. With that out of the way, I'll turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Chris, and good morning, everyone. As you can see from our press release and earnings material, we delivered very strong results in the first quarter, led by record performance in our Power Systems segment. We are entering unchartered territory as the trade tariffs start to have a more significant impact beginning in the second quarter. The breadth and changing nature of the tariffs have introduced a great degree of uncertainty and mean that at this time, we are unable to predict with confidence our expected performance for the year. It is important to note that we serve many different end markets, some with long backlogs and clear secular themes in our Power Systems business, some less sensitive to short-term economic sentiment such as our Aftermarket business and other markets where customers tend to flex demand more quickly when business confidence weakens. The duration of uncertainty and extent of tariffs will influence how much and for how long demand is impacted. Cummins is in a strong position, strategically and financially, with an experienced leadership team, well-versed in navigating through periods of uncertainty. We look forward to restoring our guidance when we have more stability in the outlook. Now I will move on to some of our highlights from our first quarter. Then I will discuss our sales and end market trends by region. I will then provide an update on how uncertainties in our current environment may impact our end markets. Mark will then take you through more details of our first quarter financial performance. In the first quarter, we continued to make progress in the execution of our Destination Zero strategy. In our Engine segment, we introduced the much anticipated X10 as a part of our Cummins HELM platforms. This engine replaces both the L9 and X12 engine platforms and will deliver a new level of performance, durability and efficiency for heavy and medium-duty customers. Alongside the X15 and B Series, the X10 provides customers with the power solution to meet their unique operational requirements while maintaining the performance and reliability for which Cummins is known. In addition, we unveiled the new Cummins B7.2 diesel engine that brings the latest technology and advancements to one our most proven platforms. The new engine will feature a slightly higher displacement and is designed to be a global platform, which creates flexibility for different applications and duty cycles. Both the B7.2 and X10 engines will be manufactured at Rocky Mount Engine Plant in North Carolina and will go into production in North America in 2027. In our Power Systems segment, we announced the acquisition of assets of First Mode, a leader in retrofit hybrid solutions for mining and rail operations. This technology represents the first commercially available retrofit hybrid system for mining equipment, significantly reducing total cost of ownership while advancing decarbonization and operations. This acquisition reinforces Cummins' commitment to providing innovative and effective decarbonization solutions while meeting the needs of our customers on their transition to a lower carbon future. Lastly, our Accelera by Cummins segment announced a supply of 100 megawatts proton exchange membrane or PEM electrolyzer system for bp's Lingen green hydrogen project in Germany. The hydrogen generation system will be the largest electrolyzer system assembled by Accelera to date and will be manufactured in Accelera new electrolyzer plant in Spain. Once fully commissioned in 2027, the 100-megawatt electrolyzer system will produce up to 11,000 tons of green hydrogen per year. Now I will comment on the overall company performance for the first quarter of 2025 and cover some of our key markets. Demand for our products remain strong across many of our key markets and regions, offset by softening in the North America truck market. Revenues for the first quarter were $8.2 billion, a decrease of 3% compared to the first quarter of 2024. EBITDA was $1.5 billion or 17.9% compared with $2.6 billion or 30.6% a year ago. First quarter 2024 results included a gain net of transaction costs and other expenses of $1.3 billion related to the Atmus divestiture and $29 million of restructuring expenses. Excluding the 1x gain and the costs related to the separation of Atmus as well as restructuring expenses, EBITDA and gross margin dollars improved compared to the first quarter of 2024. This improvement in profitability was driven by the benefit of higher power generation and aftermarket volumes, pricing and operational efficiency, which more than exceeded the impact of lower North America truck volumes and the separation of Atmus. For our Power Systems business, in particular, we had record performance in both EBITDA dollars and percentage in the first quarter as we continue to benefit from operational improvements and strong end markets. Our first quarter revenues in North America decreased by 1% compared to 2024. Industry production of heavy-duty trucks for the first quarter was 63,000 units, down 18% from 2024 levels, while our heavy-duty unit sales were down 21,000 or 21% from 2024. Industry production of medium-duty trucks was 32,000 units in the first quarter of 2025, a decrease of 21%, while our unit sales were 31,000, down 14% from 2024. We shipped 29,000 engines to Stellantis for use in their ramp pickups in the first quarter of 2025, down 25% from 2024 level. Revenues for North America power generation increased by 12%, driven primarily by continued strong data center demand. Our international revenues decreased by 5% in the first quarter of 2025 compared to a year ago. First quarter revenues in China, including joint ventures, were $1.8 billion, an increase of 9% as accelerating data center demand and high domestic infrastructure demand more than offset lower export demand. Industry demand for medium and heavy duty trucks in China was 294,000 units, a decrease of 4% from last year. Our sales in units, including joint ventures, were 42,000, an increase of 6%. Industry demand for excavators in China in the first quarter was 61,000 units, an increase of 23% from 2024 levels. Our units sold were 11,000, an increase of 19%. The increase in the China market size is primarily due to domestic cyclical replacement demand, rural development and farmland renovation demand. Sales of power generation equipment in China increased 68% in the first quarter due to accelerating data center demand. First quarter revenues in India, including joint ventures, were $725 million, a decrease of 14% from the first quarter a year ago. Industry truck production was flat with 2024. Power generation revenues decreased by 11% in the first quarter as the prior year included a pre buy ahead of emissions regulations change. To summarize, we achieved impressive results in the first quarter with record financial performance in our Power Systems business. Looking ahead, there's heightened uncertainty about the pace of growth in the global economy due to tariffs, which could negatively impact demand for capital goods. Absent more clarity about the likely duration of elevated tariffs, we are not able to provide a reliable forecast for the remainder of this year. As a large U.S. headquartered company with significant manufacturing in the U.S, we appreciate the administration support for American manufacturing. This support is crucial as we invest more than $1 billion in our engine and power systems manufacturing operations in the U.S. over the next few years, employing people in nearly every state through our manufacturing plants and sales and service branches. As we evaluate our current manufacturing footprint and our exposure to tariff regulations, we believe we are well-positioned because we primarily produce engines and gensets in the markets where we sell them. For instance, our medium duty, heavy duty and high horsepower engines, as well as power generation products for U.S. customers, are manufactured in our plants located in Indiana, North Carolina, New York and Minnesota. However, like much of our industry, our component and supplier manufacturing would be affected by current tariff regulations, which could disrupt the global economy and ultimately lead to higher costs for consumers. In addition to trade and economic uncertainty, there is also uncertainty in North America emissions regulations for 2027. We continue to expect New NOx regulation to go in place in 2027 and are focused on launching our products on schedule, while also working with the administration as they explore options to lower the cost of existing regulations. While we believe our product plan is well-positioned, the uncertainty in regulation along with economic uncertainties have led to a weaker than anticipated recent order and also has made pre buy for the second half of the year unlikely. In summary, we had a strong first quarter and continued our progress in improving EBITDA margins as we shared in our Analyst Day almost a year ago, with tariffs not a significant factor in our results. The economic environment has changed significantly over the past three months. We have an experienced leadership team that has demonstrated capability in managing through periods of uncertainty, and we will maintain focus on our customers, our employees and shareholders. We enter this period of heightened uncertainty in a position of strength and look forward to reinstating our guidance when some of the uncertainty has subsided. Now let me turn it over to Mark. Mark Smith : Thank you, Jen, and good morning, everyone. We delivered strong revenue and profitability in the first quarter. First quarter revenues were $8.2 billion, down 3% from a year ago. Sales in North America decreased 1%, while international revenues declined 5%. The separation of Atmus in mid-March and the prior year resulted in year over year sales decline of around 4% to the total consolidated sales, meaning that we were close to flat on an underlying basis. EBITDA was $1.5 billion or 17.9% of sales for the quarter compared to $2.6 billion or 30.6% of sales a year ago, which of course included a 1x gain on the divestiture of the Atmus business of $1.3 billion net of transaction costs. Also a year ago, we incurred $29 million of restructuring expenses. To provide clarity on operational performance and allow comparison to the prior year, I'm excluding the 1x gain and the costs related to the separation of Atmus and the restructuring expenses in my following comments. EBITDA was $1.5 billion or 17.9% of sales for the quarter compared to adjusted $1.3 billion or 15.5% of sales a year ago. The higher EBITDA was driven by higher power generation and aftermarket volumes, positive price cost driven by operational improvements, partially offset by lower North America truck volumes and the separation of Atmus. Now let's look at each line item a little more. Gross margin for the quarter was $2.2 billion or 26.4% of sales, up from $2.1 billion or 24.5% last year. The improved margins were driven by favorable pricing, higher aftermarket and operational improvements, especially in Power Systems. Selling, administrative and research expenses were $1.1 billion or 13.6% of sales compared to $1.2 billion or 13.8% of sales a year ago. Joint venture income of $131 million, increased $8 million from the prior year, primarily driven by higher technology fees within our engine business and higher volumes in our Cummins Chongqing joint venture within Power Systems. Other income was $23 million, compared to $21 million from the prior year, as gains on investments related to company-owned life insurance more than offset the negative impact of foreign currency revaluation. Interest expense was $77 million, a decrease of $12 million from the prior year, primarily driven by a lower average debt balance, as a result of the separation of Atmus and lower weighted average interest rates. The all-in effective tax rate in the first quarter was 23.9%, including $7 million or $0.05 per diluted share of favorable discrete tax items. All-in, net earnings for the quarter were $824 million or $5.96 per diluted share compared to $2 billion or $14.03 per diluted share a year ago, which includes the net gain on the separation of Atmus, which was $1.3 billion or $9.08 per diluted share and restructuring expenses of $29 million or $0.15 per diluted share. But hopefully, we've now lapped all of those exclusions and adjustments and look forward to having less words around those in future quarters. All-in operating cash flow was an outflow of $3 million compared to an inflow of $276 million a year ago, primarily driven by higher working capital. Now let me comment a little more on segment performance. For the Engine segment, first quarter revenues were $2.8 billion a decrease of 5% from a year ago. EBITDA was 16.5%, up from 14.1% a year even on the lower truck volumes. The Engine business benefited from pricing related to the launch of updated products in our Light Duty segment, stronger aftermarket volumes, operational efficiencies, good cost control and a modest increase in joint venture income. Components segment revenue was $2.7 billion a decrease of 20%, while EBITDA, excluding costs related to the separation of Atmus decreased to 14.3% from 14.8% a year ago, as lower on highway demand in North America and Europe and the diluted impact of Atmus separation were partially offset by the benefit from operational efficiencies. In the Distribution segment, revenues increased 15% from a year ago to $2.9 billion. EBITDA also increased as a percent of sales to 12.9% compared to 11.6% of sales a year ago, driven by higher power generation volumes, higher aftermarket and favorable pricing. In the Power Systems segment, revenues were $1.6 billion, an increase of 19%. And EBITDA was a record increasing from 17.1% to 23.6% of sales, driven by strong volume, particularly in data center applications and rebuilds, favorable pricing and continued focus on operational improvement. Accelera revenues increased 11% to $103 million, driven by increased e-mobility sales and electrolyzer installations arising from prior period orders. Our EBITDA loss was $86 million compared to an EBITDA loss of $101 million a year ago, as we lowered costs in existing operations, partially offset by additional losses in the Amplify Cell joint venture as it advances its operations. In summary, we delivered impressive profitability for the first quarter even as demand in North America truck markets declined. Uncertainty has increased due to trade tariffs, resulting in a slowdown in the global movement of goods, particularly between China and the U.S. It remains to be seen how long the tariffs remain in place and the impact that they have on business confidence and the demand for capital goods. Cummins is in a strong financial position to navigate through uncertainty. With our industry leading portfolio of products and our global network, we are well placed to support our customers. We look forward to reinstating our outlook when the economic conditions become clearer, along with hopefully a return to growth and greater prosperity here in the U.S. and in the global economy. In the meantime, we'll continue to focus on areas we can control in managing costs and optimizing working capital, while meeting our customer commitments. We'll stay focused on our strategic priorities in what is likely to be a more complex operating environment in the coming months as the full impact of the current tariff levels has not yet been felt in our opinion. I want to close my prepared remarks by thanking Chris Clulow for his leadership in Investor Relations. He's moving to a new finance leadership role in operations and supply chain and will remain a key advisor to me and our business leaders as we navigate through the current challenges. Congratulations to Nick Arens in assuming the Investor Relations role. Nick and I look forward to meeting with investors and analysts in person in the coming weeks and months. We're very fortunate to have such a strong finance team at Cummins. Now, let me turn it back over to Chris. Chris Clulow : Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we're ready for our first question. Operator: [Operator Instructions] Our first question comes from Jamie Cook with Truist Securities. Jamie Cook: Hi. Good morning and nice quarter. I guess just my first question, understanding you're not providing guidance, but based on what's been announced so far, is there any way you can sort of help us quantify the gross or net tariff cost, you know what I mean, that would impact your business and which segments are impacted the most? And then, I guess my second question, just trying to understand, which businesses have the most visibility like where your backlog sits today, and just how you're handling pricing, just concerned with some of the businesses that have greater backlog, perhaps there's pricing risk associated with tariffs? Mark Smith: Thanks, Jamie. I'll answer the first question and pass it on to, Jen. We're not -- it's a very uncertain set of circumstances given the changing and evolving nature of the tariffs, so we're not going to quantify that today. Quite frankly, the bigger concern is the broader impact on the overall economic level environment. We've taken the steps without knowing what the tariffs were going to be. We've taken what steps we could to try and mitigate the impact. But beyond that, to the extent that we incur tariffs, we're going to have to pass those on. We will, of course, as we get into actual results, share what the impact of tariffs is going to be. There's inevitably going to be some lag between cost and recovery, and we'll provide more color going forwards. Jennifer Rumsey: Yes. And in terms of what we're seeing in different markets, as I noted, we do have some different markets that we expect to be impacted in different ways by uncertainty in the economy. So we have a multi-year order board in our Power Generation business and where there are customers that want to cancel or push out builds, we're able to reallocate those to other customers. So for the foreseeable future, we're feeling pretty confident in that part of the business. Aftermarket, of course, as customers may delay purchase decisions that can drive aftermarket business for us. And the real market that is very sensitive is in the Engine business and Components, some of those on highway markets and we're seeing that, right? You saw that on Friday with the heavy duty truck orders for April where customers are waiting to see what happens and pausing in many cases on placing orders for new trucks. And so it's a little bit varied in different parts of our business with a big question of what will happen over the next couple of months. As Mark said, we're looking at passing on tariff costs where we can't mitigate those and continuing to invest in our new products and price for value that we're able to offer through those. Mark Smith: It's certainly not a case that we're seeing a widespread change in short-term momentum. There are obviously pockets where uncertainty seems to be more evident and if that lack of clarity let us to believe that right thing to do right now is withdraw guidance versus constantly tweaking it for every latest change in momentum. So we didn't do that lightly. It's not we're not trying to foreshadow anything other than that the uncertainty is high, but it's very much varied, and hopefully there's going to be a change and we'll be happy to reinstate that guidance as quickly as we can. Operator: Our next question comes from Jerry Revich with Goldman Sachs. Jerry Revich: Yes. Hi, good morning everyone and Chris and Nick, congratulations. I want to ask in Power Systems, really fantastic performance from [Indiscernible] basis and also relative to the Analyst Day targets sitting here today, obviously, got some volatility on cost over next year. But can you talk about where we should be thinking about margins moving forward for this business is the level of performance that we saw in this quarter, should we be thinking about that as the run rate going forward as we think about what incremental volumes could look like over the next couple of years once we do get through this low visibility spot, Mark, that you spoke to? Mark Smith : Yes. First, thanks and good morning, Jerry. What I'd say is there are no significant one-off items in those results, so those are pure operating results. Of course, they're going to depend to some extent on the ebbs and flows of demand in individual segments. The only thing I'd point to in those results is that the aftermarket sales were very high. They're probably higher than we would have anticipated three months ago. So that right now, that's the only thing that I would say looks, yes, probably higher than we expected. But other than that, the business has made tremendous improvement and it's continued to improve quarter-on-quarter. I would say the results were a little bit better than we expected, but mostly down to the strength in aftermarket, not the underlying performance of the business. So again, as long as the demand trends continue, then it will be continuing a push to maintain very strong margins and improve where we can. Jerry Revich: Super. And then separately, you mentioned, Jennifer, in the prepared remarks, just the uncertainty around EPA27. In the scenario that EPA27 doesn't move forward, can you just talk about Cummins' response in that environment because obviously you folks have invested a lot in the next engine family and how should we think about potential contract renegotiations 27 plus if we don't get a changeover with your large customers on highway? Jennifer Rumsey: Yeah, great. Thanks, Jerry. Our current view is likely we'll see revision and a rulemaking process around greenhouse gas Phase 3. And so those regulations will change from what we have currently on the books and those go into effect, of course, starting in 2030. We still anticipate a NOx regulation in 2027. We're actively working with EPA on their work to look at opportunities to lower cost and impact of those. And probably one likely thing that will be looked at is this requirement for a longer emissions warranty that customers purchase. So today customers have the option when they buy a new vehicle to purchase an extended warranty. Some of them do in particular in heavy duty, but the regulations as they are today would require everybody to purchase that. So we're continuing to invest in bringing these new platforms to market with that 27 regulation. It's difficult for me to speculate beyond that on other changes. But of course, if there are further changes, we'll look at revisiting what we're launching. But we intend to continue to launch as planned currently. Mark Smith: Right. And that's the same question for all engine manufacturers, right? The whole industry has been investing in new products that we're all wondering, hoping for clarity. Operator: Our next question comes from Angel Castillo with Morgan Stanley. Angel Castillo: Thank you for taking my question. Listen, I know it's incredibly a lot of or a lot of uncertainty out there, incredible amount of uncertainty and just very wide range of outcomes. But I was wondering if you could perhaps talk a little bit more about one specific scenario for 2Q, meaning, there's tariffs that are already in place today that you have a little bit more visibility to. So if we just kind of put aside maybe some of the reciprocal or areas that are paused, can you just talk to what is the impact or kind of margin and sales volume that you kind of see, based on orders backlog in terms of paying today for 2Q? Just want to get a better sense kind of directionally what that implies very near-term accepting that you're in term there might be more? Mark Smith: What I will say is, the impact of tariffs on our financial results in Q1 was immaterial. So those results that you saw, which were very strong, had essentially close to zero financial impact. So that's going to change, right. It's going to change and it's probably -- it's going to change month-to-month as we certainly as we start to go through the second quarter, probably it's contributing to the biggest degree of uncertainty for the second half of the year in terms of the demand outlook. There's uncertainty now, but the visibility into the second half is, we're not going to -- we will give the impacts of the tariffs as we go along in our financial results. Needless to say, I would say, it's going to build over the next few months. There will be some lag inevitably between ordering, incurring, mitigating and recovering all of those costs. So I would say, the second half, it will going to see the fullest impact, assuming the tariffs remain as they are, which is a big assumption. Hopefully it's not a good assumption, but if we make it as an assumption, then you're going to start to see the fuller impact on consumers of equipment, and suppliers in the second half of the year. So we will update you as we go along, but there's a lot of work going on, a lot of moving parts. I know everyone wants to do these calculations. I will just step back and say, our broader concern is on the demand of the economic environment and the overall level of demand. The tariffs will be significant for Cummins on cost basis based on where they are right now. We've got plans to manage through that and we'll provide that to you going forward. But as we said at the start, we've taken steps to mitigate where we incur them, we'll be looking to pass them on. There'll be some lag impact. Angel Castillo: Understood. That's very helpful. And maybe just a little bit of a bigger picture question. Just the Power Systems, you talked about some of the -- if I heard correctly, just some of the aftermarket strength and particularly on the datacenter side, I tend to think about this kind of large backup generators as not really having a lot of aftermarket in the first place and again in that data center piece. So could you just talk about what you're seeing in terms of what's driving the aftermarket parts demand growth in Power Systems? And to the extent that you're seeing maybe more purchases of aftermarket related to maybe the data centers, what does that tell you about how your assets are being run? If it's -- is there some kind of maybe substituting for prime power wherever there is sort of a more of a shortage or any other factors that might impact how your assets are being used? Mark Smith: Yes, I appreciate the question. I think what's happening with Power Systems, which is I understand why I'm not being critical, like the lens is all zoned in on data centers. What you see in aftermarket parts is the use of all of the applications, mining, oil and gas, marine, gen power gen for the broader economy, rebuild activity, all those things are contributing and in fact some price increases and aftermarket are all contributing to the strong revenue. It is not a data center driven phenomenon in the moment. Eventually, there will be some parts consumption on this, but it will be nothing like a mining engine or a frac rig. So I just wanted to clear that up. And I would just take this opportunity to remind people, the performance improvement in the Power Systems business is not driven by fair wins in the data center, right. There's been a broad based improvement. We're very appreciative of the opportunity to serve the data center customers and that's positive for our business. But the Power Systems leadership team has done a great job in driving margins in most parts of what they do below the surface. So I just want to make sure we're enthusiastic about data center demand. We're not changing that enthusiasm. But this is a much bigger story, the improvement, and the aftermarket really relates to what's gone on in years before. I hope that helped him. Jennifer Rumsey : And maybe just one other reminder as we think about the Power Systems business and its markets is there's a strong partnership between Power Systems and our distribution business. So just in PowerGen, about half of the revenue shows up in Power Systems, the other half in the distribution business similar in aftermarket, the distribution business plays an important role in the service that's provided to those customers. Operator: Our next question comes from Tim Thein with Raymond James. Tim Thein: Thank you. Good morning. And Mark, it was nice of Chris to cook up these new snazzy slides on his way. So it was good. Mark Smith: They told me I was very old fashioned. Tim Thein: Yeah. Not used to this, new look. Just on Mark on the business, maybe we can dig a bit more on the margin performance there and specifically on, you mentioned aftermarket being a contributor, so maybe just a comment in terms of your expectation for parts as we look forward. And then, I guess related to that on the JV income, I know those technology fees can move around a bit, but that was a nice tailwind. What just as the think about kind of the balance of the year, if you're still expecting this is not just the engine business, but JV income to be a headwind to profits for the year, is that still the expectation just given some of the uptick in China? So thank you. Those are my two part question. Mark Smith: Engine business, yeah. So engine business margins were up, right? And we've been of course, we set out our stall for improving margins. In the current quarter, relative to the prior year, JV income, as you said, improved from some of the tech fleets. They're going to be lumpy, probably won't continue at that rate. China, haven't been seeing any dramatic changes in demand for some time. Past looking comment, not a forward-looking comment. It's been pretty steady. So yes, probably a little could be a little bit lower going forward. Product coverage or warranty, as many people refer to it, has been an enormous success story over multiple years, of which the engine is the biggest driver of that. That really helped in the second quarter. For the company, our product coverage costs were 1.9% in the quarter. Normally, we'd be looking in the 2% to 2.5% range, so that was a real positive. We saw strong parts demand, it remains to be -- we hope parts demand will remain resilient as we work through this period of uncertainty, but we don't know. We've got some additional pricing where we launched products in the light duty part of the business. So, there were many ingredients to the engine business improvement, but, of course, the full year -- so we can say we're off to a good start. We of course were expecting, like others, some accelerating truck demand in the second half of the year. And right now, the momentum, you've seen the truck orders, you don't need me to tell you the momentum has been going in the wrong way, so we'll have to see. But overall, yes, at a good start, there are a number of factors, some of which may continue, some of which may fade. Volume is going to be the big question, I think from here. Jennifer Rumsey: And I just want to remind you, as you look at overall really strong performance in Q1, even with softening in North America truck, we remain focused on the key areas we've been talking to you about, including in our last Analyst Day, even as we manage through uncertainty and tariffs and work to mitigate tariffs. So improving gross margin in the business, we have growing aftermarket population that allows that aftermarket market revenue to continue to grow over time, and we're still investing in critical areas. We continue to invest in capacity expansion in the Power Systems business and these next-generation engine platforms, while also monitoring pace of decarbonization and regulation and pacing investment in other areas. And so, we continue to be focused on that even as we navigate through this uncertain time. Operator: Our next question comes from David Raso with Evercore ISI. David Raso: Hi, thank you. The comment earlier about more worried about demand destruction, just curious, a very understandable view just from a broad macro view, I can appreciate that. But I'm just curious, are these comments based off of already communicating maybe what your cost increases would need to be and a pushback from your truck customers, or is it even the end user of the truck saying, ''Hey, at that price increase, we'll cancel backlog?'' I'm just curious how much is this a ready sort of floated price increase that would be needed to cover your cost that's getting that reaction, or, again, is it more just a broad and again understandable, just a broad macro view of course these tariffs can hurt the economy? Jennifer Rumsey: Yes. David, what I'd say it's really uncertainty and a broader thing. I was at ACT Expo a week ago today, talked to many both OEM and fleet customers. They just don't know, right? They're just waiting, because there's huge amount of uncertainty on what's going to happen both economically and with tariffs. And so, that's really it. It's the wait-and-see. David Raso: And that said, I know you don't want to go into a real exact quantification, but just to level set everybody, can you help us with your greatest exposures to cost, be it 6%, 7% of global COGS is Mexico and China, something like that so we can at least quantify it? And at the same time, hopefully, if the tariffs come down, quantify in a positive way? And also, what mitigating factors have already been put in place, or at least are imminent based off the tariffs of today? Mark Smith: Yes, I'm just going to be honest and say I'm not going to answer all of those questions for some of the reasons I said earlier. What I can say is, our U.S. on highway engine plants, our MCA complied, right. So in the terms of the operations that we do for our on highway markets, which is the largest proportion of our business, we're in many markets, but that's the largest proportion. We are MCA compliant for all of those large engine plants. It's really what happens here from these tariffs. Yes, there's some exposure to China. Yes, there's some exposure to Mexico. Yes, there's some exposure to all some of the other countries as well. But we're going to quantify that on a quarter-by-quarter basis. We're working through all of that with suppliers, with customers, and we'll provide an update as we go forward. Operator: Our next question comes from Rob Wertheimer with Melius Research. Rob Wertheimer: Hi, good morning. It was a remarkable quarter on margin on a lot of fronts and I understand the comments within Power System on all the work you've done. Nonetheless, I do have a data center question. You mentioned China, I wonder if you'd be willing to sort of talk about for one, I don't not 100% sure how you serve data centers there, whether it's direct or through JV? And two, I wonder if you could provide any context or color around size geographically in the data center market or momentum et cetera? Is this largely a U.S. phenomenon or are there other areas that are importantly big? Jennifer Rumsey: Well, the trends that are driving data center growth are global trends, right, increasing use of AI, data storage going into cloud digitization. And so those underlying trends are global trends. Our market we have global markets, but in particular, U.S. and China have been areas where we've seen a lot of growth. And like we serve the U.S. market through our U.S. plants, we primarily serve the China market through plants in China including joint venture plants that we have there. Chris Clulow : Yeah, just to add on that Rob, the primary backup gensets in China are run with the 60 liter engines, which are made in our Cummins Chongqing engine plant there. So, that's the primary source. Mark Smith : Yeah. And like other major markets, we are one of the very leading players, right? It's a very select group of companies that are relied upon in this industry for backup power. Operator: Our next question comes from Kyle Menges with Citigroup. Kyle Menges: Thank you. Jen, I wanted to touch on the comment you made just about the PowerGen business and you had just mentioned about cancellations and push-outs and being able to reallocate those orders. Hypothetical or is that something that you're seeing today? Jennifer Rumsey : We're not seeing significant changes, but it's not atypical for some of that to happen, which we have seen. And as I said, we have when it happens and expect that we continue to be able to reallocate. We have a lot of customers that would like us to deliver some of these products sooner, than is currently scheduled. And so I wouldn't describe it as a broad trend, but a limited one that we're seeing. Mark Smith: And another one, it's the business with the least visibility to any changing economic sentiment overall so far. Kyle Menges: Right. Makes sense. And then could you guys just touch on a little bit any sort of tariff mitigation actions you've taken already? And then just any mitigation steps you're exploring? And can you remind us, is there any sort of tariff pass through baked into any of your contracts? That would also be helpful. Jennifer Rumsey: Yes. So, of course, mitigating when there's a high degree of uncertainty is a little bit tricky because we're waiting to have a little bit more clarity on what where tariffs will go over time. What I would say is we have done some mitigation through inventory strategies, where we anticipated we would see higher tariffs and we have dual sourcing in some of our supply base. So that's -- there's some no regrets moves that we're taking now. And then as we continue to have more clarity on what tariffs will look like, we may make changes in the dual sourcing. There's places where there are other options, but it will take time to develop alternatives. So it's really a bit of a mix. But as you can imagine, we have an extensive strategy and work underway looking at options and determining when we action those. Mark Smith: And as we said, we're working through all of this, which I think if you're not in the business, it'd be hard to appreciate how much work it is for supply chain and other groups. Yes, we're working through all of that with suppliers and customers right now. So we're not going to comment anymore. Operator: Our next question comes from Tami Zakaria with JPMorgan. Tami Zakaria: Hi, good morning. Thank you so much. My first question is on price cost. Are you able to share what price cost was in the first quarter? Mark Smith: Yes. So we had about 2% well, almost exactly 2% gross margin improvement year-over-year, of which we had about 3% of price cost improvement and 1% of negative volume impacts. That price cost impact varies quite a lot between segment and you can figure that out from some of the improvements we've driven over time. And costs includes many things including the improved warranty cost over time. But that's the macro picture. Tami Zakaria: Understood. That's very helpful. And then the second question is, I understand Cummins engines are primarily made in the U.S. for the U.S., which is great news long term, given all that's going on. But for the distribution and component segments, are those primarily made in the U.S. as well or what's the mix of imports that serve the U.S. market for those two segments? Mark Smith: The distribution business is really just reselling parts from the rest of the company. So it depends on the different applications. Components, we've got manufacturing facilities in the after treatment systems in Wisconsin, turbo-chargers that are made in Charleston, but it's the supply base and some of the suppliers that we use that bring more of that exposure, if we want to use that word. So that's where the complexity comes in from the tariffs. It's not -- I mean, that's what I would say. Operator: Our next question comes from Steven Fisher with UBS. Steven Fisher: Thanks. Good morning and impressive quarter. I think you said that you are on-track with the timing of your product launches. Can you just clarify kind of some of the timing of those launches that you had in mind, particularly around the 2027 engine and then how the outcome of these NOx rules may impact the timing there? Jennifer Rumsey: Yes. As I said, right now, we have not changed our launch plans on any of those products. We are planning to launch the new 10 liter and the B7.2 in 2027 as those regulations go in place. And we plan to launch the X15 diesel version in the 2026 timeframe. We'll have a kind of a split strategy across the year with the current X15 and the new one. Remember, we already have launched the natural gas variant of that new platform. And the diesel version is going to bring significant fuel efficiency improvement, so value to the customer that we believe is worth bringing into the market early. So that's our plan. Steven Fisher: Terrific. And then just in terms of the guidance, curious kind of what do you think you need to see in order to actually reinstate the guidance? Is it actual kind of signed trade agreements? Or what degree of certainty do you think you need to be able to bring that guidance back? Mark Smith : What I would say is few more data points would be helpful, right? I mean the April truck orders I would describe as disappointing. So is that something that can move back to a normal trend level? What do we see I mean these tariffs are designed to be disruptive to trade, right? I mean that's what tariffs are designed to be disruptive to trade, right? I mean that's what they're designed for and we've seen that significant slowing certainly of freight activity into the West Coast that directly impacts ultimately road freight here in the U.S. And then what -- even as things -- let's hope they stabilize, improve, we've caused a slowing of the global supply chain. That's what happens. Things are queuing up at ports and then it just takes a long time to write that momentum. And I think if you're not in the industry that may be underappreciated. And so the less time the uncertainty is in place, then the more quickly I think we'll have greater clarity and confidence. And the longer it's in place then it'll just make it more difficult. Ultimately, we're not going to continue forever without guidance, but we'll get a sense of where purchases of capital goods, whether their confidence is shaken or whether it's a temporary pause and we get back on and we actually start to see more positive economic activity. Right now there's not in the again, we're not trying to comment on the whole of the global economy or even the whole of the U.S. economy, we're just commenting on the slices that we see and uncertainty has gone up. So we want to see a few more data points on the broader economy, specific certainly to on Highway as a ranking, but those would be helpful. Operator: Our next question comes from Chad Dillard with Bernstein. Chad Dillard: Hey, good morning, guys. So totally appreciate that it's difficult to quantify the impact of tariffs, but I was hoping you could lay out a time line for that impact on the P&L. So how much component inventory did you pull forward? When does it run out? When will you need to raise price to offset the cost? And then if you could share the percentage of U.S. COGS that are imports? Mark Smith : Yeah, way too many things to give because there's way too many variables. What I'll say is, just to remind you, no impact really in the first quarter given the pause in some of the tariffs and the escalation and some mitigation actions, we're going to start to see creeping and growing impact even yet as the second quarter unfolds here. There's inevitably going to be some lags between what we see, what we anticipate, what actually happens and then all the work that's going on with customers and suppliers. So that's the reason why. But we will when we get to the second quarter results and going forward to tell you what the impact is and hopefully we've got more clarity then, but we'll certainly tell you what the impact was in the second quarter and what we think is going to happen to that run rate as we go through the rest of the year. But I think what -- nobody has absolute certainty on the direct flow of every single widget, right through the supply chain, so that's still evolving. And we're not alone, right? We're not the only manufacturer of engines, powertrains and power systems in our markets. Chad Dillard: Got it. Okay. So just one more. So just on Section 232, assuming that does eventually get applied, how does that impact your relative positioning? And from your perspective, like, would you consider it good, bad, or neutral versus the status quo of what we are right now? Jennifer Rumsey: So for those that maybe haven't been paying attention, maybe you've all been paying attention maybe 232, the U.S. Commerce Department launched 232 investigation two weeks ago on foreign production of medium and heavy duty trucks and parts. And so, that has the potential to result in additional tariffs on trucks and parts that come from outside the U.S. Of course, we've seen an announcement of we're in the middle of the public comment period and we'll be providing comments of course as a part of that and just emphasizing the U.S. manufacturing that we make and advocating for exemptions on imports to U.S. manufacturing through a robust exemption process and ensuring that we reflect the impact that any tariffs could have on the underlying U.S. economy. So stay tuned there, but that's the potential with 232 investigation. Operator: Our next question is from Jeff Kauffman with Vertical Research Partners. Jeff Kauffman: Thank you and thank you for signing me in here and Chris, it's been great working with you and Nick look forward to getting to know you. Mark, thank you for all the detail that you were able to give. I have one on currency. Given that so much of your business occurs outside the U.S., was currency translation a good guy, a bad guy? Can you give us an idea of magnitude? And then, you explain the price increase on the light duty engines well with the new product at Stellantis. Can we talk a little bit more about the ASP increase on the Power Systems side? Was that also new products, product mix, larger products? You did mentioned aftermarket, just kind of understand what's driving that increase as well. Mark Smith: Sorry, you caught my attention with the pricing. Repeat the first part. Jeff Kauffman: Currency. Mark Smith: Yes, currency. So the answer is, generally, if we could choose and we didn't deploy hedging techniques, then a weaker dollar except against the pound would be our perfect choice of combinations. But we do deploy we have natural hedges from the way we're globally organized, and then we do use some very simple vanilla derivatives. So the net impact is, no. If you ask any individual business leader, distribution in particular are more exposed to a strengthening dollar, but the net result is very, very modest to the P&L, like less than $10 million when you look at all the impacts that are the hedges. And that's generally been the case for a long time. Sharp shifts where we get caught is when there's like capital constraints and currency revaluations like Nigeria, Argentina is a common topic of conversation about what to do there. But net-net, Jeff, for the company, we're fortunate that we're close to neutral. Chris Clulow : And on your second question, Jeff, on the ASP for on the Power Systems Power Generation product, that's it's a tough one to gauge. That's really kind of a bit of a red herring because the size is so different across that portfolio. You could we have lower demand in the small stuffs, think RVs or power or backup gensets at home versus strong growth in data centers. So that can flex quite a bit and it's usually not a really great indicator. But we continue to see strength, I guess through the first quarter in that big stuff and that drives a higher ASP. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back over to Chris Clulow for closing comments. Chris Clulow : Great. Thank you everybody for joining and thanks. It's been a pleasure working with you all over the last couple of years. That concludes our teleconference for the day. We will be available as an Investor Relations team for the remainder of the day should you have any follow-ups. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

Operator: Greetings, and welcome to the Cummins Inc. Q4 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions]. A question-and-answer session will follow the formal presentation. We ask that you please ask one question, one follow-up, then return to the queue. [Operator Instructions]. As a reminder, this conference is being recorded. Joining us today are Chair and CEO, Jennifer Rumsey; Vice President and CFO, Mark Smith; and Chris Clulow, Vice President, Investor Relations. It's now my pleasure to introduce your host, Chris Clulow. Please go ahead, sir. Chris Clulow: Thank you, Kevin. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the fourth quarter and full year of 2024. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I'll turn you over to our Chair and CEO, Jennifer Rumsey, to start us off. Jennifer Rumsey: Thank you, Chris. Good morning. I'll start with a summary of 2024, discuss our fourth quarter and full year results and finish with a discussion of our outlook for 2025. Mark will then take you through more details of our fourth quarter and full year financial performance and our forecast for this year. As I reflect back on 2024, I am pleased to share that we delivered strong financial results with records in several parts of the business while also making significant progress in the execution of our Destination Zero strategy. I am incredibly proud of what Cummins and our employees accomplished for our stakeholders, and I feel energized about the opportunities ahead for us as we continue to demonstrate our relentless focus on advancing our strategy and executing our financial commitments as we lead the energy transition. It continues to be clear that our multi-solution Destination Zero strategy that leverages advancements and solutions from both our core and Accelera by Cummins businesses will continue to position us to succeed. We demonstrated this in 2024 as we further strengthened our position through evolving our portfolio and expanding and establishing relationships with new and longstanding key stakeholders and partners. Most notably for our core business in 2024, we introduced the Cummins HELM engine platform. Applied across Cummins' legendary B, X10, and X15 series engine portfolios, the HELM platforms provide customers with the option to choose the fuel type, either advanced diesel or alternate fuels like natural gas and hydrogen, that best suits their business needs and offers the power and performance customers expect while also reducing emissions. Cummins began full production of the X15N natural gas engine at the Jamestown Engine Plant earlier this year. And we are actively engaged with some of North America's largest and most demanding heavy-duty fleets as they look to reduce their carbon footprint. Additionally, in our core business, we introduced four new generator sets to the award-winning Centum Series, two each powered by Cummins' QSK50 and QSK78 engines. In response to high market demand, these new models have been engineered specifically for the most critical applications such as data centers. In order to further raise our capacity to meet rising power generation demand, we also intend to invest $200 million across our U.S., England, and India manufacturing sites. As you will see in our full year financial performance details and 2025 guidance, we are excited about the continued impressive performance and growth potential for our Power Systems business. Cummins also successfully completed the separation of our Filtration business, Atmus Filtration Technologies. Cummins will continue its focus on advancing innovative power solutions while Atmus is now well positioned to pursue its own plans for profitable growth. The separation of Atmus resulted in the tax-free exchange of shares, which reduced Cummins' shares outstanding by approximately 5.6 million in the first quarter. In our Accelera business, we completed the formation of our joint venture, Amplify Cell Technologies with Daimler Trucks & Buses PACCAR, and EVE Energy to localize battery cell production and the battery cell supply chain in the United States. This strategic collaboration will advance zero emissions technology for electric commercial vehicles and industrial applications. Amplify began construction this year of a 21-gigawatt hour factory in Mississippi with potential for future expansion as demand grows and is targeting start of production in 2027. Lastly, as we navigate this long and messy transition for our customers, we remain committed to pacing and refocusing our investments on the most promising paths as the adoption of zero-emission solutions slows in some regions around the world. As you can see in our fourth quarter results, we recorded charges related to the reorganization of our Accelera business segment as we underwent a strategic review to streamline the business while also ensuring we are set up for long-term success. We remain committed to Accelera and its mission, and this business continues to play an important role in our Destination Zero strategy. Now I will comment on overall company performance for the fourth quarter of 2024 and cover some of our key markets. Demand for our products remained strong across many of our key markets and regions, offsetting the softening in the North America heavy-duty truck market. Revenues for the quarter totaled $8.4 billion, a decrease of 1% compared to 2023 as lower North America heavy-duty and pickup truck volumes and the reduction in sales from the separation of Atmus were partially offset by continued high demand in our global power generation markets, stronger aftermarket, and North America medium-duty truck volumes as well as improved pricing. EBITDA was $1 billion or 12.1% compared to a loss of $878 million or negative 10.3% a year ago. Fourth quarter 2024 results included 312 million of charges related to the strategic reorganization of our Accelera business segment. This compares to the fourth quarter 2023 results, which included $2 billion of costs related to the agreement to resolve U.S. regulatory claims, $42 million of costs related to our voluntary retirement and separation programs, and $33 million of costs related to the separation of the Atmus business. Excluding those items, EBITDA was $1.3 billion or 15.8% compared to $1.2 billion or 14.4% a year ago. EBITDA and gross margin dollars improved compared to the fourth quarter of 2023 as the benefits of higher power generation volume, pricing and operational efficiency more than exceeded lower North America truck volumes and the separation of Atmus. 2024 revenues were a record $34.1 billion, essentially flat with 2023 despite the decline in North America heavy-duty truck demand in the second half of the year and reduction of sales from the Atmus separation. EBITDA was a record $6.3 billion or 18.6% of sales compared to $3 billion or 8.9% of sales in 2023. 2024 results include a gain, net of transaction costs and other expenses, of $1.3 billion related to the Atmus divestiture, $312 million of charges related to the Accelera reorganization, and $29 million of first quarter restructuring expenses. This compares to the 2023 results that included $2 billion of costs related to the agreement to resolve U.S. regulatory claims, $100 million of costs related to the separation of Atmus, and $42 million of costs related to the voluntary retirement and separation programs. Excluding those items, EBITDA was a record $5.4 billion or 15.7% of sales for 2024 compared to $5.2 billion or 15.3% of sales for 2023 as the benefits of higher power generation volumes, pricing and operational efficiency more than exceeded lower second half North America truck volumes and the reduction in margin from the Atmus separation. EBITDA dollars were a record in Power Systems, Distribution, and Engine segments. Our Power Systems business, in particular, finished 2024 with a record full year EBITDA of 18.4% of sales, up from 14.7% in 2023. I'm very pleased with the performance across our core business segments, and you will see from our guidance that we are excited to continue to build on this momentum. Now let me provide our overall outlook for 2025 and then comment on individual regions and end markets. We are forecasting total company revenues for 2025 to be down 2% to up 3% compared to 2024, and EBITDA to be 16.2% to 17.2% of sales, up from 15.7% in 2024. While we expect weaker first half demand in our North America on-highway truck markets, we expect many of our markets, particularly power generation to remain strong throughout the year. Industry production for heavy-duty trucks in North America is projected to be 260,000 to 290,000 units in 2025, flat to down 10% year-over-year. We anticipate weaker first half demand. And while we do expect a prebuy in the second half of the year, the uncertainty on the exact timing and extent is driving our wider guidance range. In the medium-duty truck market, we expect the market size to be 140,000 to 155,000 units, down 5% to 15% compared to 2024, primarily driven by weaker-than-expected recent net orders and a depleting backlog. Our engine shipments for pickup trucks in North America are expected to be 130,000 to 140,000 in 2025, flat to up 5% year-over-year. In China, we project total revenue, including joint ventures, to increase 5% in 2025. We are projecting a range of down 5% to up 10% in heavy and medium-duty truck demand in China. While export demand is expected to decline slightly, we are hopeful that the recent NS4 scrapping policy and other stimulus actions may lead to domestic demand growth. We have not, however, seen a meaningful recovery thus far. While there is still uncertainty around the China truck market for 2025, we expect strength in other markets, particularly power generation, where demand is expected to remain high as data center momentum continues. In India, we project total revenue, including joint venture to increase 10% in 2024, primarily driven by stronger power generation demand. We expect industry demand for trucks to be down 5% to up 5% for the year. For global construction, we expect flat to down 10% year-over-year, primarily driven by weak property investment and shrinking export demand in China. We project our major global high horsepower markets to remain strong in 2025. Revenues in global power generation markets are expected to increase 5% to 15%, driven by continued high demand in the data center market. Sales of mining engines are expected to be down 5% to up 5%. For aftermarket, we expect revenue improvement with a range of flat to an increase of 5% for 2025. In Accelera, we expect full year sales to be $400 million to $450 million compared to $414 million in 2024. In summary, 2024 was a record year for revenues, net income, EBITDA, and earnings per share. In 2025, we anticipate that demand will be slightly weaker in the North America on-highway truck markets, particularly in the first half of the year but offset by continued strength in the power generation market and resiliency in our Distribution business, given our strong aftermarket presence. Despite a relatively flat revenue forecast, we are expecting to improve profitability and cash flow. We remain committed to our multi-solution approach that is proving to be the right strategy for our customers, for the environment, and for the continued growth of Cummins while also returning cash to investors. Now let me turn it over to Mark who will discuss our financial results in more detail. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered strong operational results in the fourth quarter, which resulted in revenue achieving the top end of our prior guidance and EBITDA margins exceeding our projections. 2024 was a record year for revenues, EBITDA, and earnings per share, reflecting the strong demand for our products and the strong hard work of our employees. Now let me go into more details on Q4 and the full year performance. There were some notable non-routine transactions in '24 and 2023, and I'll quantify those and describe our underlying results to give a better understanding of the performance from regular operations. Fourth quarter reported revenues were $8.4 billion, and EBITDA was $1 billion or 12.1% of sales. As Jen mentioned, we underwent a strategic review of our Accelera segment, which resulted in charges of $312 million, of which $305 million were non-cash. Excluding this charge, we delivered EBITDA of $1.3 billion or 15.8% of sales. In the fourth quarter of '23, we reported sales of $8.4 billion and an EBITDA loss of $878 million. Excluding the regulatory settlement, Atmus separation costs, and voluntary retirement and separation program costs in Q4 2023, EBITDA was positive $1.2 billion or 14.4%. I know that's a lot to digest. In summary, on an underlying basis, EBITDA improved by 140 basis points on slightly lower sales, excluding those charges I just described. Fourth quarter revenues decreased by 1% from a year ago as organic growth was more than offset by the reduction in sales driven by the separation of Atmus. Sales in North America were flat while international revenues decreased 3%. Foreign currency movements negatively impacted sales by less than 1%. The EBITDA improvement of 140 basis points was primarily due to higher power generation volumes, pricing and operational efficiency, partially offset by lower North America truck volumes and the separation of Atmus. Now let me summarize some of the impacts by line item in the income statement. Gross margin was $2.1 billion or 25.4% of sales compared to $2 billion or 23.7% last year. The improved margins were driven by stronger power generation aftermarket demand, favorable pricing, particularly in Power Systems and Distribution and improved operational efficiency. Selling, administrative, and research expenses were $1.1 billion or 13.6% of sales compared to $1.2 billion or 14.2% last year due to lower research and development costs. Joint venture income of $87 million decreased $26 million primarily driven by lower technology fees from some of our international partnerships and costs incurred in the ramp-up of the Amplify Cell Technology battery joint venture here in the U.S., which was formed in the second quarter of '24. Other income was negative $25 million, a decrease of $75 million from a year ago, primarily driven by mark-to-market losses on investments related to company-owned life insurance. Interest expense was $89 million, a decrease of $3 million from a prior year, driven by lower weighted average interest rates. The all-in effective tax rate in the fourth quarter was 32.8%, principally due to non-deductible costs related to the Accelera reorganization. All in, net earnings for the quarter were $418 million or $3.02 per diluted share, which includes $312 million or $2.14 per diluted share of Accelera reorganization charges. Excluding the Accelera charges, EPS was $5.16 per diluted share. Operating cash flow was an inflow of $1.4 billion, just $37 million lower than the level we saw in the first quarter last year. For the full year 2024, revenues were a record $34.1 billion, slightly above a year ago and reflecting 4% growth if we exclude Atmus from both 2023 and '24. EBITDA in '24 was $6.3 billion or 18.6%. Excluding the gain in costs associated with the separation of Atmus, the Accelera charge in the fourth quarter, and first quarter restructuring expenses, EBITDA in 2024 was $5.4 billion or 15.7%. 2023 EBITDA was $3 billion or $5.2 billion and 15.3% excluding the regulatory settlement, Atmus separation costs, and voluntary retirement and separation programs. The increase in the EBITDA percent was primarily driven by higher power generation volumes, pricing and operational efficiencies, more than offsetting the impact of lower North American heavy-duty truck volumes and the reduction in margin from the Atmus separation. All-in net earnings were $3.9 billion or $28.37 per diluted share compared to $735 million or $5.15 per diluted share a year ago. 2024 results included the gain related to the separation of Atmus, net of transaction costs and other expenses of $1.3 billion or $9.28 per diluted share, charges related to Accelera reorganization of $2.12 per diluted share, and first quarter restructuring costs of $0.16 per diluted share. Capital expenditures in 2024 were $1.2 billion, flat compared to 2023 as we continue to invest in the new products and capabilities to drive growth, particularly related to the HELM platforms within our core business in North America. Our long-term goal is to deliver at least 50% of operating cash flow to shareholders. And over the past five years, we've returned 54% in the form of share repurchase and dividends even while we absorbed the significant acquisition in the form of Meritor. In 2024, we focused our capital allocation on organic investments, dividend growth, and returning $969 million to shareholders via the cash dividend and debt reduction. We also reduced our shares outstanding by approximately 5.6 million shares from the tax-free Atmus separation share exchange. I will now summarize the 2024 results for the operating segments and provide guidance for 2025. And thankfully for you and for me, I'm going to exclude all those nonroutine items in the following pages, and thanks for staying with me as I work through that. For the Engine segment 2024 revenues were a record $11.7 billion or up $28 million compared to last year. EBITDA was 14.1% of sales, flat compared to a year ago. In 2025, we project revenues for the Engine business will be down 2% to up 3% due to expected weakness in the North American truck market, particularly in the first half of the year, slightly offset by improved demand in pickup and some international markets. 2024 EBITDA is expected to improve with projections in the range of 14.2% to 15.2%. Components segment revenues were $11.7 billion in 2024, 13% lower than the prior year, and EBITDA was 13.8% of sales compared to 14.4% in '23. There were a lot of work done to improve existing operations but that was offset in the year-over-year comparisons due to the separation of Atmus. For 2025, we expect total revenue for the Components business to range from down 5% to flat as 2024 included Atmus in the first quarter through March 18. EBITDA margins are expected to be between 13.8% and 14.8%. In the Distribution segment, revenues increased 11% in '24 compared to 2023 and were a record $11.4 billion. EBITDA was 12.1% compared to 11.8% a year ago, driven by higher power generation volumes and pricing. We expect 2025 distribution revenues to increase 2% to 7% and EBITDA margins to be in the range of 12% to 13%. In the Power Systems segment, revenues were a record $6.4 billion, up 13% over 2023 driven primarily by power generation demand, especially data center applications. EBITDA was 18.4% or 370 basis points higher than 2023, driven by stronger volume, favorable pricing, and a continued focus on operational performance and cost reduction. In 2025, we expect Power Systems revenues to be at 2% to 7% and EBITDA to improve again and be in the range of 19% to 20%. Accelera revenues increased to $414 million in 2024 with a net operating loss of $452 million as we lowered costs in existing operations, partially offset by additional losses in the Amplify cell joint venture as it advances its operations. In 2025, we anticipate revenues to be in the range of $400 million to $450 million and net losses to reduce to $385 million to $415 million as we continue to make targeted investments aligned with market demand whilst reducing cost. We currently project 2025 company revenues to be down 2% to 3%. Company EBITDA margins are projected to be approximately 16.2% to 17.2% compared to an equivalent 15.7% in 2024. Our effective tax rate this year is expected to be 24.5%, excluding any discrete items. Capital investments will be in the range of $1.4 billion to $1.5 billion as we continue to make critical investments to support future growth. To summarize, we delivered record sales and profitability in 2024, including strong results in the second half of the year even as demand in the North American heavy-duty truck market declined. Cash generation has been and will continue to be a focus as we enter 2025, enabling us to continue investing in new products for new and existing markets, returning cash to shareholders, and maintaining a strong balance sheet. Last May, we laid out our updated financial targets through 2030. Our strong performance in 2024 represented encouraging progress towards those targets. And despite a relatively flat revenue forecast and expected weakness in North American heavy-duty truck, we expect to further improve profitability and cash flow in 2025. Thanks for joining us today, and let me turn it back over to Chris. Chris Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please re-join the queue. Operator, we're ready for our first question. Operator: Thank you. [Operator Instructions]. Our first question today is coming from Angel Castillo from Morgan Stanley. Your line is now live. Angel Castillo: Hi. Thanks for taking my question, and congrats on another strong quarter here. Just wanted to unpack the power generation guide of 5% to 15% a little bit more. Could you just split that out between kind of price and volume? And then maybe just tying into that, I think you mentioned a new investment of 200 million in power gen. Can you just talk about maybe what's entailed in that? I thought, I guess there was already an expansion of doubling capacity so what is kind of the incremental being done? Jennifer Rumsey: Yes. So as you said, we're currently in the midst of a $200 million investment across our plants in and see more Minnesota, UK, and India to ramp up capacity to meet what is a growing demand for power generation products. And so you're seeing in that guide and expectation that we have been able to take up capacity. We're continuing to look at strategic pricing and where we can bring value to the customer so you've got some price in there as well. But really, it's about capacity ramp-up and continued sales of larger engines. In the power generation and data center market, it's really the 50 to 60 liter, the 78 and the 95 liters so these are large engines as we're able to bring more capacity online in our supply chain and our plants, you see that flowing through in revenue. And we expect that trend to continue over time. And so we're tracking on plan or even slightly ahead of plan to double our capacity by end of this year and looking forward to being able to meet what is a really strong demand from those customers. Angel Castillo: That's very helpful. And then maybe as a follow-up, just on separate on the trucks. Can you just give us your latest thoughts on EPA27? It sounds like you're still assuming some prebuy in the second half. But just given, I guess, what we've seen from the administration so far, any thoughts on the likelihood of any kind of challenges to the EPA27 rule? Jennifer Rumsey: Yes, our current view is that we expect the EPA27 regulations will stay in place. Many companies, including us, have been investing over multiple years in those products to bring those products to market, and we're looking forward to having a nationwide standard again in '27. And with that, we are still anticipating some -- both economic recovery and prebuy happening in the North America trucking market that helped bring higher revenue in the second half this year and into next year. We do anticipate there'll be more discussion and potential challenge over the greenhouse gas regulations that we see out into the 2030 and beyond time frame. Operator: Thank you. The next question is coming from Stephen Volkmann from Jefferies. Your line is now live. Stephen Volkmann: Great. Good morning, everyone. Maybe starting off, can you just talk a little bit more about the Accelera restructuring? And how have you changed the focus of that business? And what are you doing less of or more of or just some color around that? Jennifer Rumsey: Yes, I'll start and then Mark can add if he wants to share more detail. But really, this business has all along been about remaining agile and investing as we see technology advancing and markets starting to move in these zero emissions technologies. And we formed it through a number of acquisitions as well. So what that meant was we had kind of a distributed footprint and investment coming from those different acquisitions, and so we really looked at where we see market moving. We expect that battery electric vehicles will be important in some of our commercial vehicle and industrial applications, and we feel well positioned with the battery cell joint venture and some of the wins that we have with customers as that market develops so we're continuing to invest there. We're continuing to invest but pace investment in electrolyzers as we've seen some slowing in customer demand and uncertainty around incentives there, and then being selective in fuel cells and some of the other technologies where adoption continues to push out. But we think we're well positioned. Frankly, the slower and messier this goes, my view is the better it is strategically for Cummins. And so we're positioning ourselves in the places where we see that market and technology beginning to increase. Stephen Volkmann: Okay, good. Sorry, I thought Mark was going to add something. Can I ask -- well, you've been talking a lot as it is. Hopefully, you'll be doing less of that this year on all these adjustments. Can I just follow up -- can I follow up on the HELM platform? Do you have targets relative to the types of unit volumes you might expect either on the nat gas side or on any of the other engine -- sorry, any of the other fuel options that you can use with that platform? Jennifer Rumsey: We've got -- the rate of -- the beauty of the HELM platform is it's got that fuel flexibility. And so the reality is we're still going to sell a lot of the diesel version of that, and it will be a higher efficiency version, which means lower CO2 and lower fuel costs for our customers. We've set a goal of getting to 8% on the natural gas version of that. We're starting to see customers adopt. PACCAR has launched it. Daimler Trucks will launch that 15-liter natural gas this year. Fleets are testing it. I was with a big customer last week. They're finishing their field testing. They feel good about the product, and they're looking to start to increase penetration, but it really depends on diesel fuel prices and regulation and customer CO2 goals. And so it's hard to give specific numbers on the rate of natural gas or hydrogen adoption because of that dependency on infrastructure cost and regulation. Operator: Thank you. Next question today is coming from Jerry Revich from Goldman Sachs. Your line is now live. Jerry Revich: Yes. Hi. Good morning, everyone. In Power Systems, you had a really excellent 30% year-over-year growth in revenue per unit in the quarter, so the ramp in the supply base was progressing nicely. I'm wondering if you could just update us on how much more throughput you expect to get out of the supply base in 2025 for those large products. And I appreciate there could be a wide range of outcomes but would love to get your updated views on that? Jennifer Rumsey: Well, I think it's important to remember that the revenue growth, in particular, for 2024 was also about launching those new Centum products, so we're seeing new products coming online that serve the market in addition to ramping up capacity. And for this year, it really is focused on continuing to max out our capacity capability that we have when we're making the investment and more capacity across that range of products. And the team has done a really phenomenal job of doing that, improving operating efficiency, working with the supply base to try to get as much out of what we have. But there's some major investments that need to happen by the end of this year to really get to the full doubling of capacity. Mark Smith: So unfortunately, Jerry, units are not a great indicator just because the size of the generator set we've been selling is going up. The average selling price has gone up a lot over and above pricing, just the size of the set that we're selling. So the revenue has outgrown the units significant. Jerry Revich: Nice problem to have. And separately on the China truck market, as you mentioned in the prepared remarks, there is some optimism in the market about potentially stronger demand. Can you just calibrate us, I believe, including the JV and wholly-owned business, China truck profits are maybe 10% of total company profits at this point. And given we're at the trough of the cycle, is it fair to think about pretty attractive incremental margins if demand does indeed surprise the upside? Mark Smith: Yes on the latter. I mean, China in total, maybe on a more normal run rate would be in the range of 15% to 20% of our earnings. And yes, on-highway would typically be more than half of that so you're in the ballpark, Jerry, yes. And there's no massive structural investments going on there in the current year. So if we get more volume, we'd expect to convert that into more profits. There's also just some lumpiness around tech fees and other things. But I think the underlying operational business is well set as it's done in prior cycles when demand improves, we see that. And I think that just reinforces how well the Engine business and Components did in '24. Not just did we have weakening heavy-duty truck in the second half of the year but we had weaker China throughout the year. So hopefully, at some point, confident China is going to turn. We don't have a lot of visibility into that right now. Hopefully, that's another leg to come. Operator: Thank you. Next question today is coming from Tim Thein from Raymond James. Your line is now live. TimThein: Thank you. Good morning. Maybe I'll ask 1 to start on components, Mark. Just as you think about the margin outlook for '25 on flat to down revenues, a pretty nice improvement. I'm wondering how much of that is -- is it maybe a benefit from lapping the Atmus spin or separation? Or is there -- obviously, there's more to it than that. So maybe just a line or two in terms of what you're projecting there for Components. Mark Smith: I think when you look across the company, we've done a lot on cost reduction. It hasn't been enormous in any given quarter, but we've been working at it really since the fourth quarter of 2023 when we announced voluntary separation package. We did a lot of work internally during 2024 to look at how we weighted the amount of resources we put between lines of business, functions, regional structures. And a lot of this work has paid off in terms of improving our cost structure and focus. And so yes, the Components business is going to benefit from some of that. We're not breaking it out separately but what was formerly known as Meritor, Drivetrain, and Braking Systems business, results have continued to improve their underlying. So I think there are a number of things. We are working incredibly hard on a flattish revenue environment to drive cost and efficiency where we can. TimThein: Okay. And then Mark, on the Accelera, just in light of the restructuring and given what's -- how the global backdrop is changing or has changed, the expectation to get that business to EBITDA breakeven by '27, is that still in the cards or you're thinking that maybe is a tougher one to hit? Mark Smith: Yes. I think overall, relative to our 2030 targets for the total company, we feel like we've had a really good start in 2024 and on track. And we're doing a bit better on the core business and headwinds have come more frequently and more severely to Accelera. So we are committed to significant loss reduction. But right now, we are not on track towards that breakeven, but we do feel we're very much on track for the overall company targets. And that's really the reason why we took more pronounced actions or the Accelera team did in the fourth quarter, recognizing that we're not going to get enormous help from demand here in the near term, Tim. So we're managing what we can and in the context of overall company results, we feel confident, but we are not, right now, on track to get to breakeven as we sit here today. Operator: Thank you. Next question is coming from Kyle Menges from Citi. Your line is now live. Kyle Menges: Thank you. I was hoping if you could just comment on how you're thinking about R&D spend in 2025 versus 2024, maybe more specifically within Engine and Components. And then just beyond 2025, how you're thinking about that and how we should be thinking? Mark Smith: Yes, good question. So I think beyond 2025 is where we should see more momentum to the downside on Engine expense. We did see some improvement through the year in the Engine business. We've got a lot of new product launches, both in Engines and Components in 2025. But after we get through those launches and through 2027, that's definitely part of our margin expansion story in those two businesses, but not a dramatic shift this year, some puts and takes between Engines and Components. Kyle Menges: Thanks. That's helpful. And then just could you comment a little bit on how you're thinking about the parts outlook for 2025? Mark Smith: Yes, Parts held up pretty well, in fact, pretty a little bit better than expected in the fourth quarter across our businesses, and so we think in the range of flat to up 5%. Probably some pricing baked in there. So yes, growing in line with the economy, I would say, at least on par with the economy with what we know today. Operator: Thank you. Next question is coming from Jamie Cook from Truist Securities. Your line is now live. Jamie Cook: Hi, good morning. Nice quarter. I guess similar question that Tim asked on, I think it was the Components business. Just the margins mark in Power Systems are very good despite sort of what I would call a muted top line forecast. So is that just pricing in some of the new products? And then I guess, how do you think about margin targets relative to the ones you just gave us, I guess, last year? Is it looking conservative? And then my second question obviously, lots of puts and takes around tariffs and who knows what happens. But are there any changes in your -- how your terms and conditions or contracts with your customers that if we do get into an environment where tariffs and that causes price increases, that we're able to absorb costs or increase price more frequently relative to last time within Engines, I guess? Mark Smith: Great. So yes, Power Systems doing well. I think continuing to focus on supply chain efficient output. They did a great job last year so I don't want to sound like we're dissatisfied. Quite the opposite, very impressed, but still think there's more to come on raising volume, raising productivity, and a little bit on pricing Power Systems. So all of those things contribute towards raising the margin guidance for the year and quite a bit above the fourth quarter levels. And I guess if we really had a robust U.S. economy, we could see growth in some of the smaller generator sets. We have high market share in some of the consumer segments that are particularly robust. So I guess that -- we don't see signs of that, but if we want to get on to the bullish side and saw more strength in the U.S. economy, that could be another leg to help. On tariffs, by and large, our strategy is to make most of our products in the market in which they're sold. But of course, we do have a global supply chain and we -- of course, nobody knows exactly what the tariff situation is going to be. But to the extent that we do incur them, then we think it's important that the market feels those and we'll look to pass those on. Let's hope that's not significant for everybody involved. But really, we're just focused on controlling what we can control. And I think, yes, we've got secular tailwinds in Power Systems, but the biggest driver is being able to scale growth effectively and pushing out cost. And then you don't see it on the inside but the work we've done inside to try and simplify our structure, improve the speed of decision-making, all of those things help and have helped kind of raise the bar in 2024. Operator: Thank you. Next question is coming from David Raso from Evercore. Your line is now live. David Raso: Hi, thank you. I'm trying to better understand the margin expansion in Engines and really, for that matter, of Components. First, the D&A, the growth in the D&A, is that mostly in Engines or Components? It's just the margin improvement is impressive but I'm just wondering it drives it down a little bit because there's more D&A than it is operational, but if you can…? Mark Smith: Well, there is an increase in D&A because that's where we're investing most of the capital in North America, particularly in the Engine business over the last couple of years. David Raso: So of the 100 D&A increase, is it 50 Engines, 25 Components? Just some sense so I can get a better sense of the underlying operation. Mark Smith: Yes, I mean, it won't be significantly in distribution. Power Systems, whilst we're increasing investment is still modest relative to those 2 segments. And so on an incremental basis, most of it is going to go through Engines and Components, a little bit in corporate, which ends up mostly in Engines and Components, yes. David Raso: Okay, that's helpful. And then even with that, it looks like there still is some slight operating, let's say, non-D&A margin improvement in Engines. What's driving that? Is it a little bit of mix? Is it -- I'm just trying to think about maybe the new medium engines you're outperforming the market. How to think about those margins versus heavy? Because it's all wrapped in the idea of trying to figure out where do you think Engine margins are as we sort of move out of '25 and people start to pontificate about earnings power in '26 with the prebuy in the Engine division. Mark Smith: Yes, I think those are all really important questions and will be big contributors to the long-term performance. In the near term, I think we'll continue to expect to do well in the aftermarket side, of which the Engine business is our biggest single driver. So that's probably where there's still some pricing opportunity into 2025. And then yes, the engineering starts coming down enormously, but I think we've come down off the peak there, Components probably going up a little bit. But those would be the main drivers. And as you can see, we haven't factored a lot in from China yet so really, it's cost control and aftermarket in the near term. Operator: Thank you. Next question is coming from Avi Jaroslawicz from UBS. Your line is now live. AviJaroslawicz: Hi, good morning, guys. I guess in terms of your guidance for the market outlook for North America heavy-duty trucks this year, it sounds like if, for whatever reason, you don't do a pre-buy materialized this year that you'd expect retail demand may be still to be negative in the second half. So I guess, one, am I interpreting that correctly? And can you just discuss how you're thinking about it? Jennifer Rumsey: Yes. I mean, I think if you look at the underlying performance in the heavy-duty market, spot rates dropped early in '23, so truckload carriers have really had challenges now for two years, and I think there's a very real chance that we'll see improvement in that over the course of this year, just depending on what the underlying economy and interest rates do. So there's some potential upside in the second half for that in addition to this prebuy phenomenon that we would anticipate would lead to a stronger second half versus first half. The range is quite wide because how high that goes is really dependent on the prebuy and when that starts. AviJaroslawicz: Got it, okay. And then in terms of medium-duty, just breaking down kind of market share gains versus market growth for 2024. How did those net against each other? And then in terms of your sales guidance for this year within Engines, are we thinking about further share gains this year or not as much? Mark Smith: I think really, I think we're talking about following the market in 2025. There's been a long track record of significant market share gains in that market. Our engine is clearly the leader in that market and there were some share gains. But going forwards, it's very much primarily going to be truck in the market, but there can be some modest changes around that from where we are now. Jennifer Rumsey: There is a buy down for the year, it’s reflective of what we've seen in order made in backlog. Mark Smith: Yes. It's industry -- the industry orders, we will feel that, yes. Jennifer Rumsey: From a product perspective, we continue to feel really positive about how our products are performing in the market and our position across medium and heavy duty. Operator: Thank you. Our next question is coming from Rob Wertheimer from Melius Research. RobWertheimer: Thank you. I had two questions around Power Systems, if I may. And one is, as this data center market continues to develop, historically at least, I suppose, the selling an engine is one thing and then servicing is another. And if you have backup power, it doesn't get turned on that much and it's not as profitable. But obviously, there's a high uptime, high criticality kind of operations. Do you see any opportunity to change that profit algorithm, such that you'll be making more recurring revenue or otherwise on that massive build-out of engines that you're going to do? And then secondly, if I can just wrap it in. You've had excellent results in Power Systems. I'm not sure if all of it's really this surge in data center or maybe the stuff you've touched on a couple of times on the call already, operational improvements. I wonder if you could just expand on how you've made that business better. Jennifer Rumsey: Sure. So first on the data center market, so with power generation and data centers, we have engine, gen sets, and then a good portion of that business also flows through the distribution business. So the strong performance you see in the distribution business last year and the outlook is reflecting the strength in power generation as well as aftermarket. But as you noted, they don't, today, run a lot for backup power. So typically, Parts revenue is relatively low as we look at shortage of power availability, and how do you meet power demand in the U.S. and around the world. There's a potential for some shift in that. And so strategically, we're considering how we think about our role in that, which was part of the discussion on micro-grids and what we do there today, but today, still very much heavily backup power and because of the high reliability demand for those applications. In terms of the Power Systems performance, we undertook now, two years ago, focused effort to really look at operating performance structure, how we made sure, we were investing in the right products, and getting returns on the investments we were making for our customers, and working through some of the supply challenges that have built up through the pandemic, and then the rebound in the market after that. And so that really has come together at exactly the time when this data center trend has also happened. And so we really had strong underlying operating structure and performance in the business that we continue to drive improvement in, as we're also taking up volumes. And so both of those are contributing to really the remarkable profitability improvement that you've seen in Power Systems. Mark Smith: Just to add, Rob, the distribution, of course, adds that extra slice of revenue on data centers. And in fact, it's fundamental to winning and supporting this data center business around the world. I think that's one of the strengths we have and a few others have, and that's why you see that the market demand is concentrated amongst a couple of large engine manufacturers like us because of that service capability. But just to underline what you said, Rob, and your intuition, it would be very wrong to attribute Power Systems improvement just to data centers. That's a journey that's still got legs left but tide -- the performance level has been elevated across that segment, including in the alternator business, which supplies across -- really across that supply chain. So we're incredibly pleased with the way that business has improved. Operator: Thank you. Our final question today is coming from Tami Zakaria from JPMorgan. Tami Zakaria: Hi, good morning. Thank you so much. So the distribution segment guide, the 2% to 7%, it seems quite healthy. Given the underlying truck market outlook, are you able to comment on the core distribution outlook versus the power generation-related services? The reason I ask, if power generation demand holds at these levels, it seems like distribution could see another double-digit growth year in 2025. So any comments there would be helpful. Mark Smith: Yes. I think you're typically seeing Parts growth maybe slightly above the rate of economic growth. And then in this cycle, you're right, the power generation demand in data centers and in some other applications has really provided that extra leg. So I would say in the short run, yes, power gen will be the main swing factor. I would say that some of the other segments, mining, oil and gas, if we look beyond this year, we'd expect to see more growth in the future. There's not enormous momentum in those businesses, but they're also important end markets for distribution. One of the reasons that we like distribution; it generates a lot of cash. It's less volatile than other parts of the business and have that really strong aftermarket piece, which doesn't get the extraordinary growth rates that underpins the kind of year-to-year level of performance. So yes, distribution is doing well. And hopefully, the global economy strengthens and then all of our businesses will do well. Tami Zakaria: Got it. That's very helpful. And then one follow-up question on that comment that you expect some pre-buy in the back half, but the timing is uncertain. I'm curious what pre-buy lift is embedded in the current heavy-duty and medium-duty outlook for North America? I'm just trying to understand what the market could look like, let's see, if there is no pre-buy. Mark Smith: There are so many factors at play, but that's one of the factors we believe can help. We're going to start off at a fairly modest level in the first quarter. Although orders here yet in the fourth quarter of '24 were a little better than expected, I would say, but it's really, we're anticipating that strength in the second half to come somewhat from demand ahead of the regulations and understanding of how flexible the supply chain is for that industry. Again, I think we've all got fairly consistent views of the market at this point and we'll see how it plays out. A big factor, of course, is going to be the strength of the U.S. economy and spot rates and freight activity. All these factors weigh in. The main thing to know is we've got a stronger second half in heavy-duty truck built into our forecasts. Q1, yes, is going to probably be the low point of the year with what we expect right now. The question is, will we get the improvement in the second half? Operator: Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments. Chris Clulow: Thank you, everyone, for joining our teleconference today. That concludes the question-and-answer session. As always, the Investor Relations team will be available for questions after the call. Thank you. Operator: Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator: Greetings, and welcome to the Q3 2024 Cummins Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Chris Clulow, Vice President of Investor Relations. Thank you. You may begin. Christopher Clulow: Thanks, Julian. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the third quarter of 2024. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we'll refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. I will now turn you over to our Chair and CEO, Jennifer Rumsey to kick us off. Jennifer Rumsey: Thank you, Chris, and good morning. I'll start with a summary of our third quarter accomplishments and financial results. Then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2024. Mark will then take you through more details of both our third quarter financial performance and our forecast for the year. Before getting into the details on our financial performance, I want to take a moment to highlight a few major accomplishments from the third quarter. In September, we started full production of our X15N natural gas engine at our Jamestown Engine plan, which is the first version of our 15-liter helm platform to launch in the U.S. the X15N delivers performance, durability and power required in a variety of applications and is an excellent alternative for fleet looking to significantly reduce their carbon footprint. This is an important milestone in the execution of our Destination Zero strategy as we work to reduce the impact of our products today while investing in cleaner power solutions for the future. Some of North America's largest and most demanding heavy-duty fleets are actively engaged with Cummins, following their own tests of the natural gas engine in the field. For example, UPS has purchased 250 Kenworth X15N powered trucks in a move the company highlights as an important part of decarbonizing its ground fleet. Cummins had the opportunity to further showcase our Destination Zero strategy in action through our diverse portfolio of power solutions at the recent IAA transportation event in Hannover, Germany. At this event, we displayed our fully integrated powertrain concept featuring our helm engine platforms and e-components. I also personally had an opportunity to hear feedback from Cummins' customers on the challenges they are experiencing with their decarbonization strategies. Common remains confident that our customers' needs will not be met with a single solution. And this event was a great opportunity to further demonstrate that Cummins and Accelera have the right components in our portfolio to provide the necessary solutions for our customers and their needs as they evolve over time. In addition, in October, Accelera by Cummins celebrated the opening of its electrolyzer manufacturing plant in Spain. The plant has a capacity to produce 500 megawatts of electrolyzers per year, scalable to more than 1 gigawatt per year in the future. The sustainably designed facility is expected to create 150 highly skilled jobs in the region with the potential to reach 200 jobs as production grows, and will help scale up development, manufacturing and adoption of zero emissions technologies in Europe. Lastly, I'd like to express that our hearts are with those who were impacted and are still recovering from Hurricanes Helene and Milton here in the U.S. We are grateful that our employees in the impacted areas are all accounted for and safe. While we did see minor impacts in our third quarter financial results, I'm proud of how our Cummins employees rallied together to help impacted employees, communities and facilities, and respond to this tragedy while minimizing disruption in our industry. Now I will comment on the overall company performance for the third quarter of 2024 and cover some of our key markets, starting with North America, before moving on to our largest international markets. Demand for our products remains strong across many of our key markets and regions, offset by softening in the North America heavy-duty truck market that was in line with our expectations. Sales for the quarter were $8.5 billion, flat compared to the third quarter of 2023, primarily driven by continued high demand in our global power generation markets and improved pricing. This was offset by lower North America heavy-duty truck volumes and the reduction in sales from the separation of Atmus. EBITDA was $1.4 billion or 16.4% compared to $1.2 billion or 14.6% a year ago. Third quarter 2023 results included $26 million of costs related to the separation of Atmus. EBITDA and gross margin dollars improved compared to the third quarter of 2023 as the benefits of higher power generation volumes, pricing and operational efficiency more than exceeded the reduction in margin from the Atmos separation. Our third quarter revenues in North America declined 1% to $5.2 billion as a softening heavy-duty market, lower light-duty volumes and a reduction in sales from the Atmos separation were mostly offset by strong demand in the medium-duty truck and power generation markets. Industry production of heavy-duty trucks in the third quarter was 68,000 units, down 10% from 2023 levels, while [indiscernible] unit sales were $25,000, down 14% from a year ago. Industry production of medium-duty trucks was 41,000 units in the third quarter of 2024, an increase of 12% from 2023 levels, while our unit sales were 38,000, up 18%. We shipped 28,000 engines Vistalantis for use in the RAM pickups in the third quarter of 2024, down 31% from 2023. Revenues in North America Power generation increased by 18%, driven by continued strong data center and mission-critical power demand. The impressive power generation performance in North America and across the globe helped us achieve record sales and profitability in the Power Systems segment. Our third quarter international revenues increased by 2% compared to last year. Third quarter revenues in China, including joint ventures, were $1.5 billion, a decrease of 4% as weaker domestic truck and construction volumes were partially offset with higher data center demand. Industry demand for medium heavy-duty trucks in China was 207,000 units, a decrease of 15% from last year. Demand in the China truck market continues to run at low levels with continued weak domestic diesel market and now softening natural gas orders as the diesel gas price differential narrows. The light-duty market in China was down 4% from 2023 levels at 424,000 units, while our units sold, including joint ventures, were 30,000, an increase of 14%. Industry demand for excavators in China in the third quarter was 44,000 units, an increase of 10% from 2023 levels. Our units sold were 8,000 units, an increase of 14% as a result of QSM 15 penetration of both new and existing OEM partners and export growth. Sales of power generation equipment in China roughly doubled in the third quarter, primarily driven by continued growth in data center demand. Third quarter revenue in India, including joint ventures, was $641 million, a decrease of 12% from the third quarter a year ago. Industry truck production decreased by 12%, while our shipments decreased by 18%, driven by a slowdown in manufacturing and government infrastructure spending. Power generation's revenues increased 49% year-on-year, driven by prebuy demand for stationary power out of the CPCB4 emissions regulation changes as well as increased data center demand. Now let me provide our outlook for 2024, including some comments on individual regions and end markets. Our revenue outlook for 2024 remains consistent with our prior guidance of down 3% to flat. We are improving our overall EBITDA guidance for the year to be approximately 15.5%, the top end of our prior guide of 15% to 15.5%. We now expect higher revenue and stronger profitability in our Power Systems and Distribution segments, offsetting lower revenue and profitability expected in our Components segment. We are maintaining our forecast for heavy-duty trucks in North America to be 255,000 to 275,000 units in 2024. In the third quarter, we saw industry demand softening in line with our expectations, and we continue to expect further softening in the fourth quarter. In the North America medium-duty truck market, we are also maintaining our forecast to be 150,000 to 160,000 units, flat to up 5% from 2023 as we continue to benefit from an elevated backlog and strength of vocational orders. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 135,000 to 145,000 units in 2024, with the planned model year changeover likely to drive sharp, but temporary production decline in the fourth quarter. In China, we project total revenue, including joint ventures to decrease 4% in 2024 as a continued weak domestic diesel truck market is partially offset by higher power generation demand. While we have not yet seen a material impact from the recent stimulus actions, we are encouraged that the emphasis on demand side policies is a positive step forward to build economic momentum in China. In India, we project total revenue, including joint ventures, to increase 1% in 2024, primarily driven by strong power generation demand, which is offsetting lower on-highway demand. We expect industry demand for trucks to be down 5% to up 5% for the year. For global construction, we project down 10% to flat year-over-year, consistent with our prior guidance due to weaker demand in China. We are maintaining our guidance for global power generation markets to be up 15% to 20%, driven by continued increases in the data center and mission-critical markets. Sales of mining engines are expected to be down 5% to up 5%, also consistent with our prior guidance. For aftermarket, our guidance remains at flat to up 5% for 2024, with some softening in rebuild demand expected in the fourth quarter. In summary, we are maintaining our guidance on sales of down 3% to flat and improving our EBITDA guidance to be approximately 15.5%. Our performance in the third quarter, particularly in our Power Systems and Distribution segments resulted in strong profitability despite a softening North America heavy-duty truck market. While we do expect continued softening in several of our key markets in the fourth quarter, we are committed to delivering strong financial performance and returning cash to our shareholders. During the quarter, we returned $250 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. I continue to be grateful for the commitment of our employees and leaders around the world who are delivering for our customers while also achieving strong financial performance. Our impressive third quarter results and improved full year guidance continue to demonstrate that we remain well positioned to invest in our future growth, bringing sustainable solutions to decarbonize our industry and improve financial performance cycle over cycle. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered strong revenue and profitability in the third quarter. Given the strength, we are maintaining our full year revenue guidance and have increased our expectations for EBITDA percent to be at the top end of our prior guidance range. Third quarter revenues were $8.5 billion, flat from a year ago as organic growth offset the reduction in sales driven by the separation of Atmus. Sales in North America decreased 1%, while international revenues gained 2%. Foreign currency fluctuations negatively impacted sales by 1%. EBITDA was $1.4 billion or 16.4% of sales for the quarter compared to $1.2 billion or 14.6% of sales a year ago. That those year ago numbers included $26 million of costs related to the separation of Atmus. The benefits of pricing, strong operational efficiency and the absence of the Atmus separation costs were the primary drivers behind the improved profitability. Now let's look at each line item in a bit more detail. Gross margin for the quarter was $2.2 billion or 25.7% of sales compared to $2.1 billion or 24.6% last year. The improved margins were primarily driven by favorable pricing, which varied across our different segments, and operational improvements. Selling, admin and research expenses were $1.2 billion or 13.8% of sales compared to $1.2 billion or 14.3% last year, which included costs related to the separation of Atmus. Joint venture income of $99 million decreased $19 million from the prior year, primarily driven by lower technology fees in our engine business, costs incurred in the start-up of the AMPLIFY Cell Technologies, our battery cell joint venture, which is reported within Accelera and was formed last quarter. Other income was $22 million, an increase of $29 million from a year ago or improvement, driven by mark-to-market gains on investments related to company-owned life insurance. Interest expense was $83 million, a decrease of $14 million from prior year, primarily due to lower weighted average interest rates. The all-in effective tax rate in the third quarter was 19.2%, including $36 million or $0.26 per diluted share of favorable discrete items. All in, net earnings for the quarter were $809 million or $5.86 per diluted share compared to $656 million or $4.59 per diluted share in 2023. EPS benefited from the increased earnings and also a lower share count resulting from the tax-free share exchange associated with the separation of Atmus that was completed in the first quarter. All-in operating cash flow was an inflow of $640 million. Year-to-date operating cash flow was an inflow of $65 million, which included $1.9 billion of payments required by the previously disclosed settlement agreement with the regulatory agencies. Excluding the settlement, third quarter year-to-date operating cash flow was $2 billion compared to $2.5 billion in the first 9 months of last year. The lower operating cash flow this year is primarily due to higher inventory. We do expect to see stronger operating cash flow in the fourth quarter this year. I'll now comment on segment performance and our guidance for 2024. As a reminder, guidance for 2024 includes the operations of Atmus in our consolidated results up until the full separation, which occurred on March 18. Components revenue was $2.7 billion, a decrease of 16% from the prior year, while EBITDA decreased from 13.6% of sales to 12.9%, driven primarily by the dilutive impact of the Atmus separation and a weaker heavy-duty truck market in North America. Several facilities within our Drivetrain and Braking Systems business in North Carolina were impacted by Hurricane Helene at the end of Q3, disrupting production and causing us to record some costs in our third quarter results. Our employees have shown incredible resilience in extremely challenging circumstances and are working very hard to raise production levels. For Components, we expect 2024 full year revenues to decrease 12% to 15%, a decrease of 2% from the prior guidance at the midpoint, and EBITDA margins in the range of 13.3% to 13.8%, lowering the range from our previous guide of 13.7% to 14.2%. For the Engine segment, third quarter revenues were $2.9 billion, a decrease of 1% from a year ago. EBITDA was 14.7%, an increase from 13.5% a year ago due to operational improvements and positive pricing, including a retroactive pricing agreement in our light-duty business that was finalized within the third quarter. The benefits from pricing and lower operating costs more than offset weaker North American heavy-duty truck volumes. In 2024, we project revenues for the Engine business to be down 2% to [ 1% ], narrowing the range of the prior guidance, and EBITDA to be in the range of 13.7% to 14.2%, consistent with our communication last quarter. In the Distribution segment, revenues increased 16% from a year ago to a record $3 billion, driven by increased demand for power generation products particularly for data center applications. EBITDA increased as a percent of sales 12.5% compared to 12.1% a year ago, primarily due to higher volumes and pricing. We now expect 2024 Distribution revenues to be up 8% to 11%, an increase of 2% at the midpoint from our prior guidance, primarily due to stronger power generation markets. EBITDA margins are now expected in the range of 11.5% to 12%, also up from our previous guide of 11.3% to 11.8%. Results for the Power Systems segment set another new quarterly record. Revenues were $1.7 billion, an increase of 17%, and EBITDA increased from 16.2% to 19.4% of sales, driven by higher volumes, particularly in the power generation markets, improved pricing and other operational improvements. In 2024, we expect Power Systems revenues to be 8% to 11%, an increase of 4% at the midpoint from our prior guide. EBITDA expectations have also increased to approximately 18.3% to 18.8%, up from 17.75% at the midpoint of the prior guide. Accelera revenues increased 7% to $110 million, driven by increased electrolyzer installations. Our EBITDA loss was $115 million compared to a loss of $114 million a year ago as we continue to invest in the products and capabilities to support those parts of the business where strong growth is expected while reducing costs in areas where we assess the prospects for growth have extended into the future. In 2024, we expect revenues to be in the range of $400 million to $450 million and net losses to be in the range of $400 million to $430 million, both unchanged from last quarter. As Jen mentioned, given the strong performance in the third quarter particularly in Power Systems and Distribution, we're improving the full year company guidance for profitability. We still project 2024 company revenues to be down 3% to flat. Company EBITDA margins are now expected -- projected to be approximately 15.5%, which is at the top end of our prior guidance range. Our effective tax rate is expected to be approximately 23.5% for the full year 2024, excluding the tax-free gain related to Atmus and other discrete items, and down from our prior guidance of an expected tax rate of [ 24 ]. Capital investments will be in the range of $1.2 billion to $1.3 billion, consistent with our prior guidance. In summary, we delivered strong sales and record profitability in the third quarter of 2024. We will experience moderation in some markets in the fourth quarter, most notably North America heavy-duty truck. We have updated our projection for EBITDA to the high end of the prior guidance range due to strong execution, particularly the projected record full year EBITDA in Power Systems and Distribution. We took some steps to reduce costs in the fourth quarter of 2023 and the first quarter of 2024, continue to identify ways to streamline our business going forwards, leaving us well positioned to navigate any further economic cyclicality. We are on track to continue our trend of raising performance cycle over cycle whilst continuing to invest in the future. And that's encouraging given that this is projected to be a down year for North American heavy-duty truck production. Our priorities for the remainder of this year for capital allocation remains to reinvest for profitable growth, pay out our strong cash dividends and support our strong credit rating. Thanks for your interest today. Now let me turn it back to Chris. Christopher Clulow: Thank you, Mark. Now we'll begin our question-and-answer session. [Operator Instructions] Operator, we're ready for our first question. Operator: [Operator Instructions] And our first question comes from Steven Fisher, UBS. Steven Fisher: Congrats on the beat and raise. It's hard to find those in machinery world these days. Nevertheless, I think there were some investors that were a little concerned that maybe the Q4 guidance looks a little conservative after the strong Q3. I don't know how much of that is related to the storm impact in Components. But I guess the bigger picture question here is, even though it's maybe a little early, do you think there are enough positives to offset the rest of the downturn that we have in the heavy-duty truck market, however long that may last to keep EBITDA growing over the next year? Jennifer Rumsey: Yes. So let me just comment first, Steve. Thanks. Great to hear from you. Let me comment a little bit on the fourth quarter and what we expect. There's really 3 factors that I'd point to in the revenue guide for fourth quarter. We expect further softening in the heavy-duty market. I talked about the product changeover with [indiscernible] that will drive further volume reduction in that pickup truck business. And then just working days with year-end will be fewer, and we see across many of our markets, fewer working days associated with the holidays and normal maintenance and [indiscernible] during that period of time. So those are really the factors. As you can see, we're -- the team has done a great job of continuing to focus on profitability across the business, delivering strong decremental margins where we've seen reductions in heavy-duty, which takes a lot of effort. I just want to acknowledge the great work of the team and then leveraging some of the places that we have strength with really strong performance, of course, power gen that impacted Power Systems and DB. And we expect that to continue as we go into next year. Steven Fisher: Okay. And maybe just building on that last part there, I mean, how would you describe the momentum in Power Gen right now? I mean, is that new record revenues in the quarter? You're sold out on the 95 liters. Where are you on the capacity utilization on 50 and 78? What's driving the further upside from here? Is it mainly pricing? Or can you kind of push out more volumes? Jennifer Rumsey: It's really both. So over the course of this year, we've worked on strategic pricing and offsetting some of the inflationary costs that we've seen and pricing for value in that business. And we've been working on capacity in the supply base and our own operational improvements and launching the new [indiscernible] product. So all of those things have given us improvement over the course of the year. 95-liter is at capacity, but we've been able to increase capacity through these improvements by about 30% on that product in '24 of the new products. And then as we talked about previously, we are investing right now to double capacity in the 95-liter. That will come online late next year as we go into '26. We don't see any end in sight in terms of demand in that market. We're the rebuilds up on the 95-liter out the [ '27 ]. So really focused on how do we leverage the capacity we have now, investment we have now while we're bringing more online late next year. Mark Smith: And I think, Steve, the only thing I'd add to your first question is, we're not -- we're building our plans with a relatively modest start on heavy-duty truck to the first half of next year with what we see right now. So hear your comments and questions, and we're very focused on kind of managing through the cycle. Jennifer Rumsey: I will say, I mean, in terms of the impact of Helene and Milton, we're back to regular operation in that business and trying to just work through some of the backlog that built up during the period that we were most severely impacted, but it's been a really tremendous effort by the team there. We have multiple facilities in the Western North Carolina region within Cummins Drivetrain and breaking systems that have been dealing with the impact of that working. Operator: Our next question comes from Angel Castillo, Morgan Stanley. Angel Castillo Malpica: Congrats on a strong quarter. Just wanted to dive a little bit deeper into some of the dynamics that are maybe impacting the next couple of years. I saw some headlines around maybe the California Omnibus low NOx regulation, and some states maybe delaying the kind of model year '25 to maybe model year '26 type enforcement. Just any comments or maybe read-throughs to what maybe that tells you about the underlying kind of enforcement of those regulations and the potential for kind of prebuy into '25, just any broader read-through to maybe or just industry demand for your engines? Jennifer Rumsey: Yes. I mean what we've seen, of course, this year is the [indiscernible] bus regulations have gone into place. As we get into '27, we see commonization again between EPA and CARB, which we believe is a positive for the industry. What happens between now and then in terms of different states following those CARB regulations, as you noted some have pushed out, it's a little bit difficult to predict. But certainly, you see lower volumes this year in CARB even with some of the flexibilities that they've put in place to sell 200-milligram NOx product and strong demand nationwide. And so we're watching that space closely. I would say, overall, as Mark noted, we're projecting softening as we go into next year in the heavy-duty truck market and then still anticipating, depending on economic conditions, the prebuy likely starting at some point during '25 ahead of the '27 regulations. Angel Castillo Malpica: That's very helpful. And then just wanted to circle back on the prior question around 2025 for power generation. I think you indicated you kind of see growth in power systems and momentum continuing there. Just curious, it seems like your power generation guide of 15% to 20% was unchanged despite continued strong performance there. Can you talk about 2025, just early indications based on your backlog? Should we anticipate kind of that 15% to 20% type growth to persist into next year? Or how do you kind of see that based on kind of pricing and backlog indications today? Jennifer Rumsey: I mean, really that demand in that market is going to remain strong. So it's all about what we can do in terms of capacity and managing our supply base. Mark Smith: And that's one of the factors that gives us confidence going at the start of the year, that strong backlog and then, of course, distribution should be -- continue to be pretty resilient absent a big economic shock. Operator: Our next question comes from Kyle Menges, City. Kyle Menges: I was hoping I noticed within Power Systems, the Industrial portion actually pretty strong growth in the quarter despite certainly some competitors not showing great results in mining this quarter. So just would love to hear kind of what's driving that reacceleration and growth in that industrial portion and just how you're thinking about that into 4Q and into 2025? Jennifer Rumsey: I mean, overall, our guidance is pretty flat in the mining market. We've seen some rebuilds demand that you're seeing in those results, but really not significant shifts in that market right now. Christopher Clulow: Yes. I think overall, Kyle, I'd just add, yes, the mining is really the key market for us in the industrial side, as you know, and that has remained pretty resilient from our perspective, where it's moved a little down the world. We've maintained a pretty good both in the first-fit side as well as in the aftermarket, which drives the rebuild. Mark Smith: Don't overread in one quarter it. Kyle Menges: Got it. And then just a follow-up on Power Systems. -- looks like with the new guidance going to be doing incrementals of about 60% in 2024. So it would be helpful if you could frame just how we might think about incremental margins in that segment and in 2025? And I guess why wouldn't it be kind of close to 40% to 60% again? And what factors maybe could cause weaker incrementals next year for that... Mark Smith: I do get a use of pushing the Power Systems business a bit hard, so I'll probably stay off the 40% to 60%, but here's what I'd say. Part of the improvement was really a reprioritization and cost kind of reset at the start of this journey, which has really been going on for a couple of years now. So you get that benefit early on, and then there's been a lot more focus on pricing capacity and efficient capacity improvements. So yes, we still think there is more to come on the top line and the bottom line. I don't think we can continue to expect 40% to 60% incremental margins. We will provide specific updates here in February. But with what we know today, we would expect more improvement going into next year. Operator: And our next question comes from Jerry Revich, Goldman Sachs. Jerry Revich: I'm wondering if you folks can just expand on the margin performance in engine, really outstanding results in the third quarter. The guidance implies margin expansion in the fourth quarter on lower sales. You mentioned operating efficiencies in the prepared remarks. Can you just expand on where those efficiencies are versus pre-COVID levels? And it feels like there's momentum into '25 even if demand is softer, just given where the exit rate looks to be in the fourth quarter versus the cost structure in the first. But I'm wondering if you could just expand around those points, if you don't mind? Mark Smith: Yes. I think there's been a lot of improvement pre-COVID, no doubt about that, but we're still not all the way back to those kind of 2019 operating levels. So I still think there's more room to come on operational efficiencies. And then we've talked about kind of being at the peak part of this investment cycle. Of course, the strong medium-duty demand has really helped in this environment and our positions continue to strengthen there. So that's really helped. And whilst we have flagged, and it is going to happen, there is going to be short, but sharp reduction in pickup truck engine production in the fourth quarter, we view that as largely temporary. And I think that with all the information we have today that that's going to resume. So I think the top line will face some first half year pressure on heavy duty relative to the first half of this year, but yes, continuing to focus on operating costs. I mentioned briefly in my remarks that we've really been making adjustments to our organization structure and costs since for the fourth quarter of last year. And whilst that hasn't been dramatic in any period, I think that helps set us up well going into next year. Just so you didn't miss it, I did point out not to make a huge deal, but we did get some extra pricing, which helped in the third quarter that was retroactive back to the start of the year. So we won't get all of that again in the fourth quarter, but nevertheless, I think the cost base, the operational efficiencies, maybe not in the short term, but maybe in the medium term, we get some boost from China as well because our earnings are okay, but far from what the full potential of China is in the engine business. So I think there's a lot to look forward to, but the exact timing of earnings accelerating the engine business isn't clear yet. So we've kind of got to focus on the cost and efficiency certainly through the next 9 months. Jerry Revich: Super. And can I shift gears and ask about the natural gas engine demand now that you've opened up a full rate production. Can you just update us on your expectations of natural gas share in the market 6 to 12 months out based on the demand and the performance of the production ramp that you alluded to in the prepared remarks, please? Jennifer Rumsey: Yes. I mean we've said that we think we could get up to a -- potentially 8% share in the market with the natural gas product. We had several big fleets that we're testing it during development. And I noted the [indiscernible] UPS has played. So how they start to ramp up volume, get increasing confidence in the strong performance and efficiency. Fundamentally, in most places, it can provide, not only a reduction in CO2 for fleets that want to lower the CO2 footprint, but also reductions in operating costs because of the fuel price differential between natural gas and diesel. And so fleets that are interested in pursuing that, I think over time, we'll ramp up a target for me to exactly predict because it also depends on some of the economic conditions that are impacting [indiscernible] today of what that will be over 12 months. But we're excited to have that product out now with Kenworth and Daimler will be launched as well in '25. So they'll be positioned with that in the market also. Operator: And our next question comes from Jamie Cook, Truist Securities. Jamie Cook: Nice quarter. I guess my first question, you guys have talked about adding capacity on the large engine side. One of your peers came out last quarter and talked about adding even additional capacity in large engines because of demand. So I'm wondering if you're making any changes to your capacity increase that you've talked about historically? And then to what degree do -- how much incremental capacity are you adding that could potentially benefit 2025? And then my follow-up question, Mark. Again, I know someone asked the questions on Q4 versus Q3 margins, and there's an implied step down, but how much was that repricing that you talked about that helped the engine business that maybe we view as onetime? And then within Components, how much of an impact was the hurricanes? Jennifer Rumsey: Thanks, Jamie. I'll take the first one and let Mark take the second one. So over the course of this year, what you've seen is new products for power generation, capacity within the constraints of the equipment and our supply chain that we have today going up about 30% on the 95-liter. And so that, of course, is going to carry over into next year. And the mantra and power systems right now is just one more, and how do we continue to squeeze every shift, every day, one more out of what we have within our current constraints. And so we'll continue to focus on that and then, of course, working to try to get that doubling of capacity for the 95 by next year. We're continuing to look at it. We want to be smart about where we can make reasonable investments to take capacity up further where we see strong market conditions. So nothing really specific to say right now, but just that we're continuing to look at our footprint and where there may be opportunities. Mark Smith: On the second part, the first thing I said, we're going to get natural -- I will answer the specific questions you Jamie. I just want to share that we're going to get natural variations from quarter-to-quarter, but I just want to remind that we're very focused on the cost side, on the efficiency side, of course, getting value for the products, which are helping our customers be successful is also important. So yes, the the kind of retroactive element of the pricing was about 50 basis points ballpark for the company in the quarter. There is a go-forward benefit just not as much as that. And then the costs you're talking you're talking low tens of millions of dollars between components and the elimination segment where we incurred some costs for the impacts of Hurricane Helene. So there are puts and takes. There are some positives, there are some negatives in the results. I think the revenue guide, you can see we haven't changed because we are very clear the heavy, medium and pickup truck production and the way that the very well-run customers like to work is to have predictability around the production level. So I think the revenue is well pinned. And I think the key for us is maintaining this strong cost and efficiency discipline as we go into next year and continue to focus on preparing ourselves for more demand and growth in the future and raising these margins as we set out at the Analyst Day and generating more cash, that's a big focus. Operator: Our next question comes from Tami Zakaria, JP Morgan. Tami Zakaria: Good morning. Thank you so much. So I sort of adding one more question on incremental margin because I think it's really the start of your performance in recent quarters. So when I look at your incremental margin in the third quarter, it's almost 50% ex the filtration separation, which is quite impressive versus a long-term target of over [ 25 ]. So do you believe your incremental margin target can move up for the long term given the pargeneration product success, engines are seeing some retroactive pricing as well it seems and you have a lot of new products coming in, in the next couple of years. So would you consider revisiting your long-term incremental EBITDA margin target as you begin next year? Mark Smith: I don't think -- I think we'll give guidance just for the year, and then we'll see how we do. There's a lot of moving parts to our portfolio. Of course, we're feeling like we've done a pretty good job in our core business. Since we had our Analyst Day, incrementally, there have been more headwinds to the Accelera side of the business. But overall, we're pleased with this year. Let's focus on finishing strong for this year. We'll give you our full guidance with all its technicolor when we get to February. So I appreciate the question, but today, we're not going to talk about longer-term targets. Operator: Our next question comes from Rob Wertheimer, Melius Research. Robert Wertheimer: Just a clarification. On the retroactive pricing, I wonder if you can describe what that is or how much continues? And more fundamentally, whether that indicates that you have any enhanced pricing power through engines, if that was something new and different and then I have a more substantial question after that. Mark Smith: I don't think we should read anything into it other than it's been a protracted discussion. It's back to January 1 Rob. So that's just sometimes things take a while to resolve. Christopher Clulow: Yes. As a reminder, Rob, that's in our light-duty space. So it was more localized there. Robert Wertheimer: Perfect. Okay. That helps a lot. Just more fundamentally, obviously, you and largest competitor in large engines are seeing a lot of demand, and your customers must be telling you that you have a big role to play years and years ahead. Is it very clear that even the biggest hyperscale data centers will use RESIP engines on backup. I wonder if you can just talk about what your customers are telling you about the changing sort of design and scope and scale of data centers and where you fit in for the next decade to come? Jennifer Rumsey: Yes. I mean, I think at this point in the next decade, we think reciprocating engines are going to be the solution for backup power. Of course, they're looking at different potential options for prime power and evaluating what that looks like, but other technologies that we might use from from a lead time cost, reliability, it's hard to match what a diesel gen set can do for backup power. So we really think that's going to be a solution for some time. Operator: And our next question comes from David Raso, Evercore. David Raso: Back to the prebuy question, I know we're sitting here on election day, so curious to get your thoughts if anything around the election could alter your thoughts around... Jennifer Rumsey: I'm surprised you made it this far without that question, David. David Raso: Make sure if you could answer the timing of your introduction of a '27-compliant engine, can you take us through your thoughts around that, the idea of maybe introducing that early, building some credits? Obviously, the nat gas engines already are providing some credits as well. Can you just take us through how you're thinking about the timing of your introductions? And obviously, woven within that, anything you want to comment on on whoever wins the White House and Congress how that impacts your thoughts? Jennifer Rumsey: Yes. I mean, at the end of the day, Cummins is going to do what we've always done. We're going to work across party lines and engage on issues that are important for our business and our industry, and we'll do that. We've done that with the bid administration of the pass administration will do with the next administration. And what's really important to us and our industry is having that regulatory and legislative stability. And we do not expect any change regardless of the outcome of the election on the [ '27 ] regulations for our industry. So as we have in the past, we're really -- we have a history of being first into the market with products that comply with new regulations and deliver increased value to our customers, and we're always focusing on the landscape, what's the right product at the right time, how do we take -- consider regulatory flexibility and credits as a part of that strategy. And given all that, we do intend to launch the diesel version of the 15-liter helm platform in '26 ahead of the '37 regulation. And with that launch, not only deliver a lower NOx product into the market, but also one that had significant improvement in fuel efficiency and operating costs to decline to 7% efficiency improvement in that product that will deliver value to our customers and then looking to how do we further strengthen our position in that market through these regulatory changes. And this is really consistent with our past strategy, and what's worked well for Cummins over the years is delivering value to our customers through these regulatory changes and strengthening our position in the market. So that's our intention. We've got the 15-liter natural gas out now. We'll add a diesel version of that in '26 and then launch our midrange products at the start of '27. David Raso: The early introduction of the I assume you were thinking first quarter '26 with the new model years. Can you help us though, it appears in the channel there is some sense that there might be a prebuy of your engines in 25 to get in front of that early '26 introduction. Can you help us a bit, a, is that maybe helping some of the truck orders we're seeing in the industry? I mean you are 40% of the trucks out there. So prebuying cummins would impact total industry numbers pretty meaningfully. And the cost of the new '27 engine coming out early in '26, can you give us some sense of the cost to the customer? And the follow-up will be, how much is the warranty versus the components? I'm just trying to get a sense how much you're bring all '27 costs into '26. It's a case of... Jennifer Rumsey: Yes. So let me try to frame it to hope you're thinking that, of course, the specifics on pricing, we're still discussing that with customers, the exact timing and transition between the current and the next-generation 15-liter in '26, we're still in discussions with our customers. So I'm not going to give exact answers there. What I will say is that we are adding meaningful engine and aftertreatment content and technology to both comply with the lower NOx regulation as well as deliver better fuel efficiency and operating cost and value to our customers. And that will be added as we launch this new product in '26. The requirement for a longer emissions warranty does not take effect until '27. So customers that buy this this new high-efficiency market-leading products in '26 will not be [indiscernible]. Operator: Our next question comes from Noah Kaye, Oppenheimer. Noah Kaye: And related to this transition, I guess, is probably one of the biggest R&D investments the company has ever made. So as we start to kind of get past that. Can you maybe think -- help us think about the direction of R&D spend? It seems like maybe an obvious place to get leverage on future growth. But you did $1.5 billion of spend in '23, going to be around that range for '24. How should we think about that level of spending going forward? Jennifer Rumsey: Yes. I mean you've got it. We're investing at a record level, high level with these new platforms that we're bringing into the market. We think those will position us well for the future. And so you'll see some normalization of that. Now the exact shape of that is going to depend, frankly, on how regulations evolve and what the -- what I call the bridge period of technology looks like and how that transitions to zero emissions. But we'll see that coming off of our peak as we get past the '27 product launches, and we'll continue to be investing in R&D to create differentiation and value in the market to grow the business over the long term. Noah Kaye: So if you're launching next -- late next year -- or sorry, I think you said '26, then implies we'll start to back down on those peaks. Jennifer Rumsey: [indiscernible] Noah Kaye: Okay. And then just sort of switching gears -- can you characterize the durability of strength in medium duty. I think the 6 and 7 classes have done pretty well. There's still some backlog there. but just talk about the demand you're seeing now in the market and whether that kind of continues into next year. You already kind of commented on some of your expectations for heavy duty. So medium-duty color would be helpful. Jennifer Rumsey: Yes. I mean, for the year, we're seeing medium -- North America medium-duty up a little bit, flat to up 5%. We're continuing to see pretty strong demand. I mean you've seen a little bit of inventory and normalization of backlog, but we continue to see really strong demand. And with future regulations on that horizon, we expect that's likely to continue into next year. Operator: And our next question comes from Tim Thein, Raymond James. Timothy Thein: The first question is just on the Distribution business. And I'm curious what, if any, mix impact, there could be given the -- if you look at the strength that we've seen and you're projecting to continue for some time in power gen, that's now running at, call it, 10 points higher as a percentage of distribution revenues from a couple of years ago. And while some of that's coming as we've seen parts come down. So maybe in historical terms, that's a mix negative, just as the whole goods grows as a percentage of revenues, but maybe just given the strength in demand and tightness in supply, that's not the case. So maybe just your thoughts on just the mix within distribution and how to think about that going forward? Jennifer Rumsey: Yes. I mean, as you noted, that typically whole goods is mix margin negative compared to aftermarket for us. If you just step back and look at the business in total, you've got to consider what we've done around inflationary pricing and operational efficiencies have tried to flex up to higher volume, and we're going to continue to focus on those operational efficiencies. But power generation gross revenue mix compared to aftermarket will be negative on the margin line. Timothy Thein: Got it. Okay. And then maybe 1... Mark Smith: Tim, that's where we continue to drive on those operational efficiencies and other areas and, of course, continue to drive as much of the parts business as we can underline. But the most important thing is we're meeting customer expectations and growing earnings in an efficient way. Timothy Thein: Got it. And then, Mark, just on the gross margin color that you gave earlier, was the -- you highlighted pricing several times. Was there -- was that -- was all of that from this retroactive deal you had in the light duty? Or was there maybe just... Mark Smith: I mean year-over-year, there's other pricing, it just -- it was appropriate for the engine to note for the engine business that that was a particular fact. But no, there was other pricing and the overall expectations haven't significantly changed for the rest of the business. Quite frankly, this other pricing we'd expect it to get it at the start of the year and it's just taking time. The most important thing is it's been reset. It's more of a timing issue and a concentration in Q3, we always anticipated something in our full year numbers. So on a full year basis, there's not much to say, but it just came in a more lumpy fashion because of the catch-up nature. Operator: Thank you for our last question. I would now like to turn the floor back to Chris Clulow for closing remarks. Christopher Clulow: Great. Thanks very much. I appreciate everyone joining today. That concludes our teleconference. I appreciate your participation and continued interest. As always, the Investor Relations team will be available for questions after the call. Operator: We thank you for your participation. You may disconnect your lines at this time.

Operator: Greetings and welcome to Cummins, Inc. Second Quarter 2024 Earnings Call. On our call today is Jen Rumsey, Chair and CEO; Mark Smith, Vice President and CFO; and Chris Clulow, Vice President of Investor Relations. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Clulow. Thank you. You may begin. Chris Clulow: Thanks very much. Good morning, everyone, and welcome to our teleconference today to discuss Cummins’ results for the second quarter 2024. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today’s webcast presentation are available on our website within the Investor Relations section at cummins.com. I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Chris and good morning. I'm excited to be with all of you today as I celebrate my two-year anniversary of becoming CEO of Cummins. I'll start with a summary of our second quarter financial results. Then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2024. Mark will then take you through more details of both our second quarter financial performance and our forecast for the year. Before getting into the details on our performance, I want to take a moment to highlight a few major accomplishments from the second quarter. At our recent Analyst Day, I shared that we are raising our long-term financial targets as a result of our of our strengthening portfolio and continued execution our Destination Zero strategy. The strong partnerships that we have with customers and stakeholders are key to driving our strategy and growth profile forward. In this quarter, we strengthened those partnerships even further. In May, we announced with Isuzu Motors Limited the launch of a new 6.7-liter engine designed for use in Isuzu medium-duty truck lineup. This engine will power on-highway truck applications for the Japan market and will be available for Asia-Pacific markets and other global markets later this year. We also announced plans to launch a battery electric powertrain for Isuzu's F-Series in North America. Availability of the medium-duty truck is expected in 2026 and will include Accelera's next-generation lithium-ion phosphate or LFP battery technology. These advancements mark an important milestone for both Cummins and Isuzu as Cummins enters the Japan on-highway market for the first time in our history. We are proud of the partnership our two companies have built, and I'm excited to leverage our collective strength and scale to deliver profitable growth for both partners. Also this quarter, we further progressed our partnership with Daimler Trucks and buses and PACCAR as we completed the formation of joint venture now known as Amplify Cell Technologies, to localize battery cell production in the in the battery supply chain the United States. This included naming the Chief Executive Officer of joint venture and breaking ground at a new manufacturing plant in Marshall County, Mississippi. Amplify Cell Technologies will enable Accelera by Cummins and our partners to advance battery cells focused on commercial and industrial applications in North America and serve our customers' evolving needs. This is a significant step forward as we continue leading our industry into the next era of smarter, cleaner power. And in July, Accelera was awarded $75 million from the Department of Energy to convert approximately 360,000 square feet of existing manufacturing space at our Columbus, Indiana engine plant for zero emissions components, including battery packs and electric powertrain systems. The $75 million grant is the largest federal grant ever awarded solely to Cummins and as part of the appropriations related to the inflation Reduction Act. The Columbus engine plant is also where we manufacture blocks and heads for our current and next-generation engine-based solutions, further showcasing our Destination Zero strategy in action. Now, I will comment on the overall company performance for the second quarter of 2024 and cover some of our key markets, starting with North America before moving on to our largest international markets. Demand for our products remain strong across many of our key markets and regions, resulting in record revenues the second quarter of 2024. Sales for the quarter were $8.8 billion, an increase of 2% compared to the second quarter of 2023, driven by continued high demand and improved pricing. EBITDA was $1.35 billion or 15.3% compared to $1.3 billion or 15.1% a year ago. Second quarter 2023 results included $23 million of costs related to the separation of Atmus. EBITDA and gross margin dollars improved compared to the second quarter of 2023 as the benefits of higher volume and pricing exceeded supply chain cost increases and offset the impact of the Atmus separation. Our second quarter revenues in North America grew 4% to $5.5 billion, driven by the strong demand in our core markets more than offsetting the impact of the separation of Atmus. Industry production of heavy-duty trucks in the second quarter were 75,000 units, up 1% from 2023 levels. While our heavy-duty unit sales were 31,000, up 7% from a year ago. The second quarter marked record production volume for our heavy-duty engines at the Jamestown Engine plant. Industry production of medium-duty trucks was 41,000 units in the second quarter of 2024, an increase of 4% from 2023 levels, while our unit sales were 38,000, up 13% and also outpacing the market growth. We shipped 41,000 engines to Stellantis for using the Ram pickups in the second quarter of 2024, up 8% from 2023. Revenues in North America power generation increased by 23% and driven by continued strong data center and mission-critical power demand. The impressive power generation performance in North America and across the globe helped us achieve record sales and profitability in the Power Systems segment. Our second quarter international revenues decreased 2% compared to last year. Second quarter in China, including joint venture, were $1.6 billion, a decrease of 2% as weaker domestic volumes were partially offset with higher data center demand. Industry demand for medium and heavy-duty trucks in China was 270,000 units, a decrease of 3% from last year. Demand in the China truck market continues to run at low levels with higher orders for natural gas engines and strong exports offsetting weak domestic diesel demand. In light-duty market in China, we were up 4% from 2023 levels at 480,000 units while our units sold, including joint ventures, were $33,000, an increase of 18%. The industry demand for excavators in China in the second quarter was 53,000 units, an increase of 4% from 2023 levels. Our units sold were 10,000 units, an increase of 19% as a result of QSM15 penetration at both new and existing OEM partners and export growth. Sales of power generation equipment in China increased 36% in the second quarter, primarily driven by accelerating demand in data centers. This helped drive impressive financial performance at our Cummins Chongqing joint venture within our Power Systems business. Second quarter revenues in India, including joint venture, were $649 million, a decrease of 10% from the second quarter a year ago. Industry truck production increased by 11% and while our shipments increased by 5%. Power Generation revenues decreased by 17% year-on-year as the second quarter of 2023 benefited from pre-buy demand ahead of emissions regulation changes. Now, let me provide our outlook for 2024, including some comments on individual regions and end markets. We have raised our expectations for 2024, while still anticipating the second half to be weaker than the first half, primarily in the North America heavy-duty truck market. We are increasing our revenue guidance to down 3% to flat compared to our prior guidance of down 2% to down 5%. We are also increasing our EBITDA guide to be 15% to 15.5%, compared to our prior guide of 14.5% to 15.5%. We now expect higher revenue in our Engine, Power Systems and Distribution segments, offsetting slightly lower revenue expectations for the Accelera business. We also expect stronger profitability in our Engine and Power Systems segments, driving most of the improvement in EBITDA. We are maintaining our forecast for heavy-duty trucks in North America to be 255,000 to 275,000 units in 2024 as we still expect softening in the second half of the year. In the North America medium-duty truck market, we are raising our forecast to be 150,000 to 160,000 units, flat to up 5% from 2023. This is an increase from our previous guidance by 10,000 units as we continue to benefit from an elevated backlog and strength in vocational orders. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 135,000 to 145,000 in 2024, with a planned model year changeover likely to drive a temporary dip in production in the second half. In China, we project total revenue, including joint ventures, to increase 3% in 2024, consistent with our prior guidance. In India, we project total revenue, including joint ventures, to increase 8% in 2024, primarily driven by strong power generation and on-highway demand. We expect industry demand for trucks to be flat to up 5% for the year. For global construction, we project down 10% to flat year-over-year, consistent with our prior guidance. We continue to expect slightly weaker property investment and slowing export demand in China. We are raising our guidance for the global power generation market to be up 15% to 20% compared to our prior guidance of up 10% to 15%, driven by continued increases in the data center and mission-critical markets. Sales of mining engines are expected to be down 5% to up 5%, consistent with our prior guidance. For aftermarket, we have improved our guidance to flat to up 5% for 2024, raising the bottom end of our previous guidance of a decline of 5%, with demand holding up better than expected in on- and off-highway markets. In Accelera, we expect full year sales to be $400 million to $450 million, a reduction of $50 million from the prior guide. As we noted at our Analyst Day, the energy transition is progressing more slowly, impacting both our e-mobility and electrolyzer revenues. In summary, coming off a strong first half of the year, we are raising our guidance on sales to down 3% to flat and raising our EBITDA guidance to 15% to 15.5%. While we anticipate softening in the North America heavy-duty market in the second half of the year, demand in several of our core markets remain strong. Should economic momentum slow, Cummins is in a strong position to keep investing in future growth, bringing new technologies to customers and returning cash shareholders. In July, we announced an 8.3% increase in the quarterly dividend from $1.68 to $1.82 per share, the 15th consecutive year in which we have increased the dividend. During the quarter, we returned $230 million to shareholders in the form of dividends consistent with our long-term plan to return approximately 50% of operating cash flow to our shareholders. Our diluted earnings per share benefited from a lower number of shares outstanding with the impact of the Atmus split more fully reflected in the weighted average share count in the second quarter. In summary, we had a strong performance in the first half of 2024, driven by record demand for Cummins products in our core markets. It is exciting to see our business grow with long-established customers in existing markets and to see newer partnerships yield additional opportunities in previously untapped markets for Cummins. I'm grateful for our employees who continue to execute on our strategy and deliver solutions that help our customers win wherever they operate. Our results reflect our dedication to delivering strong financial performance while also investing in our future growth, bringing sustainable solutions to decarbonize our industry and returning cash to our shareholders. As we discussed at Analyst Day, there is a lot to be excited about in our future. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered strong results in the second quarter. Given the strength of those results and our improved outlook, we've raised the midpoint of our full year expectations for 2024. Second quarter revenues were $8.8 billion, up 2% from a year ago, as organic growth more than offset the reduction in sales driven by the separation of Atmus. Sales in North America increased 4%, while international revenues decreased 2%. Foreign currency fluctuations negatively impacted sales by 1%. EBITDA was $1.35 billion or 15.3% of sales for the quarter compared to $1.3 billion or 15.1% a year ago. The year ago numbers included $23 million of costs related to the separation of apps. The benefits of higher volumes and pricing as well as the absence of the separation costs were the primary drivers behind the improved profitability. Now I'll go into a little more detail by line item. Gross margin for the quarter was $2.19 billion or 24.9% of sales compared to $2.15 billion or also 24.9% a year ago. Flat margins were primarily driven by favorable pricing and operational improvements, offset by the removal of Atmus and higher compensation expenses. Selling, admin, and research expenses were $1.21 billion or 13.7% of sales compared to $1.26 billion or 14.6% last year. Joint venture income of $103 million decreased $30 million from the prior year, primarily driven by lower technology fees and the weak domestic truck market in China. Other income was negative $3 million, a decrease of $27 million a year ago. Interest expense was $109 million, an increase of $10 million from prior year, primarily driven by higher weighted average interest rates. The all-in effective tax rate in the quarter was 23%, including $9 million or $0.07 per diluted share of favorable discrete tax items. All in net earnings for the quarter were $726 million or $5.26 per diluted share compared to $720 million or $5.05 per diluted share in Q2 last year. The second quarter reflected the lower weighted average share count as a result of the tax-free share exchange that there was the final separation of Atmus was completed in the first quarter. All-in, operating cash flow was an outflow of $851 million compared to an inflow of $483 million in the second quarter last year, and the decrease was driven mainly by the $1.9 billion payment required by the previously disclosed settlement agreements with the regulatory agencies. Excluding the settlement, operating cash flow was an inflow of $1.1 billion, more than double the cash generated in the second quarter last year. I will now comment on segment performance and our guidance for 2024. As a reminder, guidance for 2024 includes the operations Atmus in our consolidated results up until the full separation that occurred on March 18th. Components segment revenue was $3 billion, a decrease of 13% from the prior year, while EBITDA decreased from 14.2% of sales to 13.6%, with both sales and EBITDA primarily impacted by the Atmus separation. For Components, we expect 2024 revenues to decrease 9% to 14%, consistent with our prior projections and EBITDA margins in the range of 13.7% to 14.2%, narrowing the range from our previous guidance of 13.5% to 14.5%. For the Engine segment, second quarter revenues were a record $3.2 billion, an increase of 5% from a year ago. EBITDA was 14.1%, a slight decrease from 14.2% a year ago. As the benefit from pricing and record on-highway volumes in North America was offset by higher research costs and lower joint venture income, primarily in China. In 2024, we now project 2024, we now project -- for the full year sorry, we now project revenues for the Engine business to be down 3% to up 2%, an increase of 2% from the prior midpoint, driven by a revised outlook in the North American medium-duty truck market. Full year Engine EBITDA is projected to be in the range of $13.7 million to $14.2 million, an increase of 75 basis points at the midpoint from our prior projections due to higher volumes and ongoing operational efficiencies. In the Distribution segment, revenues increased 9% from a year ago to a record $2.8 billion. EBITDA as a percent of sales decreased to 11.1% compared to 11.4% a year ago, primarily due to higher compensation expenses and a higher mix of power generation sales, which are positive for the company overall, but have a dilutive impact on the Distribution segment margins. We now expect 2024 Distribution revenues to be up 5% to 10%, an increase of 5% from the prior midpoint, mainly due to stronger power generation markets. And we've revised our EBITDA margin expectations to be in the range of 11.3% to 11.8%, down a little from our prior range of 11.5% to 12.5%. Results for the Power Systems segment set a new quarterly record. Revenues were $1.6 billion, an increase of 9% and EBITDA increased from 13.8% and to 18.9%, driven by higher volumes, particularly in power generation markets, improved pricing and other operational improvements and cost reduction. For 2024, we expect Power Systems revenues to be up 3% to 8%, an increase of 3% from the prior year guide. EBITDA is now projected to be approximately 17.5% to 18% and up from the previous projections of 16% to 17%. Accelera revenues increased 31% to $111 million, driven by increased electrolyzer installations. Our EBITDA loss was $117 million compared to an EBITDA loss of $114 million a year ago as we continue to invest in the products and capabilities to support those parts of the business where strong growth is expected, whilst reducing costs in areas where we accept the prospects for growth have extended into the future. In 2024, we expect Accelera revenues to be in the range of $400 million to $450 million, down $50 million from our prior guide. Net losses are still expected to be in the range of $400 million to $430 million. As Jen mentioned, given the strong performance in the second quarter and the revised outlook in our key region end markets, we have raised our full year company guidance. We now expect revenues to be down 3% to flat, which is better than our previous guidance of down 2% to down 5%. EBITDA margins are now projected to be approximately 15% to 15.5%, narrowing the range and increasing the midpoint 25 basis points from our prior guide. Our effective tax rate is expected to be approximately 24% in 2024, excluding the tax-free gain related to Atmus and other discrete items. Capital investments will be in the range of $1.2 billion to $1.3 billion, unchanged from three months ago, as we continue make critical investments in new products and capacity expansion to support future growth. In summary, we delivered record sales and solid profitability in the second quarter of 2024. We still do expect some moderation in some key markets in the second half of the year, especially North American heavy-duty truck, as we pointed out at our recent Analyst Day also. We've taken some cost to reduce -- we took some steps to reduce costs in the fourth quarter of 2023 and the first quarter of 2024, continue to identify ways to streamline our business going forward, leaving us well-positioned to navigate any economic cyclicality that we may experience. We continue to deliver strong financial results raising our performance cycle over cycle while still investing for future growth. Our priorities for this year for capital allocation remain to reinvest for growth, increase the dividend, and reduce debt. Overall, a very strong quarter. Thanks for your time today. Now, let me turn it back over to Chris. Chris Clulow: Thank you, Mark. [Operator Instructions] Operator, we're ready for our first question. Operator: Thank you. Our comes from the line of Steven Fisher with UBS. Please proceed with your question. Steven Fisher: Thanks. Good morning. Just on China truck, you didn't change your expectations there. Wondering how you're thinking about some of the new incentives that the government put in place there to support the second half of the year. Is that a potential point of conservatism in your outlook? Or do you think it may not materialize in there? Jennifer Rumsey: Yes. Thanks for the question, Steven. Good morning. We've seen pretty consistent performance out of China and the economic conditions over the last 18 to 24 months, and there's been previous indications of actions the government may take, none of which has really translated into any meaningful change in our industry. So, really, we're seeing the strong performance still with natural gas product an export and a relatively weak domestic diesel market and are not anticipating that changing in the near-term. Operator: Thank you. Our next question comes from the line of Jamie Cook with Truist Securities. Please proceed with your question. Jamie Cook: Hi, congratulations on a nice and clean quarter. I guess two questions. One, Mark, the margins in Power Systems are quite remarkable on a pretty muted sales growth assumption for 2024. So, if you could just help us understand what's going on there, sort of what's structural versus -- and do you see the opportunity for margins to improve from these levels in the out years given you're already assuming a close to 18% margin this year? And then my second question, Jen, just -- I know you don't want to give a guide for 2025, but how you're thinking about the markets? Is there -- as you think about the U.S. with the potential -- with the election and the overruling of Chevron, are you more conservative about a potential pre-buy? Do you think that gets pushed out? I guess the two positives would be China comes back and then the power system. So, I'm wondering, ultimately, is the incremental margin potential better in 2025 with those assumptions on a muted 2025 pre-buy with better mix from Power Systems in China? Thanks. Mark Smith: Okay. Good questions. We'll try and fit in our answers with the time available for us this evening. On Power Systems, there's really three elements to the margins. And to answer the last part of your question, yes, we do expect there's still more to come. So, the team there is doing a fantastic job, started with some cost reduction, reprioritizing where we're where we're investing, investing less, strong pricing environment on the Power Systems side and then yes, there's more to do on the operational efficiency. So really, it's several strings to the bow in terms of what's been driving the results and still more to come. So we're really, really excited. Hopefully, you felt the confidence from Jenny Bush and to the team from the Analyst Day and have continued to deliver here in the second quarter, and we're bullish on that segment. That's -- those are really the main drivers on Power Systems. Jennifer Rumsey: Yes. On the market outlook, what I would say is in the power gen market, the continued growth that we see there, in particular the data center, I don't see that letting up anytime soon, and where we have strong demand, high backlog. And as you know, we talked about in May, making some capacity investments to take advantage of the growing market there. In US on-highway, the medium-duty truck has continued to be strong. We see strong backlog and demand and don't see that letting up in the foreseeable future. and heavy duty, we do see build rates coming down, projecting about 10% down in the third quarter and 20% overall for the second half of year. And the question is what will happen next year with the broader economic environment because well stabilized spot rates and these truck prices are at a lower level than they've been historically, and that's impacted some of our customers demand. And so how that comes together with a pre-buy. The Supreme Court overturning of the Chevron deference, we don't anticipate any impacting regulations in the near-term. We believe that 2027 regulations will continue to move forward. And probably the bigger question is what we see with Phase 3 greenhouse gas in the 2030 time frame. And so we still anticipate some amount of pre-buy ahead of that emissions changeover. But the industry has also demonstrated there's capacity constraints that we've seen in the last couple of years. So how large that pre-buy will be, I think is still question, but we're preparing to have strong demand as we go into the 2027 regulation change. Operator: Thank you. Our next question comes from the line of Steve Volkmann with Jefferies. Please proceed with your question. Steve Volkmann: Great. Thank you, guys. Mark, I think you mentioned maybe both of your pricing being positive. It sounds like it was positive in truck. It sounds like its positive in Power Gen. Can you just double-click on that for us a little bit? I mean how much pricing are you seeing? And sort of how should we think about that for the rest of the year? Mark Smith: Yes. Great questions. So on average, across the company, very, very much by segment, but 2.5% for the year, and that really hasn't changed. That's not changed in the results, but it definitely has been an important driver of the Power Systems results. And I don't think it's going to vary a lot that year-over-year increase should mostly hold across all the quarters. Operator: Thank you. Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question. Jerry Revich: Yes, hi. Good morning, everyone. And Jennifer, Happy Anniversary. Jennifer Rumsey: Thank you. Jerry Revich: I wanted to ask on the medium-duty engine platforms globally, right? So you folks are picking up Daimler's business, now you're picking up Isuzu business in Japan. Can you just expand and talk to us about how many more medium-duty engines, you folks expect to ship globally 2026 versus, I don't know, call it, two or three years ago, given the timing of the transition? And if you could just comment on Japan, is it -- help place to import product into given the currency. Can you just talk about how you folks are able to do that economically? Thank you. Jennifer Rumsey: Yeah, sure. So you've seen this trend and some of the announcement that we made over the last few years playing out now as regulations start to occur. So we're seeing growing medium-duty demand in the US, of course, with Daimler transitioning to us and us as well as some other customers like keno here in the US. So we're growing our position in the medium-duty market here. We've now launched the medium-duty product in India with Daimler. So we'll start to see some volume there. Their strategy is really driven by regulation change. So when you see regulation change in Europe and Brazil will continue to grow volume with Daimler. On the Isuzu business, we are building that new B6.7 and their Tohoku plant in Japan. So we're not importing that engine. We're building it in the market. First time we've been on-highway market, we've been in the off-highway market there, of course, for many years. And so we'll see some slow volume growth there in Japan. And then as I noted, they'll then launch that truck into other Asia Pacific and global markets later this year. So you're just going to see steady growth, I would say, from Cummins year-over-year in the medium-duty space as these new customer partnerships grow and emissions regulations change and ads. Mark Smith: In India and Brazil to the later 2027. Jennifer Rumsey: 2027 through 2029. Yeah. Operator: Thank you. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question. Angel Castillo: Hi. Thanks for taking my question, and congrats on the strong quarter. I was hoping we could just unpack a little bit more the engine segment. You raised the outlook there on margins, and you've been talking about medium duty, but just as we think about your second half that is expected to decelerate on the heavy-duty side, can you talk about the components driving your margin improvement there? And just helping us kind of quantify what's ultimately driving that and how are you thinking about kind of 2025 margin improvement? Mark Smith: Yeah. So we've got a little bit of help. We've improved the parts outlook. So that certainly helps overall -- we've been taking some measured actions across the company since the second half of fourth quarter of last year into the fourth quarter -- into the first quarter of this year, those should help with some lower costs in the second half of the year. And then we've got a stronger outlook in medium-duty truck. So those are really the three key elements. We're not going to get into breaking down the profitability by us. Those are really the three things that have helped improve. Yeah, and I think the conversion on the volume and the second quarter showed us there's still more room for improvement just in general operating efficiencies. No real change in -- in pricing most of the segments. Operator: Thank you. Our next question comes from the line of David Raso with Evercore ISI. Please proceed with your question. David Raso: Hi. Thank you my question is on the guide. One area little skeptical on -- one area where it seems like you have some upside. The engine business, the second half of the year, you're guiding the revenues down only 3% year-over-year. And I'm just trying to go through heavy truck builds down double digit or the parts business mutes that. The light duty has the soft fourth quarter on the model change. Off-highway, comp fees, China a little better but big declines in Ag and some in construction. So I'm trying to understand why the revenue going down 3%? Or is it there's enough new penetration of customers that can push against all that, and at the same time, the engine margins only go down 30 bps sequentially on lower revs. And then the upside is PowerGen revenue growth less than 5% year-over-year in the second half, you're up over 6% in the first half. And the margins are down sequentially, I mean I understand the industrial piece within power can be down, but at least there are comp fees. So I'm just trying to understand, I assume PowerGen has a little more focus, a little more capacity, right, being pushed at minimum, good pricing. So again, why the -- or maybe it's just conservative, conservative on PowerGen, and if you can make us more comfortable on that engine? Thank you. Mark Smith: Thanks, David. Good question. So I think on Power Systems, I don't think there's any fundamental changes. So it's really a key like how much do we -- how much product do we deliver to our customers and the conversion. We've given a range of outcomes for the margin. The business is performing well. And quite frankly, we're raising capacity. So I don't think the sales will go a lot above, but yet we're leaning on the profitability strongly, the business is really doing well. So I don't think there's much to be concerned about there, and we've raised the outlook. On the engine business, I think what's helping mitigate the margins, which is, I guess, the most important part is really some of the cost reduction actions that we've taken during the year, slightly better outlook for parts. And then there's just some of the puts and takes on the revenue. But those are the reasons why the margins at those revenue levels, we expect to hold up. Next question please. Operator: Thank you. Our next question comes from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Tami Zakaria: Hi, good morning. Very nice quarter. I have two quick clarification questions. One is on the distribution segment. I think margins were lower, but sales were great. So is that margin guide prudently conservative? Or is this a function of the mix headwind from PowerGen? Or is there anything I need to be aware of for that? And then the other question is on price costs. I think you just said price still you expect 2.5% at the enterprise level. Since some of the raw material prices are coming down, do you expect some improvement in price cost for the year? Mark Smith: So to the latter, not significantly, we've probably got about 50 basis points of cost headwind across all the different categories, varies by business and segment. And then on distribution, you're right to point out the margins. So there's really -- yes, for distribution, PowerGen is a little bit dilutive relative to the rest of the segment, even though obviously within Power Systems, its very accretive. So that's true. We've called that out. Also in the first and the second quarter, there was some modest individual charges that didn't merit to be called out in the overall results. So I don't merit a lot of commentary, but just say they've trimmed the margins a little bit. And, therefore, we're really just reflecting where we are for the year. We do believe distribution margins have still got significant potential to improve over time, so that’s what’s going on. Operator: Thank you. Our next question comes from the line of Tim Thein with Raymond James. Please proceed with your question. Tim Thein: Hi. Good morning. I'll maybe combine these before I get the hook. Actually both pertaining to the North America heavy-duty segment. And the first part is just around market shares, Mark. Obviously, those can and do shift around quarter-to-quarter. And I'm just thinking big picture as we get in a softer back half of the year where the sleeper segment likely is disproportionately impacted from a production standpoint at the expense of vocational. I would imagine that favors Cummins from a share perspective, just absent any kind of specific OEM programs and other factors. So, maybe just your thoughts on that. And then the second part is just on the parts business, obviously, has been kind of a choppy past few quarters, but the commentary seems to be more positive, whereas some of the dealers and OEMs that have reported recently have flagged softness there. So I'm just curious, is that just kind of an absence of customer destocking that you went through last year or better just fleet utilization? What's driving that? If you can things. Thank you. Jennifer Rumsey: Yes. Great. Thanks for the question. And as you noted, I mean, we work to create customer pull for the heavy-duty product across different segments. But generally, as you said, for the vocational segment, we have stronger customer pull compared to the truckload, and that's the portion of the market that's been stronger right now. But of course, our goal is always to have the best product and create demand for Cummins products. But as you see that shift between the different segments of market and what OEMs are doing around incentives that could -- as well as capacity that can shift around a little bit over time. On the parts, it's somewhat demand driven and also this inventory destocking was a pretty big factor. There was a focused effort last year to reduce some of the inventory levels that have been carried because of the disruptions that we were all seeing and coming back down to more normal inventory levels. It was a little bit hard to separate between destocking and demand in the market. And so now you see us settling into what we see as pretty steady and solid demand in both our on- and off-highway markets. Operator: Thank you. Our next question comes from the line of Noah Kaye with Oppenheimer. Please proceed with your question. Noah Kaye: Thanks. Maybe hoping to get an update on demand in the order books for the X15? And how is it looking for the back half? How is it tracking the expectations and basically what's the response so far from the OEs? Jennifer Rumsey: Yes. Great. Thanks for the question. No, we are launching that product this month. with PACCAR excited to get it out in the market and then we'll launch it next year with DTNA, so have more offering there. We've got some early demand from some of the big fleet customers that have sustainability goals in the market, and we'll see how that develops over time, really with those fleet and other customers. And so we've projected we could get up to about 8% in the market, but I think it's going to take some time for us to get up to that. that level and for that market to develop in these operating costs and sustainability goals to drive demand up. Operator: Thank you. Our next question comes from the line of Jeff Kauffman with Vertical Research Partners. Please proceed with your question. Jeff Kauffman: Thank you very much. I just wanted to follow-up on the engine slowdown that you're projecting for the second half of the year and maybe try and carry this into early 2025 because I think there's a perception that we're weak for a quarter or two and then the pre-buy kicks in and we're off to the races. When do you believe we start to show positive comparisons potentially in North American engines? And then we have an election this November, and I don't really know which way it's going, but just any thoughts on how a Republican victory or a Democratic victory might change the outlook for engines or new power? Jennifer Rumsey: Yes. So in terms of the heavy-duty demand, we all wish we had a crystal ball that could project how this is going to play out. This cycle has been very different than past cycles because of the pent-up demand that we had seen and then, of course, getting into pre-buy expectations. So it's really difficult to predict at what point next year we'll start to see improvement and economic conditions will certainly play a role in that. So I'm not going to project exactly when, but I think at some point in next year, we'll see recovery. And we've taken the steps to be prepared for that softening over the next few quarters. In terms of the election, again, I'm not going to make a prediction on that one either. What I will say is, as always, we worked in the past with the Trump administration, and we worked with the Biden administration. We worked across party lines to make sure that the opportunities and the challenges in our industry are understood and that regulation and policy reflects appropriately what those are. We will continue to do that in particular with the regulations that are in front of us. and our destination strategy at its core is about recognizing the economic importance of commercial and industrial applications and a need to decarbonize that industry over time and how do you take the appropriate steps to regulation and incentives to do that. So we're going to continue advocate for that. And some of the money that has come out of the inflation production Act has been allocated and is flowing into the market and creating jobs across the United States. So we'll continue to do that [indiscernible] those points and the opportunities and challenges that we're facing and how we navigate the energy transition. I think Cummins is really well positioned, regardless of how that plays out, but the industry, of course, is making investments in preparing for that. And so we want to make sure that we have stability and regulation, most importantly. Mark Smith: And I just -- I know there's a lot of questions about heavy duty. But as we mentioned earlier, the demand for medium duty is getting stronger. We're actually investing to raise capacity over time, partly because of the strength of the market part because of the new business we've won. So right now, the expectation is that less volatility and a sustained high demand is what we're being told right now. Things can change based on the economy. But there's more question marks about heavy. Clearly, it's going down in the near-term and a lot less questions about medium duty for now. Operator: Thank you. Our final question comes from the line of Kyle Menges with Citigroup. Please proceed with your question. Kyle Menges: Thank you. I just wanted to dive a little bit deeper into the power systems and really focus on the unit outlook and how to think about capacity for the remainder of the year and then how you think about you could exit the year from a capacity standpoint or just doing the math, it seems like. And assuming you're running pretty hot from a capacity standpoint, it seems like unit shipments capacity for the year would be around 20,000 or so units. I'm curious what that might look like the capacity on an annualized basis exiting the year and looking into 2025 with some of the investments you're making? Mark Smith: Well, there's a lot of there, unfortunately, in that business, there's more variation, right? There's just such a wide range of engines and applications. And so it's not a -- unfortunately, it's not a simple explanation as it would be, say, for on-highway markets where there's a narrower range of products across the market. I don't think there's going to be dramatic capacity increases this year, but we're working towards, obviously, supporting the one key global secular theme, which is the data center capacity, Jenny Bush talked about at Analyst Day. That's the one. It varies by segment, some of our more consumer-facing segments demand has dropped over the last 18 months. So there's some more capacity there. So it very much depends by end market. But the general theme is some investment in capacity, some reorganizing where we make product around the world. We feel confident about the revenue guide for this year. We feel confident we can support through our production revenue going into next year. But unfortunately, I just because of the variation in the products, the pricing, the applications that like a rule of thumb on the unit isn't quite as applicable in that segment. Jennifer Rumsey: Yeah. The only thing I'll add to Mark's comments, which are absolutely accurate is, in particular, the data center market. What you've seen happen in the first half of the year was we worked really hard on our supply base and production and the 95 liter, which is running now at capacity, and then we launched the Symptoms product, which adds -- adds additional platforms, including a 78-liter that's able to run at this 3-megawatt key data center point. And so helped us the supply chain improvement as well as the new product launches helped us increased revenue and what we're selling into the market. But we're continuing to run into capacity constraints on some of the platforms in that data center market, in particular, which is why we're making some modest investments to be able to take up capacity over the next couple of years. Operator: Thank you. We have reached the end of our question-and-answer session. I'd like to turn the call back over to Mr. Clulow for any closing remarks. Chris Clulow: Thanks, everybody, for participating today. That concludes it for today. As always, the Investor Relations team will be available for questions further after the call and throughout the rest of the week. Thank you. Bye. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Operator: Greetings, and welcome to the Q1 2024 Cummins Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Clulow, Vice President of Investor Relations. Thank you, Chris. You may begin. Christopher Clulow: Thanks very much. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the first quarter of 2024. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we'll refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey to kick us off. Jennifer Rumsey: Thank you, Chris, and good morning, everyone. I'll start with a summary of our first quarter financial results, and then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2024. Mark will then take you through more details of both our first quarter financial performance and our forecast for this year. Before getting into the details on our performance, I want to take a moment to highlight a few major events from the first quarter. In March, Cummins successfully completed the separation of our Filtration business, Atmus Filtration Technologies. Cummins will continue its focus on advancing innovative power solutions, while Atmus is now well positioned to pursue its own plans for profitable growth. We are proud of our employees' hard work and all who were involved to ensure successful separation, and we are excited to see what the future holds for both Cummins and Atmus. The final step in the separation of Atmus resulted in a tax-free exchange of shares, which reduced Cummins shares outstanding by 5.6 million. In addition, we reintroduced our fuel-agnostic platforms with the name that captures the innovation that powers us forward, Cummins HELM platform. With higher efficiency, lower emissions and multiple fuels, the Cummins HELM platforms give our customers control of how they navigate their own journeys as part of the energy transition. As the next product in the Cummins HELM 15-liter platform, we announced we will launch the next-generation diesel X15 in North America for the heavy duty on-highway market, which will be compliant with the U.S. EPA and CARB 2027 aligned regulations at launch. Lastly, in April, Cummins Power Generation introduced 4 new generator sets to the award-winning Centum Series, powered by Cummins QSK50 and QSK78 engines. These new models have been engineered specifically for the most critical applications such as data centers, health care facilities and wastewater treatment plant. I was excited to attend the launch event with our customers and hear about the growing demand for these critical applications and high interest in our genset products, which build on decades of experience meeting our customers' needs and deliver a step change improvement in power density, assured reliability, sustainability and low emissions. Now I will comment on the overall company performance for the first quarter of 2024 and cover some of our key markets. Demand for our products remained strong across many of our key markets and regions. Revenues for the first quarter were $8.4 billion, a decrease of 1% compared to the first quarter of 2023. EBITDA was $2.6 billion or 30.6% compared to $1.4 billion or 16.1% a year ago. First quarter 2024 results include a gain net of transaction costs and other expenses of $1.3 billion related to the Atmus divestiture and $29 million of restructuring expenses as we continue to work to simplify our operating structure and improve the efficiency of our business for the long term. This compares to the first quarter 2023 results, which included $18 million of costs related to the separation of the Atmus business. Excluding the onetime gain and the costs related to the separation of Atmus as well as the restructuring expenses, EBITDA percentage decreased by 80 basis points as improved pricing partially offset lower volumes and higher research and development expenses as we continue to invest in the products and technologies that will create advantages in the future. Gross margin dollars improved compared to the first quarter of 2023 as the benefits of pricing more than offset the impact of lower volumes and supply chain cost increases. Our first quarter revenues in North America were flat with 2023. Industry production of heavy-duty trucks in the first quarter was 73,000 units, down 5% from 2023 levels, while our heavy-duty unit sales were 26,000, down 7% from 2023. Industry production of medium-duty trucks was 41,000 units in the first quarter of 2024, an increase of 8%, while our unit sales were 36,000, up 22% from 2023. We shipped 38,000 engines to Stellantis for use in the Ram pickups in the first quarter of 2024, down 2% from the 2023 levels. Revenues for North America power generation increased by 21%, driven by continued strong data center and mission-critical power demand. Our international revenues decreased by 1% in the first quarter of 2024 compared to a year ago. First quarter revenues in China, including joint ventures, were $1.6 billion, a decrease of 5% as weaker domestic volumes were partially offset with the accelerating data center demand. Industry demand for medium- and heavy-duty trucks in China was 305,000 units, an increase of 14% from last year. However, shifts in the market share during the first quarter led to a decline in our volumes year-over-year. The light-duty market in China was up 2% from 2023 levels at 486,000 units, while our units sold, including joint ventures, were 37,000, an increase of 3%. Industry demand for excavators in the first quarter was 50,000 units, a decrease of 13% from 2023 levels. The decrease in the market size is due to weak property investment, high equipment population and slowing export demand. Our units sold were 9,000 units, an increase of 10% as a result of the QSM15 penetration and export growth. Sales of power generation equipment in China decreased 7% in the first quarter as accelerating data center demand was offset by softening in other markets. First quarter revenues in India, including joint ventures, were $758 million, an increase of 1% from the first quarter a year ago. Industry truck production decreased by 7%, while our shipments decreased by 5% as the market slowed ahead of elections in April. Power generation revenues increased by 37% in the first quarter as economic activity remains strong. Now let me provide an outlook for 2024, including some comments on individual regions and end markets. Our full year guidance now excludes Atmus from the March 18 separation date onwards and also include -- excludes the first quarter gain related to the divestiture. The guidance provided previously included Atmus for the full year as it preceded the transaction announcement. We are happy to share that our expectations for 2024 have improved from our initial guidance issued in February. Our forecast for total company revenue in 2024 remains the same at down 2% to 5%, which implies higher base business revenues of approximately $1.3 billion compared to our prior guidance as Atmus is now excluded from future quarters. We are increasing our forecast for heavy-duty trucks in North America to 255,000 to 275,000 units in 2024 compared to our prior guide of 245,000 to 265,000 units, though We do still expect softening in the second half of the year. In North America, medium-duty truck market, we maintain our prior guidance of 140,000 to 150,000 units, down 5% to flat from 2023, consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 135,000 to 145,000 in 2024, down 5% to 10% from 2023 as we prepare to launch our model year 2025 in the fourth quarter. In China, we project total revenue, including joint ventures, to increase 3% in 2024, consistent with our prior guidance. We project a range of down 5% to up 10% in heavy- and medium-duty truck demand and expect a range of down 5% to up 5% in demand in the light-duty truck market. We expect replacement demand to be in the range -- to be the biggest driver, but the effect may be weakened by a sluggish economy and potentially slower export demand. The short-term shifts in the market share that I noted earlier are expected to normalize as we progress through the remainder of the year. In India, we project total revenue, including joint ventures, to increase 9% in 2024, primarily driven by strong power generation and on-highway demand, consistent with our prior guidance. We expect industry demand for trucks to be flat to up 5% for the year. For global construction, we project down 10% to flat year-over-year, up from our previous guidance of down 5% to 15%. We continue to expect weak property investment and slowing export demand in China. We project our major global high-horsepower markets to remain strong in 2024. We are raising our guidance for global power generation markets to be up 10% to 15% compared to our prior guidance of about 5% to 10%, driven by continued increases in the data center and mission-critical markets. Sales of mining engines are expected to be down 5% to up 5%, consistent with our prior guidance. While a smaller market for us, we continue to anticipate demand for oil and gas engines to decrease by 40% to 50% in 2024, primarily driven by decreased demand in North America. For aftermarket, we've maintained our guidance of down 5% to up 5% for 2024, as we are through the inventory management efforts and destocking that happened throughout the industry in the second half of 2023. In Accelera, we expect full year sales to be $450 million to $500 million compared to $354 million in 2023, consistent with our prior guidance. We are ramping up electrolyzer manufacturing capacity and capability to deliver orders to our customers as well as expect continued growth in electrified components. In summary, coming off a strong first quarter, we are maintaining our sales growth outlook for the year of down 2% to 5% as stronger demand in our base business has offset the removal of Atmus for future quarters from our guidance. We have also revised our forecast for EBITDA to be in the range of 14.5% to 15.5% compared to our previous guidance of 14.4% to 15.4%, reflecting stronger North America heavy-duty truck and power generation markets, which more than offsets the loss of profitability of Atmus. In addition, we are taking steps to reduce cost, optimize our business and position Cummins for continued success in 2024. We are in a strong position to keep investing in the future, bringing new technologies to customers and returning cash to our investors. During the quarter, we returned $239 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. In addition, we reduced the overall Cummins share count by 5.6 million as we completed the Atmus share exchange, which will be more fully reflected in the average share count in the second quarter and beyond. I am impressed and grateful for the commitment of our employees and leaders around the world for delivering for our customers and generating strong financial performance at the same time. Our results further enhance Cummins' ability to keep investing in the future growth, bringing sustainable solutions that will protect our planet for future generations and returning cash to our shareholders. I look forward to discussing our long-term strategy further in our upcoming Analyst Day on May 16 and now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered solid first quarter revenue and profitability and generated positive operating cash flow. Given the strength of first quarter results and our improved outlook, we've raised our full year expectations for 2024 after adjusting for the separation of Atmus. First quarter revenues were $8.4 billion, down 1% from a year ago. The separation of Atmus in mid-March resulted in a year-over-year sales decline of around 1% to our -- to Cummins consolidated sales. Our underlying revenues increased in North America and Latin America and were offset by weaker demand in China and Europe. EBITDA was $2.6 billion or 30.6% of sales for the quarter. We completed the tax-free full separation of Atmus in March, which resulted in a onetime gain on the divestiture of $1.3 billion, net of transaction costs and other expenses. First quarter results also included $29 million of restructuring expenses. This compares to first quarter of 2023, which included $18 million of costs related to the separation of Atmus. To provide clarity on operational performance and allow comparison to prior year, I am excluding the onetime gain and the costs related to the separation of Atmus as well as the restructuring expenses in my following comments. Financial results of Atmus through March 18 are included in our first quarter consolidated sales and EBITDA. EBITDA was $1.3 billion or 15.5% of sales for the quarter compared to $1.4 billion or 16.3% of sales a year ago. The lower EBITDA percentage was driven by investment in new products and capabilities and lower sales volumes. Now let's look into more detailed by line item. Gross margin for the quarter was $2.1 billion or 24.5% of sales compared to $2 billion or 24% even last year. The improved margins were primarily driven by favorable pricing and operational improvements, especially in the Power Systems business. Selling, administrative and research expenses increased by $72 million, driven by higher research costs as we continue to bring to market new products and capabilities to support future profitable growth, particularly the development of the HELM product line within the Engine business. Joint venture income of $123 million increased $4 million from the prior year, primarily due to increased earnings in the Power Systems segment. Other income was $21 million, a decrease of $50 million from a year ago. The decrease in other income is driven by the relative negative impact of foreign currency revaluation and lower gains on investments related to company-owned life insurance compared to a year ago. Interest expense was $89 million, an increase of $2 million from the prior year, driven by higher outstanding, long-term borrowings related to the bond issuance we completed in February. The all-in effective tax rate in the first quarter was 8.7%, mainly due to the tax-free gain on the separation of Atmus. All in, net earnings for the quarter were $2 billion or $14.03 per diluted share, which includes the net gain related to the separation of Atmus of $1.3 billion or $9.08 per diluted share and restructuring expenses of $29 million or $0.15 per share. Just to reinforce what Jen said, full impact of the lower share count from the Atmus separation will be seen in future quarters since the diluted share counts counted on a weighted average basis. All-in operating cash flow was an inflow of $276 million compared to an inflow of $495 million in the first quarter last year. Now let me comment on segment performance and our guidance for 2024. As a reminder, prior guidance for 2024 assume that the operations of Atmus would be included in our consolidated results for the full year. Components segment revenue was $3.3 billion, a decrease of 6%, while EBITDA, excluding costs related to the separation of Atmus, increased from 14.6% of sales to 14.8% driven primarily by improved performance within Cummins [indiscernible]. For Components, we've updated the guidance for the segment following the separation of Atmus and expect 2024 revenues to decrease 9% to 14% and EBITDA margins in the range of 13.5% to 14.5%. Our latest guidance reflects an increase in both revenues and EBITDA margins after adjusting for the separation of Atmus. For the Engine segment, first quarter revenues were $2.9 billion, a decrease of 2% from a year ago. EBITDA was 14.1%, a decrease from 15.3% a year ago as the benefit of pricing offset by lower volumes and higher research costs. 2024, we now project revenues for the Engine business to be down 5% to flat, an improvement of 2% at the midpoint from our prior year projections, reflecting a revised outlook in the North American truck markets and stronger-than-expected demand from our construction customers. 2024 EBITDA is projected to be in the range of 12.7% to 13.7%, an increase of 20 basis points at the midpoint due to higher volumes. In the Distribution segment, revenues increased 5% from a year ago to $2.5 billion. EBITDA decreased as a percent of sales to 11.6% compared to 13.9% of sales a year ago as aftermarket sales, particularly to industrial customers declined from the record levels that we experienced a year ago. We expect 2024 distribution revenues to be flat to up 5% and EBITDA margins to be in the range of 11.5% to 12.5%, an increase from the prior guide of 3% for revenues and a modest improvement to margins for the full year. Power Systems segment revenues were $1.4 billion, an increase of 3% and EBITDA increased from 16.3% to 17.1% of sales driven by higher volumes, particularly in the power generation markets, improved pricing and operating improvements, all of which contributed to a strong trend of improving performance in that segment. 2024, we now expect Power Systems revenues to be flat to 5%, up 3% at the midpoint and EBITDA has also increased to be approximately 16% to 17%, up 80 basis points from our previous guide. Accelera revenues increased 9% to $93 million, driven by increased electrolyzer installations. Our EBITDA loss was $101 million compared to an EBITDA loss of $94 million a year ago as we continue to invest in the products and capabilities to support future growth. In 2024, our guidance is unchanged. We expect revenues to be in the range of $450 million to $500 million and net losses to be in the range of $400 million to $433 million consistent with our prior guide. As Jen mentioned, given the strong performance in the first quarter and the outlook in our key regions, end markets, we are adjusting the full year company guidance, and we project company revenue -- consolidated company revenues to be down 2% to 5%, consistent with the prior year guidance despite the separation of Atmus. Company EBITDA margins are now projected to be approximately 14.5% to 15.5%, up 10 basis points from prior guidance, all of which excludes the net gain related to the separation of Atmus and the restructuring expenses. Our effective tax rate is expected to be 24%, excluding the tax-free gain related to Atmus and other discrete items. Capital investments will be in the range of $1.2 billion to $1.3 billion, unchanged from our outlook 3 months ago as we continue to make critical investments in new products, capacity expansion to support future growth. In summary, we delivered solid sales, profitability and positive cash flow in the first quarter. We do still expect moderation in some of our key markets in the second half of 2024, but we have raised our expectations of our own performance relative to our prior guide. We took some steps to reduce costs in the fourth quarter of 2023 and continue to identify ways to streamline our business going forward leaving us well positioned to navigate any economic cyclicality and continue investing and delivering strong financial performance. Our priorities in 2024 for capital allocation are unchanged. We will reinvest for growth, plan to raise the dividend and reduce debt. Thank you for your interest today, and I look forward to seeing some of you in person in New York at our upcoming Analyst Day. Now let me turn it over to Chris. Christopher Clulow: Thank you, Mark. [Operator Instructions] Operator, we're ready for our first question. Operator: [Operator Instructions] Our first question comes from the line of Steve Volkum (sic) [ Steve Volkmann ] with Jefferies. Stephen Volkmann: I think I'd like to start off with power gen, if we could. That business seems to be going well. So sort of 2 things I'm curious to hear about exactly kind of what you think your position is in the data center market. How much of your business is data centers? And then how are you thinking about increasing capacity over the next, whatever, few quarters or years, however, that's going to play out? What should we be thinking about in terms of capacity additions and your ability to kind of grow that business over time? Jennifer Rumsey: Great. Thanks, Steve. And as you heard in the guidance, we're projecting the power gen business to be up 10% to 15% for the year, and data center, mission-critical is really the driver of that. And we've had a very strong demand from data center customers, have had historically a strong position in that market, and that market is obviously growing. We're sold out on our 95-liter through 2025 right now. And I mentioned the launch of the new Centum product, which uses our 50 and 78-liter engine. So that's providing additional solution to those customers. And then, of course, we're continuing to look at capacity of the 95-liter and how we plan to support what we think will be continuing strong and growing market. Stephen Volkmann: So sorry, do you have any concrete plans to increase capacity of 95 yet? Or is that still in process? Jennifer Rumsey: Yes, we do have concrete plans to increase the capacity that we have in place to-date for the 95-liter. Operator: Our next question comes from the line of Jerry Revich with Goldman Sachs. Jerry Revich: I wonder if I just ask the cadence of earnings over the course of this year, nice to see an upwards revision to both top line and margins. Mark, can you just talk about where the quarter came in versus your expectations because obviously, the quarter was light versus where the consensus was set up, and I'm just wondering how the quarter developed versus your internal plan. And what's the cadence of the acceleration that you folks are seeing to raise the guidance higher? Mark Smith: Yes. I think to be fair to everyone involved to all of you on that side of the fence and all of us here, there's a lot of moving parts with the separation of Atmus. So from my perspective, in total, we came in, in line with our expectations and when you adjust for the mid-quarter separation of Atmus, I think we're by and large in line. I would say, as someone pointed out, the Distribution business margins a little bit lower, certainly lower than last year. We see those at the bottom end of the range in Q1 and improving from here, largely driven by what we've seen as a pullback on parts sales, particularly in the industrial off-highway applications. So that's the 1 area. It's not new. It's been there for a couple of months, 2 quarters. But otherwise, I'd say we feel good about the gross margin improvement year-over-year. As you can see from our announcements and our comments, we're continuing to look at ways to streamline our organization, make us more efficient where we can. So overall, in line, Jerry, but expecting Distribution in particular to pick up in its margins going forward. We've always expected -- probably we were expecting this a little bit last year, to be fair, and it didn't materialize. But we are expecting heavy-duty truck production to decline in the third quarter, in particular, and you've probably heard that from other industry participants. I think the Engine business and Components will feel some of that in Q3, probably Q4 Power Systems and Distribution shouldn't see any significant volatility in revenues. And really, the momentum is to the up on Power Systems going forward and into next year, clearly. And Distribution. As you know, it's more than half parts and service and quite predictable and reliable. We just had a little bit of a mix shift with the lower parts, but we think that's temporary. Jerry Revich: Super. And can I just ask from a bigger picture standpoint, so new regulations 2027 will have embedded warranties essentially. What does that mean for your parts market share. Is that an opportunity when that field population increases for you folks to have higher engine parts market share because of that warranty dynamic on the new regulations, how significant is that opportunity? Jennifer Rumsey: Yes. I mean, as you noted, there's a requirement starting with the EPA 2027 regulations for longer emissions warranty for heavy-duty 10 years or 450,000 miles, most of that application is going to mile out. So it's essentially what our 5-year extended warranty that some customers are already purchasing. And then that will mean that everybody will need that warranty that will be embedded into pricing on those engine systems and then, of course, we'll drive customers to genuine part throughout that period, which will provide some further benefit to us. Operator: Our next question comes from the line of Nicole DeBlase with Deutsche Bank. Nicole DeBlase: I'm going to ask mine together because they're related. So and they're both around Power Systems. So I think in the guidance, you guys are embedding full year margins below 1Q levels. I think it's a lumpy business, but if I look back historically, it's more common that the second half is higher. And then similar question on growth, the comps [ reduced ] slightly in the second half, but your full year growth guidance is, for an outcome less than the growth you saw in the first quarter. So if you could address both of those items. Mark Smith: We do tend to see some seasonality on revenue in the fourth quarter, a little bit in the second half. But I think the point of your question is essentially right, Nicole, there's positive momentum there. We've been raising the guidance as the performance is improving. There is some modest variation depending on how the parts flow in that business. But overall, our messages, we're confident in the business and the improvements that we have Jenny Bush and her team have really worked hard on over the last 18 months. And if we get more revenue, we're confident we'll be able to turn that in higher earnings. But there's nothing dramatically structurally different. Going forward, we expect improvement over time. Operator: Our next question comes from the line of David Raso with Evercore ISI. David Raso: May 16, the meeting, can you just give us some expectations around the meeting? I think particularly around the margins. I think people are just trying to figure out the operating leverage in the company in the last couple of years, maybe not quite the margins people were expecting. Even the guide today, it was nice to see the power gen margin increase. But overall, the relative increase in earnings relative to the increase implicit in the sales guide. Still not that tremendous. So I'm just curious if you can sort of tee up a little bit what should we expect May 16. not trying to steal the thunder of the meeting but just to level set... Jennifer Rumsey: Yes. Well, obviously, I won't tell you what we're going to tell you specifically, but certainly, you can expect us to talk about overall strategy for the company where we think we're at against some of the 2030 goals that we shared in our last Analyst Day and certainly talking about revenue and margin expectations and what the drivers for that will be within that. So I think you'll hear more about that for sure, David, at our Analyst Day. David Raso: Okay. And 1 quick one. The JV income in the first quarter was up year-over-year, but you're still guiding the year down. And I'm just trying to make sure we know why is it down? Is it China not continuing some of the improvement? Is there other parts of the royalty income? I know it's a pretty lumpy line item within the JV income. If you can help us with that would be great. Mark Smith: Yes. I think you're exactly right, David. There's really 2 moving parts of the operating performance, which generally tends to move in line or better than the market rate. And then we get very lumpy tech fees from the joint venture back to Cummins consolidated results as new products are launched and last year was a particularly strong period of new product launch, [indiscernible] certain development milestones. So the tech fees are going to be down, particularly in the Engine business primarily and that's offsetting any assumptions around the market growth. I will say it's -- there was some truck OEM build increases in the Q1, but that was more on expectations or hopes about going forward, we're still waiting for clearer signs of momentum as China, as you know, is the biggest driver of the earnings there. But it's really lower tech fees, which were a big at last year -- a little bit in components, mostly in the Engine business. Christopher Clulow: One quick add there, David. And we also have built in our plan the launch of the battery joint venture later on this year post approval. So that will have some losses as well as that comes back online in the second half. Mark Smith: Which is embedded in Accelera. Jennifer Rumsey: Yes, we're expecting that. We have final regulatory approval for that battery JV. So we're expecting that's going to start flowing in Q2. Operator: Our next question comes from the line of Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just back to the Power Generation segment. I think you raised your guidance to 10% to 15% versus a 5% to 10% previously. Can you just talk about the price versus volume mix makeup of that versus prior expectations? Is this a matter of getting better production than you kind of anticipated? Or is pricing growing and just kind of what are you seeing from that perspective? Jennifer Rumsey: Yes. So there's a couple of dynamics to keep in mind in that market. So first of all, as I articulated, the order board is pretty long. And so some of the work to improve price cost in response to inflation and performance of the business takes some time to play out. So we're starting to see stronger pricing leverage come into that market. And then we're continuing to, of course, drive improvements in the Power Systems business and efficiency in manufacturing and supply chain. And I noted the launch of the new products that we've also designed to be able to sell at some higher margins. So there are some favorable dynamics that have been happening in the power gen market compared to historically where we would have been in margin performance. Angel Castillo Malpica: That's very helpful. And along the lines of new products, just you talked about your X15 diesel engine that's coming out for kind of ahead of the emissions regulations. Can you give us a little bit more as to what you kind of expect in terms of guardrails around pricing and margin potential improvement. I know you typically run emission cycles when you get kind of the opportunity to reset and recover some of that margin. So as we think about maybe not necessarily specifically to any given year, but those projects -- or those products and kind of the implications to your price and margins as those get rolled out? Jennifer Rumsey: Yes. So certainly, like in past emissions regulations, our goal is to deliver incremental value to the customer, to have margin improvement associated with that. You will see with the 27 EPA regulations, we already talked about the emissions warranty dynamic. You will also see added content, in particular, after-treatment system to meet those regulations has notable additional content. And then you will also have the warranty dynamic that we always have as we launch new products where we began at least to launch to accrue at a higher rate from a warranty perspective until the product is out in the market, and we've demonstrated warranty. So those are the moving parts that you'll see. We have not yet shared specific numbers on what we expect around exact pricing for those products. Operator: Our next question comes from the line of Tami Zakaria with JPMorgan. Tami Zakaria: So I wanted to understand the margin guide a little better. It seems like excluding Atmus, which probably -- which was a headwind separating that out is becoming a headwind, but you sort of raised the full year guide by about 10 basis points, expecting better margins in Engines and Power Systems. So just to get a sense of what's really driving this improved margin expectation? Is it higher volumes? Or is it more cost savings? Or is it more price/cost? So any color there would be helpful. Mark Smith: Good question. You're right that the Atmus separation is a little bit dilutive to margins. So yes, good that you picked up on that. It's really volume and a little bit of cost reduction activity. Those are the 2 primary drivers. Operator: Our next question comes from the line of Rob Wertheimer with Melius research. Robert Wertheimer: My question is going to be around your competitive positioning in the 2027 EPA from what you can see today. There's a bunch of questions we get on whether there's a prebuy on what the cost increase would be and maybe the warranty should be stripped out of that, I'm not sure. And there may also be more subtle things that you guys would understand better than most of us around how the standards can be met, whether having an additional nat gas where you guys do pretty well can offset other emissions and so forth. So that's the general question. Price increase, whether share gain and whether there's any subtleties around your mix in your early preparedness that will help you in 2027 transition? Jennifer Rumsey: Yes. Great. Thanks for the question. And we are investing, as we've talked about in the new HELM engine platforms. And we're in a unique position because of our scale to continue to invest in what will be a market-leading engine solutions to meet those future regulations. And so we expect that, that will provide some advantage for us as we go into those regulations. There will be a dynamic we think that's going to play out in the '25 and '26 time period as end customers anticipate a major regulation change and what that will mean to them. And so we expect that's going to drive some things beyond the normal cycle in the U.S. truck market. And then as we go into 2017, there'll be some period of uptake, but we think we're well positioned. Obviously, our position in medium duty has continued to strengthen, and we'll have a next-generation 15-liter natural gas that will go into the market later this year that is of high interest to some of our customers that have sustainability ambitions and see this as the best way, most cost-effective and reliable way to meet those ambitions and then we'll have a new high-efficiency 15-liter platform and 10-liter platform as well. So we're excited about our position with those products and really focused on the execution of development and launching them into the market. Operator: Our next question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Just sticking with the EPA 2027 for a minute here. If the final rules continue to provide nice crediting of hydrogen trucks. And just given your offerings in this space, wondering if you started to see more of a pickup for hydrogen fuel cell or whether most of sort of the Accelera inbounds at this point are primarily both. Jennifer Rumsey: Yes. So if you look beyond even the '27 into the EPA announced the Phase 3 greenhouse gas regulation, which is going to really start to shape the industry as we get into 2030 and beyond, no major surprises for us with that regulation, but it is really an unprecedented level of ambition and assumptions around 0 emissions vehicle penetration. And so the industry and the government is going to have to work really closely together for that to be successful. So to your question, one of the things -- there are a few things that we're pleased about in the regulation. One is it actually recognizes hydrogen engines as a zero-emission solution. So we believe that, that will create a space for hydrogen fueled engine that hydrogen fuel cells still are a good solution over time, but the adoption rate on that is likely to be -- take some time, I would say. And then the EPA also did commit to work to streamline hybrid powertrain certification. So hybrid engines, we think, may be an attractive solution because the infrastructure availability is going to be a challenge. So that's another thing that we're looking at closely. So there's still some engine-based solutions. Yes, we're seeing an uptick today in more of the battery electric powertrain as I noted, and of course, electrolyzers, fuel cells are still at pretty low level. Noah Kaye: Yes, makes sense. And then you mentioned that you got regulatory approval for the JV. So just can you lay out for us kind of the game plan on how spending for the gigafactory should proceed over the next couple of years? And what you may be doing at this point in terms of lining up supply and demand for the factory, at least your [indiscernible] Jennifer Rumsey: Yes. I mean the partners have been working together ahead of getting the final regulatory approval we announced that we selected a site earlier this year. So we'll be -- we're getting a site ready in Mississippi, just outside of Memphis to kind of see and really starting the work to prepare for supply chain and building the plant. We -- now that we have regulatory approval, we believe we'll be able to close and finalize the entity in this quarter. And then we'll have phased investment as we build the plant and work towards start of production in 2027. And then we're, of course, sharing this investment of a 21-gigawatt hour plant across the partners and have this design that will allow us to phase in new lines and scale up the plant and production rates based on how we see the industry developing, and we're still feeling really good about how we're positioned in the market together with LFP cell that will be designed specifically for the commercial vehicle market and have the ability to leverage some of the incentive money that's available here to help enable adoption in our commercial vehicle market. Operator: Our next question comes from the line of Jamie Cook with Truist Securities. Jamie Cook: So sorry, I'm managing through like 7 calls. I hope this hasn't been asked. But Mark, the question is to you, I guess, understanding you have your guys' Analyst Day coming up this month. I'm just looking at Cummins and thinking, okay, perhaps there's a cost story there, you have market share gains that should be helping you maybe less spend on Accelera. I'm just wondering, as you think about margins over the medium term, do you think there's an opportunity to structurally improve incremental margins? Or as you think about sort of the next couple of years, it is more so taking these actions to hit Cummins' historic targeted incremental margins? And then my second question would be, and if this is addressed, I apologize. Can you just talk to the visibility you have across like in terms of backlog across your portfolio, in particular, for the engine side and the Power Systems side. Mark Smith: So I heard you we will explicitly address incremental margins in May. You will not miss that for all who are asking, very appropriate, at center of mind -- or top of mind for us clearly. So you will hear that very, very shortly, I guess. Jennifer Rumsey: Yes. And Jamie, good to have you back. We're, of course, working and you're seeing the improvement in the Meritor business as we do the integration and Accelera as we ramp up. Revenue, we'll talk more about that. In terms of color on the market, we're seeing continued solid demand in the heavy-duty market because of the high backlogs that have been built up, still a lot of strength in the vocational market. Truckload's been down for some time. And so we are still anticipating and hearing from our OEM customers that second half will have some weakening, and that's baked into our revised guidance, which is down, but not as far down as previous guidance. Power gen, I noted earlier, we've sold out the 95-liter through '25. We're looking at capacity there and how we can take that up as well as with the new Centum launch, being able to sell some of our other engines into that market as well. So pretty -- really strong feeling very good about power gen, feeling good about medium-duty and vocational on-highway. It's really the -- it's the truckload, fleet customers in the heavy-duty market. That's the one that we're watching closely and still anticipating that it's going to soften before we enter the next uptick in their cycle. Mark Smith: Yes. And then what you heard maybe earlier was some industry consensus building about '25 and '26 ahead of 2027. So our baseline assumption today is that this is not as sharp or as steep as normal cyclical downturn. That's an assumption, not a fact, but that's what we've baked into our outlook for this year. China is the 1 where we're still -- we're waiting for more momentum probably. Operator: Our next question comes from the line of Jeff Kauffman with Vertical Research. Jeffrey Kauffman: I was just curious your thoughts. It's apparent that the downturn, I think a lot of us feared in '24 on the heavy-duty engine side isn't going to be as bad as originally feared. I know ACT Research has taken up their forecast. You did mention some weakness beginning in 3Q, but are we taking from what would have been otherwise prebuy in '26 if we have a better '24? Or do you think the 2 are unrelated? Jennifer Rumsey: I'm not sure that they're related. I mean, we're really watching what's going on with production rates with backlog with some of the spot rate dynamics in the market. And if you look at some of the freight carriers out there, they've been challenged now for the last 18 months. And so that's what's driving our outlook, but fair. I mean we -- because of the -- it's really the supply chain dynamic that has made this cycle so different and even unpredictable. It certainly held up better and longer than we had forecast, and we are still expecting to see some softening in the second half. Jeffrey Kauffman: Well, congratulations. Operator: Our last question comes from the line of Chad Dillard with Bernstein Research. Unknown Analyst: This is Federico filling in for Chad. I would like to double click on the R&D intensity and how to think about this on the medium-term basis. Christopher Clulow: Sorry, can you repeat that? I don't think we got the first part. Unknown Analyst: Sorry. We would like to double-click on the R&D intensity and how to think about this on a medium term basis. Jennifer Rumsey: Yes. So we are -- as you know, we've taken up our R&D investments. We noted that in our comments because we're making investments, in particular in these new fuel-agnostic engine platform. So we're at an elevated level of R&D for those new platform investments. And those products are beginning to launch and really will launch through the '26 and '27 time period. And then, of course, we're at a period of investment in the Accelera business as we work to launch new products and ramp up revenue there as well. Operator: Thank you. I'd like to turn the floor back over to Chris Clulow for closing comments. Christopher Clulow: Thanks, everybody, for your participation today. That concludes our teleconference. Really appreciate the interest. And as always, the Investor Relations team will be available for questions after the call. Have a good day. Jennifer Rumsey: Look forward to seeing many of you in person in a couple of weeks. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Greetings, and welcome to Cummins Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to, Chris Clulow, Vice President of Investor Relations. You may begin. Chris Clulow: Thank you. Good morning, everyone and welcome to our teleconference today to discuss Cummins’ results for the fourth quarter and full year of 2023. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statements in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release, with a copy of the financial statements and a copy of today’s webcast presentation, are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Chris and good morning, everyone. I'll start with a summary of 2023 and discuss our fourth quarter and full year results and then I'll finish with the discussion of our outlook for 2024. Mark will then take you through more details of our fourth quarter and full year financial performance and our forecast for this year. As I reflect back on 2023, I am incredibly proud of what Cummins and our employees accomplished for our stakeholders and I feel energized about the opportunities ahead for us as we continue to demonstrate our relentless focus on being a global leader in clean energy technology and innovation. We made significant progress in achieving our Destination Zero strategy and it continues to be clear that this dual path approach to reducing greenhouse gas and air quality impacts of our products is the right approach to meet our customers' needs today and continue to grow our business and impact. We did this by advancing our core business as well as developing new zero emission solutions through Accelera by Cummins. Most notably, for our core business in 2023, we committed to investing more than $1 billion across our US engine manufacturing network to support the industry's first fuel-agnostic engine and platforms, as well as unveiled the X10 fuel-agnostic series launching in North America in 2026. Additionally, we initiated several collaborations with our natural gas X15 engine, which will launch in North America this year and further enables our customers to achieve their decarbonization goals. This is the industry's first natural gas engine design specifically for heavy duty and on-highway truck applications, offering customers the opportunity to realize reductions in nitrous oxide and greenhouse gas without compromising performance. We are continuing to see strong interest from both OEMs and end users ahead of the launch later this year. In our Accelera business, we announced a joint venture with Daimler Trucks and Buses, PACCAR, and EVE Energy to accelerate and localize battery self-production and the battery supply chain in the US. We further announced this quarter the selection of Marshall County, Mississippi for the 21-gigawatt-hour factory that is expected to create more than 2,000 US manufacturing jobs with production anticipated to begin in 2027. Accelera also reached a further milestone this year of electrolyzer order backlog, totalling over $500 million. In order to meet the growing electrolyzer demand, we began production at our first US manufacturing location for electrolyzers in the Cummins Power Generation Facility in Fridley, Minnesota. Lastly, we are resolute about the leading role we play in the energy transition, and emissions compliance continues to be a critical element of this work and central to our values. We were transparent about this in December when we announced that we reached an agreement and principle to resolve US regulatory claims regarding our emissions certification and compliance process for certain engines, primarily used in our pickup truck applications. After 4.5 years of working diligently with the regulators, reaching an agreement was the best way for us to achieve certainty on this matter and move forward with certifying our new products and advancing our Destination Zero strategy. We have expanded and strengthened our emissions compliance program to help ensure our products comply with increasingly stringent emissions regulations around the world. Our product compliance and regulatory affairs organization, which we launched in 2019, has a reporting line directly to me and positions come as to meet global product compliance requirements and deliver solutions for our customers that are safe and lead to a cleaner environment. Now I will comment on overall company performance for the fourth quarter of 2023 and cover some of our key markets. Demand for our products remain strong across many of our key markets and regions. Revenues for this quarter totalled $8.5 billion, an increase of 10% compared to 2022, driven by strong demand across most global markets. EBITDA was a loss of $878 million or negative 10.3% compared to positive $1.1 billion or 14.2% a year ago. Fourth quarter 2023 results included $2.04 billion of costs related to the agreement to resolve US regulatory claims, $42 million of costs related to a voluntary retirement and separation program, and $33 million of costs related to the separation of the Atmus business. This compares to the fourth quarter 2022 results, which included $19 million of costs related to the separation of the Atmus business. Excluding those items, EBITDA was $1.2 billion or 14.4% of sales compared to $1.1 billion or 14.5%. EBITDA dollars increased from a year ago as increased pricing and higher volumes more than offset increased selling, administrative research and development expenses and inflation costs. Research and development expense increased in the fourth quarter as we continue to invest in the products and technologies that will create advantages in the future, particularly in the engine, components and Accelera segments. In addition, operating cash flow for the fourth quarter of 2023 was very strong at $1.5 billion compared to $817 million in the fourth quarter of 2022 as we continue to focus on working capital management within the business. 2023 revenues were a record $34.1 billion, 21% higher than 2022, driven by the addition of Meritor and strong demand across most global markets. EBITDA was $3 billion or 8.9% of sales compared to $3.8 billion or 13.5% of sales in 2022. 2023 results include $2.04 billion of costs related to the agreement to resolve US regulatory claims, the voluntary headcount reduction program I noted previously, and $100 million of costs related to the separation of the filtration business. This compares to our 2022 results, which included $111 million of costs related to the indefinite suspension of operations in Russia and $81 million of costs related to the separation of the filtration business. Excluding those items, EBITDA was a record $5.2 billion or 15.3% of sales for 2023 compared to $4 billion or 14.2% of sales for 2022, as the benefits of higher volume and pricing exceeded increased selling, administrative, research and development and inflation costs. EBITDA percent improved year-over-year in the distribution, components and power systems segments. Our Power Systems business in particular finished 2023 with a full year EBITDA of 14.7% of sales, up from 12.2% in 2022. This segment completed the first year of their focused business transformation effort, and the improvement in performance is encouraging. You will see from our guidance that we expect further margin gains this year. In addition to our segments, Meritor finished 2023 with full year EBITDA of 10.8% of sales, up from 7.4% in 2022, as our employees did a tremendous job of executing value capture opportunities across the business. I'm very pleased with the performance of Cummins Meritor to date as we continue our program to improve margins in that business and expand its global reach. In addition, operating cash flow for 2023 was a record of $4 billion, a significant increase from $2 billion in 2022. I'm proud of our leaders and employees efforts in 2023 as they helped deliver on one of our primary focus areas. Strong cash generation will continue to be a top priority moving forward. Now let me provide our overall outlook for 2024 and then comment on individual regions and end markets. Our 2024 guidance continues to include Atmus for the full year, but excludes any costs or benefits associated with the planned separation of that business. We are forecasting total company revenue for 2024 to be down 2% to 5% compared to 2023, and EBITDA to be in the range of 14.4% to 15.4% of sales, as we anticipate slowing demand in some of our key regions and markets, particularly North America heavy duty truck. Early in 2024, we expect the heavy duty market to continue at its current rate, which is slightly off the peak of the first half of 2023, with further softening in our forecast in the second half of the year. Industry production for heavy duty trucks in North America is projected to be 245,000 to 265,000 units in 2024, a 10% to 15% decline year-over-year. In medium duty truck market, we expect market size to be 140,000 units to 150,000 units, down 5% to flat compared to 2023. Our engine shipments for pickup trucks in North America are expected to be 135,000 units to 145,000 units in 2024, a 5% to 10% decline year-over-year as we prepare to launch our model year 2025 in the fourth quarter. In China, we project total revenue, including joint ventures, to increase 3% in 2024. We're projecting a range of down 5% to up 10% in heavy duty and medium duty truck demand, and expect a range of down 5% to up 5% in demand in light duty truck market. We expect replacement demand to be the biggest driver, but the effect may be weakened by a sluggish economy and moderating export demand. Despite this slow pace of recovery in the China truck market, we expect to see continued strong performance for the 15 liter natural gas engine as we achieved approximately 20% share for 2023 in the heavy duty market. In India, we project total revenue, including joint ventures, to increase 9% in 2024, primarily driven by strong power generation and on highway demand. We expect industry demand for trucks to be flat to up 5% for the year. For global construction, we expect a 5% to 15% decline year over year, primarily driven by weak property investment and shrinking export demand in China. We project our major global high horsepower markets to remain strong in 2024. Revenues in the global power generation market are expected to increase 5% to 10%, driven by continued increases in the data center and mission-critical markets. Sales of mining engines are expected to be down 5% to up 5%, while the small market for us, demand for oil and gas engines, is expected to decrease by 40% to 50% in 2024, primarily driven by decreased demand in North America. And for aftermarket, we expect a range of flat to an increase of 5% for 2024, as we expect to be largely through inventory management efforts and destocking that happened throughout the industry in the second half of 2023. In Accelera, we expect full-year sales to be $450 million to $500 million, compared to the $354 million in 2023. We have a growing pipeline of electrolyzer orders, which we expect to deliver over the course of the next 12 months to 18 months, as well as expect continued growth in electrified components. In summary, 2023 was a record year for revenues and operating cash flow, excluding the impacts related to the agreement to resolve U.S. regulatory claims. 2023 was also a record year for EBITDA, net income, and earnings per share. While 2023 revenues were at the high end of our expectations, we anticipate moderating demand in North America truck production in the second half of 2024. We expect this moderating demand to be partially offset by a strong power generation market, resiliency in our distribution business, given the strong aftermarket presence, and improved Accelera sales. In addition, we are taking steps to reduce costs, optimize our business and position Cummins for continued success in 2024. We are in a strong position to keep investing in the future, bringing new technologies to customers and returning cash to our investors. As I close, I would like to officially announce that our Analyst Day is now scheduled for May 16 in New York City. I look forward to further discussing our strategy and expect invitations to be sent out shortly. Now let me turn it over to Mark, who will discuss our financial results in more detail. Mark? Mark Smith: Thank you, Jen, and good morning, everyone. I will acknowledge I have a heavy cold this morning. So if I sound more dour than usual and a little rougher, please take that into consideration. We delivered solid operational results in the fourth quarter, exceeding our expectations for revenue and delivering EBITDA margins in line with our guidance. Compared to 2022, our full year sales grew 21% and our operating cash flow more than doubled to a record $4 billion, reflecting the strong focus of our employees on meeting customer demand and improving working capital. Now let me go into more details on the fourth quarter and full year performance. Q4 revenues were $8.5 billion and EBITDA was a net loss of $878 million, or negative 10.3% of sales. For the full year, we reported revenues of a record $34.1 billion and EBITDA was $3 billion, or 8.9% of sales. As Jen mentioned, we recorded a one-time charge of $2.04 billion in Q4 to settle the previously disclosed US regulatory claims. Fourth quarter results also included $42 million of costs associated with the voluntary retirement and separation programs. Costs associated with the planned separation of Atmus were $33 million in the fourth quarter and $100 million for the full year, compares to $19 million in the fourth quarter of 2022 and a total of $81 million in the previous year. Full year 2022 results also included $111 million of costs related to the indefinite suspension of our operations in Russia. To provide clarity on the fourth quarter and 2023 full year operational performance of our business, I am now excluding the costs associated with the regulatory settlement, voluntary retirement separation programs, planned separation of Atmus and the indefinite suspension of our operations in Russia in my following comments. Q4 revenues were $8.5 billion, an increase of 10% from a year ago. Sales in North America increased 8%, driven by improved pricing across multiple end markets and stronger demand for power generation products. International revenues increased 13%, driven by strong global power gen demand, particularly for data centers. EBITDA was $1.2 billion or 14.4% of sales for the quarter, compared to $1.1 billion or 14.5% of sales a year ago. Improved pricing was offset by higher compensation costs, increased investment and development, and capabilities in our Accelera segment. Higher variable compensation costs were driven primarily by stronger operating cash flow, which exceeded our expectations for the quarter and the full year. Now I'll go into each line item with a little bit more detail. Gross margin was $2 billion or 23.7% of sales, an increase of $201 million or 30 basis points from the prior year. The improved margins were driven by favourable pricing and higher volumes, partially offset by higher product coverage costs and compensation expenses. Selling, admin and research expenses increased by $154 million or 15% as we continue to invest in the development of new products that will drive future growth and also due to higher variable compensation costs. Joint venture income increased $25 million due to slowly recovering demand in China from a low base in 2022. Other income was $50 million, an increase of $17 million from a year ago, primarily due to the recovery of technology fees from customers in the fourth quarter. Interest expense was $92 million, an increase of $5 million from the prior year driven by higher interest rates on the floating rate portion of our debt. The all in effective tax rate in the fourth quarter was negative 13.3%, principally due to non-deductible costs associated with the regulatory settlement. All in net loss for the quarter was $1.4 billion or negative $10.01 per diluted share, which includes $2.04 billion or $13.76 per diluted share of costs associated with the regulatory settlement, $42 million or $0.22 per diluted share of costs associated with the voluntary retirement and separation programs, and $33 million or $0.17 per diluted share of costs associated with the planned separation of Atmus. Operating cash flow was an inflow of $1.5 billion, $642 million higher than the fourth quarter last year, driven by strong earnings and a lower expansion of our working capital across the business. For the full year 2023, revenues were a record $34.1 billion, up 21% or $6 billion from a year ago, driven by the inclusion of a full year of Meritor results and strong organic growth. Sales in North America increased 22% and international sales increased 20%. Within those numbers, organic sales growth was 12%, driven by improved pricing, strong global demand for power generation products, continued strength in the North American truck market, and slowly improving economic conditions in China. EBITDA for the year was $5.2 billion or 15.3% of sales for 2023, an increase of $1.2 billion or 110 basis points from the prior year. The increase in EBITDA percent was driven by higher volumes, favourable pricing and logistics costs, and a modest and favourable mark-to-market impact from investments that underpin our company-owned life insurance plans, all of that partially offset by higher compensation expenses. All in-net earnings were $735 million or $5.15 per diluted share, compared to $2.2 billion or $15.12 per diluted share a year ago. 2023 net earnings include $2.04 billion or $13.78 per diluted share of costs related to the regulatory settlement, $100 million or $0.54 per diluted share of costs related to the separation of Atmus, and $42 million or $0.22 per diluted share of costs related to the voluntary separation programs that we implemented during the fourth quarter. Full-year cash from operations was a record inflow of $4 billion, doubling from a year ago as a result of higher operating income and much lower expansion of working capital across the company. Capital expenditures in 2023 were $1.2 billion, in line with our forecast, and an increase of $297 million from 2022, as we continue to invest in the new products and capabilities to drive growth, particularly related to the fuel agnostic platforms within our core business. Our long-term goal is to deliver at least 50% of operating cash flow to shareholders, and over the past five years we've returned 56% of operating cash flow in the form of share purchases and dividends. In 2023, we focused our capital allocation on organic investments and dividend growth, returning $921 million to shareholders via the dividend, and debt reduction following the acquisition of Meritor. We currently expect that our priorities for cash deployment in 2024 will mirror those of last year. I'll now summarise the 2023 results for the operating segments and provide guidance for 2024. If I need to say it again, I will, that the results that I'm going to discuss going forward exclude the costs related to the separation of Atmus, the cost associated with the voluntary retirement and separation, and the costs associated with the indefinite suspension of our operations in Russia in 2022. Component segment revenues were a record $13.4 billion, 38% higher than the prior year. EBITDA was 14.4% of sales compared to 14.2%, an increase of $540 million, or 40%. For 2024, we expect total revenue for the components business to decrease 2% to 7% and EBITDA margins to be in the range of 13.9% to 14.9%. For the Engine segment, 2023 revenues increased 7% to a record $11.7 billion and EBITDA was 14.1% of sales, compared to 14.3% a year ago. In dollar terms, EBITDA increased $74 million or 5%. In 2024, we project revenues for the engine business will decrease 2% to 7% due to expected moderation in the North American heavy-duty truck market, most likely in the second half, or most prominently in the second half of the year. 2024 EBITDA is projected to be in the range of 12.5% to 13.5%. In the distribution segment revenues increased 15% from a year ago to a record $10.2 billion and EBITDA increased by 28% and improved as a percent of sales to 11.8% compared to 10.6% a year ago. We expect distribution revenues to be between down 3% and up 2% and EBITDA margins to be in the range of 11.4% to 12.4% for the full year. In the power system segment, revenues were also a record at $5.7 billion or 13% higher than last year. EBITDA was 14.7% or 250 basis points higher than 2022 driven by favourable pricing, strong volume and certain cost reduction actions. In 2024 we expect Power Systems revenues to be down 3% to up 2% and EBITDA in the range of 15.2% to 16.2%. Accelera revenues increased $354 million in 2023 with a net loss at the EBITDA level of $443 million. In 2024, we expect Accelera revenues and now we anticipate that Accelera revcenue will increase in the range of $450 million to $500 million and net losses to reduce to between $400 million and $430 million as we continue to make targeted investments in future technologies, whilst improving the operating performance of our current products. We currently project 2024 company revenues to be down 2% to 5% and company EBITDA margins in the range of 14.4% to 15.4%. Our effective tax rate is expected to be approximately 24% in 2024 excluding any discrete items. Capital investments will likely be in the range of $1.2 billion to $1.3 billion as we continue to make critical investments to support future growth. To summarize, we delivered record sales and strong operating profits in 2023. Cash generation has been and will continue to be a strong focus as we enter 2024, enabling us to continue investing in new products even during times of economic uncertainty, returning cash to shareholders and maintaining a strong balance sheet. As Jen indicated, we do expect moderation in several of our key markets in 2024, especially in the US truck market as reflected in our guidance. We have already taken actions to reduce costs in the business and are in a good situation to navigate the economic cycle and improve our cycle over cycle performance in 2024. Subject to our mark-to-market conditions, our intention is to split the remaining ownership in Atmus through an exchange offer as our next step in the separation as we seek to reposition our portfolio for the future. As part of the proposed exchange offer, common shareholders will have the choice to exchange all, some or none of their shares of Cummins' stock for shares of Atmus common stock subject to the terms of the offer. The exact timing of our decision to launch an exchange offer will, as stated earlier, depend on market conditions, but the launch of the tender could occur as early as in the coming days. Our guidance for Cummins for this year assumes the inclusion of Atmus in our consolidated results for the entirety of 2024 and excludes any costs or benefits of the separation. The benefits to Cummins are expected to include a lower number of shares outstanding upon completion of the exchange. We will update our guidance as and when the separation is completed. Thank you for your interest today. Now let me turn it back over to Chris. Chris Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we're ready for our first question. Operator: Thank you. [Operator instructions] Our first question is from Jerry Revich with Goldman Sachs. Please proceed. Jerry Revich: Yes, hi. Good morning, everyone. Jennifer, Mark, Chris, so normally when you folks have new engine regulations, we tend to see higher margins from you folks. I know we're a couple of years out from the 27 regulations, but can you just share some high-level thoughts? It looks like the average selling price of the engine could double given that embedded warranty increase and I'm wondering if you'd just comment on that and then broadly just talk about the parameters of how do you expect the dynamic to play out for your business compared to the margin expansion we've seen on prior emission cycles where you folks have increased your value add. Thanks. Jennifer Rumsey: Yeah, thanks for that question, Jerry. So as you've seen from us in the past, as we launch product with new emissions regulations, typically we see a content increase, of course, and then also look at creating value for our customers and have an opportunity to price accordingly with them. So we are looking to continue to do that as we launch new products, in particular, these fuel agnostic engine platforms. Of course, we also typically see a bump up in our warranty costs because we are beginning to accrue in at a high rate until we've demonstrated capability of that platform. So that's the other factor to watch as we launch those products, but what you see us doing right now is really focusing on improving operating performance of the business, as well as investing in the key platforms for the future that we believe will bring value to our customers and position the company for profitable growth. Jerry Revich: Okay, super. And then can I ask separately, given the high logistics costs that the industry saw in 2023, can you comment on where your labor hours per unit stand today versus normal? And to what extent could that be a source of upside relative to the guide? Chris Clulow: Yeah, Jerry, I think that has been, as we've progressed through 2023, continue to drive more and more efficiency. Some of the supply chain hiccups that we have experienced are beginning to iron out, we're getting better on time to delivery, and that does allow us to drive more efficiency in our plants. So I think we are continuing to see that as we progress through the latter half of the year. As we expect, as both Jen and Mark mentioned, volumes to particularly in the North America heavy duty truck space come down a bit and moderate a bit, we can continue to drive those efficiencies. So I think the cost per labor hour will continue to get better and I would say the overall costs on labor have somewhat levelled out. We went through, as you know, a long period of them rising and through the course of the last six months that has settled down and become much more of a flat. Mark Smith: Yeah, I would say in the near term, there's a little bit of increased anxiety about events in the Middle East and some shipping delays and some reversing of the trend we've seen in logistics costs, which have been actually going down for us, Jerry. I don't want to overstate that, it's obviously is a little bit of a concern in the near term. Operator: Our next question is from Tim Thein with Citigroup. Please proceed. Tim Thein: Maybe just one bit of a clarification, but on the comments on for engine shipments in North America for on highway, I think you said 140,000 down 5% to 10%. Is that -- was that relative to the total North heavy and medium duty market, or was that a comment just on heavy duty in terms of? Mark Smith: Yeah, on the medium duty, Tim, we had a down, down 5% to flat, and that's 140,000 to 150,000. The heavy duty market, we have it down at 10% to 15% and that's our guide for the year. Jennifer Rumsey: And I'll just give a little color. This has been an unusual cycle, I think, in the '21, '22 timeframe and supply constraints that prevented the industry from fully meeting customer demand and that has improved over the course of 2023. We saw the markets peak really in the second quarter and saw some slight drop off in the second half, but to the high end of our guide, it was not as much as we had forecast going into Q1. Backlogs look strong, in particular, feeling quite good about the medium duty market and continuing to watch what happens. We are still predicting a shallow cycle and further softening as we go into the second half of the year. So that, just some color behind those numbers is how I would describe that. Tim Thein: Okay, I had a question on kind of what that implied in terms of the market share, but I can follow up with Chris after and then maybe the second one is just on the implied decrementals for the engine segment in '24 and obviously, the kind of a high 30% number, the JV income will certainly be a drag on that, but maybe with not to go through every single piece, but the parts headwind was pronounced in '23 for Cummins and I'm just curious for that piece, specifically, you outlined that the guidance for the off highway parts outlook, but for that and anything else that maybe you'd call out that's relevant to the year-over-year margin performance for engines? Thank you. Mark Smith: Yeah, good, good question, Tim and the main thing that you didn't cover there was just our assumptions around product coverage. We're not expecting any significant change, but baked into our guidance is a little bit higher product coverage or warranty as a percent of sales in the engine business. We'll see how that plays out, but, that's the other factor that's in there that you didn't list. Operator: Our next question is from David Raso from Evercore ISI. Please proceed. David Raso: Hi, thank you. Just sort of a bigger picture question, I know there's been a lot of costs involved and you're right in the thick, of course, call it a decade long energy transition that there's a lot of expenses. I'm just curious, if you look out over the next year or two, is there an inflection point that you see your cost begin to recede and if not, is there a thought of maybe a larger cost out program? I recognize the separation program you discussed, but just something maybe more substantial size, just given relative to other names we look at, they've had a real strong run on profitability the last couple years and it's been a little more of a challenge for your margin. So just curious if you see something on the horizon that really changes that, be it cost inflection, or maybe an idea you've proactively taken, sorry, spend inflection coming down, or something on the cost side that maybe you can do. Thank you. Jennifer Rumsey: Yeah, David, thanks. Thanks for the question. And first, I'll say, I think you said decade long energy transition, I would just put an S on that decades long, right? It's going to take time. The reality is, if you look across our different markets and regions, it's going to take time for that transition to occur. We are in a period, though, of really peak investment in the engine business. As we invest in these fuel agnostic engine platforms, we've got a major investment in R&D and capital to do that. And we think that those engines are going to really position us well with high efficiency diesel products as customers have and continue to decide not to invest in their own platforms and to use Cummins and then also the fuel flexibility that will help customers as they begin to transition, whether its natural gas or hydrogen-based engine solutions. And so the next few years until we launch those platforms in the '26, '27 timeframe, we're seeing higher levels of R&D in those products and then, of course, we're also in a period where we've got somewhat lower revenue and higher investments in the accelerator business and we are pacing that investment based on how we see the market moving. We're looking at opportunities to share investments while having a leading solution, like you saw us do with the battery cell joint venture. As revenues grow, we improve parts of those businesses and electrified components. We've now delivered 1500 buses with Bluebird and ramping up the electrolyzer that will help improve margin performance of the business there. And then the last thing I'd say is, as Cummins has done, and we will continue to do, we're looking at how do we improve different parts of our business and so following the acquisition of the North America distribution business, we had a focused investment on improving margin there and you see that playing out in the distribution business performance and I talked about the focus last year that started in our power systems business. You see that playing out there, the Meritor integration, and we're continuing to look at places that we can improve operating performance of our business and then watch market demands and cost and so the voluntary reduction actions that we took last year help us as we see some reduction in revenue this year. So all those things come together to allow us to continue to improve our returns to investors while making sure we're investing in key products and technologies for the future. David Raso: All right, thank you. And just a minute real quick, and I'll hop off. The cadence of the declines in North America truck that you're looking to experience as the year goes on, can you give us a little sense of the cadence, maybe from an industry perspective, and would your declines, the cadence be any different? Just the idea of the lead lag between what's in inventory, how early you ship, just trying to get a sense for the cadence and how you relate to the industry cadence. Thank you. Jennifer Rumsey: Yeah, great. So, obviously, there's some lead that we have in supplying engines into truck build. So our engine build rates will slightly lead truck build rates, but as I said earlier, from a guide perspective, we think where we were running as we ended the year is going to hold pretty steady through the first part of the year and then we're forecasting some softening toward the end of second quarter and into the second half of the year. Mark Smith: In a medium duty truck, there really isn't that much difference between the two, and market and hours and then heavy duty, that's where we see a little bit more vulnerability for the market and would largely expect us to move in line with the market. Jennifer Rumsey: And then the last dynamic is in pickup, we've got the product changeover that'll drive Q4 volumes lower and pickup. Operator: Our next question is from Angel Castillo with Morgan Stanley. Please proceed. Angel Castillo: Hi, good morning. Thanks for taking my question. I just wanted to unpack that cadence for the second half a little bit more. I think last quarter you had indicated aftermarket was an area that maybe was giving you a bit of a signal that there was a bit of a softening. And I think you indicated that things came in maybe the higher end of your expectations, and you kind of see that continuing into the first half. So as we kind of position that second half slowdown and now an expectation for aftermarket to actually pick up from the kind of flat to up 5% through the year, can you tell us, I guess, what you're seeing in terms of customer commentary and any kind of signs or what kind of gives you confidence in that second half slowdown as we think about the year? Mark Smith: Yeah, I'll have a go -- first go at that question. First of all, I'll just say on aftermarket, we saw a very pronounced, I would say some element of de-stocking or lower production across our lower demand in parts in Q4, which we largely attribute to customer cash flow management. We don't expect that to be a continuing trend. We expect to recover from Q4 levels on parts and be pretty steady across the year. On the truck builds, well, of course, you've heard from most of our major customers. So we really don't have much more to say other than the backlog of trucks has been slowly edging down and then the thing that gives us the broader concern is the spot rates and the health of the truck fleet operators. That's our principal concern. It's not our OEM customers and right now that the backlog and the orders still continue at quite decent levels. It's what's happening to the underlying economics of freight activity. That's what's giving us the concern combined, which hasn't been moving in the right direction, combined with the slowly easing heavy duty backlog. So it isn't a kind of pronounced downturn we might have seen in prior cycles at this point, but those are the factors that are weighing into our consideration and I think our guidance isn't more conservative than anybody else's and we don't have any other observations beyond those really. Angel Castillo: Got it. That's helpful and then maybe pivoting to Accelera, I just wanted to maybe unpack that a little bit in terms of curious what you're seeing in the backlog trends from 3Q to 4Q and as you kind of deliver on at least the electrolyzers over the next 12 months to 18 months, can you talk to us, I guess, about the cadence of the profitability of that business? We kind of exit 2024 and you start to have higher deliveries on those and maybe what you kind of foresee the exit rate will be in terms of that profitability? Jennifer Rumsey: Yeah, so we are in a period of still pretty heavy investment in Accelera businesses are really making both R&D and manufacturing investments to scale up the product and we're fortunate we have, existing plant and data that we can invest within to do that, to begin to produce electrolyzers and we continue to see growing demand and backlog is, as I noted, at a record level for electrolyzers. So that production rate is going to begin to grow and then you'll see margin performance in the electrolyzer portion of the business improving as the revenues grow and we deliver that backlog out into the market. Same thing in our electrified components business as we see revenue growth there. You'll see margin performance improving. One thing we have now included in our 2024 investment, of course, is beginning to invest in the battery cell joint venture and we believe that, that is a key investment that we're making together to ensure we have a leading cell for commercial vehicles here in the U.S. and domestic supply, which will both allow us and our customers to take advantage of incentives that are available and ensure security of supply over time into this market. Operator: Our next question is from Rob Wertheimer with Melius Research. Please proceed. Rob Wertheimer: Yeah, hi. I wonder if you could give us some thoughts on what's happening in the data center and large engine market. Obviously, it's very strong. I don't know how many years of visibility you have or what that market looks like. Your primary competitor announced a capacity expansion. I don't know where your capacity and your room to grow into that market if it is, a multiyear kind of curve. So I wonder if you could kind of give us an update on dynamics there. Jennifer Rumsey: Yeah, the data center market is an exciting growth market, has been for several years a trend with increasing cloud, data storage in the cloud and now with artificial intelligence and other investments. We continue to see very strong demand. We guided up 10% to 15%. Backlog for that market is very, very strong. We're looking at our capacity to make sure that we can meet the market demand and feeling good about the product offering that we have and of course, that business and the focus on improving underlying performance of that business will help us as that market grows. Mark Smith: Probably the clearest secular trend over the next couple of years. Jennifer Rumsey: I don't. Yeah, I think it will continue. Rob Wertheimer: And then do you have room to grow in '25 and '26? Maybe not sure too much on your capacity, but it seems as though you're probably, you're probably being asked to quote or to think about, capacitor that far out, right. Jennifer Rumsey: Yeah, I will just say we expect that that trend of data center market growth will continue and we are and we'll continue to look at our capacity and how we position to meet that demand. Rob Wertheimer: Okay. Perfect. I'll stop there. If I can sneak one more in on medium duty, there's a bit of a narrative that as the COVID constrained production, the OEMs prioritized large class state over the medium duty and that's reflected somewhat in industry outlooks in your out. I'm just wondering if medium duty has more inherent demand than that being helped by interest rates or anything else, or if that's kind of where the market is kind of flattish? I'll stop there. Jennifer Rumsey: Yeah. There were certainly the OEMs experienced a number of supply chain constraints and continued in '23 and even into the early part of this year, frame rails in particular. So we are, as you as you saw, really expect the medium duty market to continue to hold pretty flat to where it is now. It's quite strong. We, of course, have a strong position in that market and we're seeing continued demand and pent-up demand from some of the customers in that market for our product. So less often in there than heavy duty. Operator: Our next question is from Tami Zakaria with JPMorgan. Please proceed. Tami Zakaria: Hi, good morning. Thanks for taking my question. So I think you highlighted DV [ph] adoption scenarios at your last Analyst Day. As of today, I know you're hosting another Analyst Day this year, but as of today, which scenario, the fast versus slow, seems more likely? And how do you think that affects your Accelera target of $6 billion to $13 billion revenue by 2030? Any updates on that? Jennifer Rumsey: Yeah, as you said, we did a kind of a low and a high scenario for adoption at our last Analyst Day and you can expect that we're going to refresh our view of that as we go into the Analyst Day in May. What I would say is that, there are regulations and incentives that are helping to start to drive that adoption, maybe more towards the lower end of those scenarios is what we would think and we are continuing to look at pacing of investment to make sure that we're managing that in line with how we see adoption actually occurring. Tami Zakaria: Got it. So if it's more leaning toward, let's say, the slower version, does that have a dampening or somewhat negative or slowing impact on the Accelera targets that you have out there? Jennifer Rumsey: Yeah, we're still within, it would still fall within the range that we gave in the Analyst Day, consistent with those range of scenarios that we suggested and recall that, a large portion of that revenue in 2030 for Accelera is in the growth of the electrolyzer business as well. Operator: Our next question is from Noah Kaye with Oppenheimer and Company. Please proceed. Noah Kaye: Thanks so much. First off, a housekeeping question. I'm trying to understand cash flow dynamics as we exit the year and the leverage profile. Obviously the settlement impacts that a bit, but, you typically have a target to return 30% of cash flow to shareholders. How are we thinking about return to capital this year and where you're kind of aiming to end the year on leverage? Mark Smith: Yeah, so morning, Noah. So we're going to start the year with the same stance as last year, invest in the business, dividend focus and some more de-levering. That's the way we start in the year. We'll continue to evaluate that with our board as we see how the cycle unfolds. At least that's our initial stance. Of course, part of our, in years where we've generated more cash than we've needed, then we've returned significantly more than the 50% in any given year, but anyway, we think this is the approach right now until we see a little bit more on the cycle. Noah Kaye: All right. So you do expect to de-lever as we get to the end of the year. Mark Smith: Yes. Noah Kaye: Okay. And then just the guide for China truck seems a bit wide. Can you kind of talk us through the low end and the high end of the range in terms of the scenarios you're envisioning? Is it high end contingent on stimulus? Walk us through what you're seeing and assuming. Chris Clulow: Yeah. That really reflects low visibility, right? So we've come off a very weak base, but there just isn't clear signals yet from the market as to what's actually going to happen. So we can build a case. It's hard for me to think of a case that's a lot lower than where we are today, but just the overall pace of the economy continues to be sluggish and so that upside really leaves room for something unexpected on the stimulus side, which has happened from time to time in China, but we don't have brilliant insight at this point in time. The outlook is cloudy and the conviction from OEMs is not quite there yet. We're doing well with our customers, launching more products. We're bullish on continuing to outgrow in the market in China, both consolidated revenues and in the performance of the JVs. We're all set to outperform. We just need a little bit of help from the market overall, but it's not as tangible as we'd like at the start of the year. Of course, we'll look at the same data points and provide you with an update. Hopefully, by the end of Q1, we tend to have a stronger view of the. And my voice is done for the rest of the morning. Jennifer Rumsey: Chris and I will answer the rest of the questions. Chris Clulow: We'll see how much it clears on China. Operator: Our final question is from Michael Feniger with Bank of America. Please proceed. Michael Feniger: Yeah. Thank you guys for squeezing me in. Just the share count's been kind of flat to slightly up. There's a comment in the release about a focus on debt reduction, payment of dividends. Can you just flesh out the priorities in 2024, because I know Mark mentioned with Atmus, I heard buybacks. Just maybe you can reiterate the framework of how we should kind of think about Atmus in 2024 as we move through the years, some of the puts and takes there. Mark Smith: The main impacts of Atmus operation will be obviously, they'll set off on their own pursuing their growth strategy and as this final step, we will swap Cummins shares for -- investors will retire Cummins shares in exchange for Atmus shares. So our share count will go down if the exchange is successful. The reason our share count here in the past 18 months hasn't been changing or drifting up is because we stopped the share repurchase as well. We de-levered post the Meritor acquisition, which we've been telegraphing to investors. We've got a little bit more of deleveraging to go, and then we'll continue to evaluate whether we, what our opportunities are to generate the best returns for investors, either through organic growth or through more capital returns, but that's the basic way it's going to work. The share count will go down on the separation. Michael Feniger: Fair enough. And Mark, I want to let you go and get better. Just quick question for you is just on Meritor, I think '23, I think there's revenue about $4.8 billion, maybe EBITDA a little bit above $500 million. Just when we think of the guide for '24 on components, anything you can help us unpack about how that Meritor in '23, how that kind of trends in '24 relative to your overall components guide? Thanks everyone. Mark Smith: Got it. And I will say I'm feeling better than I sound, and that's largely because of the record cash flow. So please, as I said at the start, don't read into my breaking voice. Meritor achieved the goals we had for this year. It is not a segment on its own. We provided that data for the first full year for transparency purposes to make sure investors had a read on how we were doing after a little bit of a bumpy start when we first acquired Meritor. So that's all rolled into the guidance, but it's safe to say we've got further improvement in Meritor going into 2024 and we're really pleased with how the team is doing there, Ken Hogan and his team. So we're excited about that going forward. So thank you. Thanks everybody. Appreciate it. Operator: This will conclude our question-and-answer session. I would like to turn the conference back over to Chris for closing comments. Chris Clulow: Thank you, everybody. That concludes our teleconference for the day. I appreciate all of you participating and your continued interest. As always, our Investor Relations team will be available for questions after the call. Take care. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Operator: Greetings, and welcome to the Cummins Incorporated. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Clulow, Vice President of Investor Relations. Thank you, Chris. You may begin. Chris Clulow: Great. Thank you very much. Good morning everyone and welcome to our teleconference today to discuss Cummins’ results for the third quarter of 2023. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer, and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statements in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release, with a copy of the financial statements and a copy of today’s webcast presentation, are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you Chris and good morning everyone. I'll start with a summary of our third quarter financial results. Then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2023. Mark will then take you through more details about our third quarter financial performance and our forecast for the year. Before getting into the details of our performance, I'm excited to first highlight a few major events from the third quarter that demonstrate the continued execution of our strategy. On September 6th, Accelerate by Cummins, Daimler Truck and Bus and PACCAR, along with EV Energy joined forces to accelerate and localize battery cell production and the battery cell supply chain in the United States. The planned joint venture will manufacture battery cells for electric commercial vehicles and industrial applications, creating highly desirable manufacturing jobs in the United States in the growing clean technology sector. Total investment by the partners is expected to be in the range of $2 billion to $3 billion for the 21 gigawatt hour factory with production expected to begin in 2027. We see this partnership as an opportunity to share investment with two long-standing partners while advancing a key technology solution for our customers and industry and collectively to accelerate the energy transition in the United States. In October, Cummins completed its acquisition of two Faurecia commercial vehicle manufacturing plants and their related activities, one in Columbus, Indiana and one in Roman Netherlands. This acquisition is a natural addition to the Cummins Emission Solutions business and will help ensure we meet current and future demand for low emission products. Lastly, Cummins announced several collaborations with our natural gas X15 engine that further enable our customers to achieve their decarbonization goals. Freightliner announced they are working with Cummins to offer the new X15 natural gas engine and its heavy-duty Freightliner Cascadia trucks. Also Cummins and Knight Transportation, Inc. announced that the industry's largest full truckload company has successfully tested Cummins new X15 engine in Southern California, using renewable natural gas to realize reductions in nitrous oxides and greenhouse gas without compromising performance. The X15 N, which will launch in North America in 2024 is the first natural gas engine to be designed specifically for the heavy duty on-highway truck application. Now, I will comment on the overall company performance for the third quarter of 2023 and cover some of our key markets, starting with North America before moving on to our largest international market. Demand for our products continued to be strong across many of our key markets and regions. Revenues for the quarter were $8.4 billion, an increase of 15% compared to the third quarter of 2022, driven by the addition of Meritor and strong demand across most global markets. As a reminder, the third quarter of 2022 included two months of consolidated operations for Meritor following the completion of the acquisition on August 3rd of 2022. EBITDA was $1.2 billion or 14.6% compared to $884 million or 12.1% a year ago. Third quarter 2023 results include $26 million of costs related to the separation of the filtration business. This compares to third quarter 2022 results, which included $77 million of costs related to the acquisition, integration and inventory valuation adjustments of Meritor and $16 [ph] million of costs related to the separation of the filtration business. Excluding those items, EBITDA percentage of 14.9% in the third quarter of 2023 represented an improvement from 13.3% we delivered in 2022. We as the benefits of higher volume and pricing exceeded increased selling administrative, research and development expenses and inflation costs. Third quarter of 2020 also included a onetime employee recognition bonus of $56 million. Research and development expense increased in the third quarter as we continue to invest in the products and technologies that will create advantages for us in the future, particularly in the Engine, Components, and Accelera segments. In addition, operating cash flow for the third quarter of 2023 was a record inflow of $1.5 billion compared to the $382 million in the third quarter of 2022 as we continue to focus on our working capital management within the business. I'm proud of our leaders and employees for their efforts in driving down costs and operational focus to achieve this record result for the quarter, and we will continue to focus on strong cash generation moving forward. Our third quarter revenues in North America grew 16% to $5.2 billion compared to last year, driven by the addition of Meritor and strong demand in our core markets. Industry production of heavy-duty trucks in the third quarter was 74,000 units, up 1% from 2022 levels, while our heavy-duty unit sales were 29,000, up 18% from last year, reflecting strong demand for our products. Industry production of medium-duty trucks was 37,000 units in the third quarter of 2023, an increase of 7% from 2022 levels, while our unit sales were 32,000, up 19% from 2022. We shipped 41,000 engines to Stellantis for use in their Ram pickups in the third quarter of 2023, flat with 2022 levels. Engine sales to construction customers in North America decreased by 8%, driven primarily by high inventory in the channel. Revenues in North America Power generation increased 15% as industrial and data center demand improved and supply constraints eased modestly. Our international revenues increased by 13% in the third quarter of 2023 compared to a year ago with the addition of Meritor and strong demand across most markets. Third quarter revenues in China, including joint ventures, were $1.6 billion, an increase of 24% as markets continue to recover compared to a very weak third quarter of 2022. Industry demand for medium- and heavy-duty trucks in China was 243,000 units, an increase of 48% from last year. Our sales and units, including joint ventures, were 41,000, an increase of 36%. In light-duty markets in China, we saw increase of 14% from 2022 levels at 442,000 units, while our units sold, including joint ventures, were 26,000, an increase of 12%. Industry demand for excavators in the third quarter was 40,000 units, a decrease of 30% from 2022 levels. The decrease in market size is due to weaker activity in construction. Our units sold were 7,000 units flat with 2022 levels as increased penetration at new and existing customers offset the declining market. Sales of power generation equipment in China increased 5% in the third quarter, primarily driven by slight improvement in non-data center markets. Third quarter revenues in India, including joint ventures, were $730 million, an increase of 13% from the third quarter a year ago. Industry truck production increased by 17%, while our shipments increased 23%. Power Generation revenues decreased by 16% due to the second quarter -- ahead of emissions regulation changes. Now, let me provide our outlook for 2023, including some comments on individual regions and end markets. Based on our current forecast, we are raising full year 2023 revenue guidance to be up 18% to 21% versus last year. We are also narrowing our EBITDA guidance range to be 15.2% to 15.4%. We now expect higher full year revenues in our Components segment and higher profitability in our Power Systems segment, offset by decreased profitability in our engine business as a result of softening aftermarket and off-highway markets. We are raising our forecast for heavy-duty trucks in North America to be 280,000 to 300,000 units in 2023 after a strong third quarter. Our current guidance forecast lower industry truck production in the quarter. While orders remain relatively strong, inventory management, truck component shortages, limiting our OEM production rates and fewer working days are all contributing to our view for the quarter. In North America medium-duty truck market, we're maintaining full year 2023 market size guidance of 135,000 to 150,000 units, up 5% to 15% from 2022. While we continue to work to increase our production through rebalancing across our global plants and improving the supply base, industry production continues to be limited due to other supply chain constraints. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 140,000 to 150,000 units in 2023, volume levels in line with 2022. Additionally, we maintain our guidance for North America construction to be down 10% to flat, driven by high channel inventory and softening market conditions. In China, we project total revenue, including joint ventures to increase approximately 15% in 2023, driven by share growth, better volumes and content increase. We project a 15% to 25% improvement in heavy- and medium-duty truck demand and 10% to 20% improvement in light-duty truck market coming off the low market levels in 2022 and that's consistent with the prior guidance. Despite the slow pace of recovery in the China truck market, we are continuing to see strong performance for the 15-liter natural gas engine, which we launched in 2021. Due to the expanding fuel cost differential, approximately 20% of the heavy-duty market is expected to be natural gas power by the end of 2023. In the short time since launching our new natural gas product in China, our share has been ramping up with strong customer reception in the heavy-duty market, and we expect momentum to continue into the fourth quarter. We look forward to launching the 15-liter natural gas engine in North America in 2024. We expect China construction volume to be flat to down 10% in line with prior guidance, consistent with the tepid economy and weaker overall activity. In India, we project total revenue, including joint ventures, to be up approximately 6% in 2023, consistent with our prior forecast. We expect industry demand for trucks to be flat to up 5% for the year. We project our major global high horsepower markets to remain strong in 2023. Sales of mining engines are expected to be flat to up 10%, consistent with our prior guide. Revenues in the global power generation markets are expected to increase 15% to 20%, consistent with our prior guide, with the strong performance driven primarily by improvement in the data center and mission-critical markets. For Accelera, we expect full year sales to be $350 million to $400 million and also maintain our EBITDA guidance of the expected loss of $420 million to $440 million for 2023. Within components, Cummins expects revenues contributed by the Meritor business for 2023 to be $4.7 billion to $4.9 billion, and EBITDA is expected to be in the range of 10.5% to 11%. In summary, we are raising our guidance on sales of up 18% to 21% and narrowing our EBITDA guidance range from 15.2% to 15.4%. Our guidance for the full year implies weaker revenue in the fourth quarter. While demand remained strong in several markets, softening in the aftermarket demand, a continued weak outlook in China, continued industry supply constraints impacting North America truck production and inventory management efforts across many markets are some of the factors driving the lower fourth quarter run rate. In view of the lower forecasted revenues, we have initiated actions to reduce costs in our business, particularly in selling and administrative costs. In order to lower costs as we move into next year, we are offering voluntary retirement and a voluntary separation program in select regions and parts of our business for eligible exempt employees. We will continue to monitor our end markets closely and assess the need for further action while continuing to invest for our future. During the quarter, we returned $238 million to shareholders in the form of dividends. Our long-term strategic goal is to return approximately 50% of operating cash flow to shareholders. The strong execution from the second quarter of 2023 continued into the third quarter, driving record operating cash flow despite the ongoing challenges in our operating environment. As we look forward to the opportunities ahead, we have a strong, capable leadership team who will help us successfully navigate an exciting and changing future. Today, I was also pleased to announce several promotions on my leadership team, which will be effective January 1 of next year. First, Srikanth Padmanabhan, currently Vice President and President of the Engine Business, will take on a newly created role of Executive Vice President and President of Operations. In this role, Srikanth will be an important work that will define and drive improvements in how we operate as a company through the energy transition and ensure our success of our operational priorities. Throughout his more than 30 years at Cummins, Srikanth has worked across many of Cummins businesses and regions, and consistently pushed the boundaries of customer-focused innovation to position Cummins as the leading powertrain supplier of choice in the transition to a net zero future. Srikanth is a result and people-driven leader and is the perfect choice to lead this work. Second, Brett Merritt, currently Vice President of On-Highway Engine Business and Strategic Customer Relations will assume the role of Vice President and President of the Engine Business, replacing Srikanth when he takes his new role. Brett has spent more than 25 years in the automotive and commercial vehicle industry and more than 14 at Cummins. The past 11 spent leading and growing On-Highway Business from 800,000 engines in 2012 to 1.2 million engines last year. Brett is an experienced business leader and a trusted partner to many of our key customers, and I'm excited for Brett to lead this segment. Bonnie Fetch, currently Vice President of Global Supply Chain, will assume the role of Vice President and President of our Distribution Business, replacing Tony Satterthwaite., who has been acting as Interim Head of DBU. Bonnie, who previously led supply chain for DBU has led for Cummins global supply chain and manufacturing organization, including Cummins new and ReCon parts business since early 2022, where she led her team in navigating the many complex supply chain challenges as well as improved operational and functional performance. For more than 30 years of experience, including 20 years at Caterpillar, before coming to Cummins, includes General Management, HR and Supply Chain Leadership and makes her uniquely qualified for this role. I'm excited for her to leverage her broad experience to run this segment. This is a period of change for our company, and it's also an exciting one. I want to end by thanking our Cummins employees who continue to work tirelessly to meet our customer needs and respond to the strong demand levels by ensuring quality products, strengthening our some relationships and navigating continued supply chain challenges. Our results reflect our focus on delivering strong operating performance, investing in future growth and bringing sustainable solutions to decarbonize our industry, while returning cash to shareholders. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. Third quarter revenues were $8.4 billion, up 15% from a year ago. Sales in North America increased 16% and international revenues grew 13%. Organic sales growth was 10%, driven by improved pricing and strong demand for our On-Highway and power generation products. 5% of the total increase in sales was driven by the addition of Meritor. EBITDA was $1.2 billion or 14.6% of sales for the quarter including $26 million of costs associated with the planned separation of Atmus. EBITDA in the third quarter of 2022 was $884 million or 12.1% of sales, including $16 million of costs associated with the planned set for [ph] Atmus. And $77 million of our integration and inventory valuation adjustments related to the acquisition of Meritor. Excluding the Atmus separation costs and Meritor adjustments, Underlying EBITDA third quarter was 14.9% compared to 13.3% a year ago. The higher EBITDA percentage was driven by favorable pricing to cover rising input costs and improved logistics costs, partially offset by higher variable compensation associated with the stronger overall company financial performance. In addition, we issued a onetime employee recognition bonus in the third quarter of last year, totaling $56 million. To provide clarity on operational performance in comparison to our guidance and excluding costs associated with the planned separation of Atmus and the acquisition integration and inventory valuation stats related to the acquisition of Meritor in my following comments. As a reminder, we completed the acquisition of Meritor in August of 2022, resulting in one additional month of operational performance in Q3 this year compared to last year. Now I'll go into more detail by line item. Gross margin for the quarter was $2.1 billion or 24.6% of sales compared to $1.7 billion or 22.9% last year. Gross margin increased by 170 basis points, driven by favorable pricing and logistics costs and the impact of the onetime employee bonus last year, partially offset by higher variable compensation expenses. Selling, admin and research expenses were $1.2 billion or 14.1% of sales compared to $997 million or 13.6% with the increase primarily driven by both higher variable compensation and higher engineering costs associated with new products across the company. Income from joint ventures was $118 million, $48 million higher than the previous year, driven by the receipt of technology fees and slowly improving demand in China, which boosted the operational results. Other income was a negative $7 million or $20 million lower than a year ago, driven by foreign currency translation. Also included in other income was $28 million of mark-to-market losses on investments. Interest expense increased by $36 million, primarily due to highest higher interest rates on the floating rate portion of our debt. The all-in effective tax rate in the third quarter was 21.4%, including $5 million or $0.03 per diluted share of favorable discrete items. All-in net earnings for the quarter was $656 million or $4.59 per diluted share, including $26 million or $0.14 per diluted share of costs associated with the separation of Atmus. All-in net earnings in the third quarter of last year were $400 million or $2.82 per diluted share, which included $16 million of costs associated with the planned separation of Atmus and $77 million of acquisition and integration costs associated with the acquisition of Meritor. All-in operating cash flow was a record quarterly inflow of $1.5 billion, $1.1 billion higher than last year, driven by solid earnings and continued focus on working capital management. Generating strong operating cash flow remains a key focus area for the company, and we were pleased with the progress in the third quarter. I will now comment on segment performance and our guidance for 2023. As a reminder, 2023 guidance includes a full year of operations for Meritor and Atmus and excludes any costs of benefit related to the separation of Atmus. Guidance also excludes the impact of any cost reduction activities within Cummins in the fourth quarter. As Jen mentioned, we're raising our revenue guidance for the company to 18% to 21%, up slightly from our previous guidance of 15% to 20%, driven by strong demand in North America. EBITDA is now expected to be 15.2% to 15.4% compared to our previous range of 15% to 15.7%. And we are also narrowing the EBITDA ranges for most of our business segments. Components segment revenue was $3.2 billion, an increase of 20%. EBITDA was 14.2%. Back with the prior year, while EBITDA dollars increased from $384 million to $461 million. Meritor -- Cummins Meritor revenues in the third quarter were $1.2 billion, and EBITDA was $129 million or 11% of sales, a significant improvement from last year and in line with our expectations. For the Components Segment, we now expect total 2023 revenues to increase 35% to 40%, a 3% increase from our previous revenue guidance with EBITDA in the range of 14.2% to 14.7% compared to our previous range of 14.1% to 14.8%. Within Components, Meritor revenues are expected to be $4.7 billion to $4.9 billion, consistent with prior guidance. EBITDA is expected to be in the range of 10.5% to 11% compared to our previous forecast of 10.3% to 11%. Lots of small changes in the individual segment guidance as we get closer to the end of the year. For the Engine segment, third quarter revenues were $2.9 billion, an increase of 5% from a year ago. EBITDA 13.5% compared to 13% in 2022 driven by operational improvements and the impact of the one-time employee bonus in the prior year. In 2023, we project revenues for the Engine business will increase 2% to 7% and consistent with our prior projection and EBITDA in the range of 13.6% to 14.1%, a slight decrease from our previous guide of 13.8% to 14.5% due to a continuing softening in our aftermarket revenues and some weaker demand in some off-highway markets. In the Distribution segment, revenues were $2.5 billion, 13% higher than last year. EBITDA increased as a percent of sales to 12.1% and compared to 10% of sales a year ago, driven by stronger volumes, improved pricing and the impact of the onetime employee bonus last year. We expect distribution revenues to be up 10% to 15%, consistent with prior guidance and narrowing the expected EBITDA range to 11.9% to 12.4%. In the Power Systems business, revenues were $1.4 billion, an increase of 7%. And EBITDA increased from 14.3% to 16.2%, continuing a trend of last six quarters of improving margins driven by pricing, higher volumes, operational and cost reduction activities have all contributed to the continuing improving performance. In 2023, we expect revenues to be up 8% to 13%, consistent with the prior guidance. And we're raising the expected EBITDA to be in the range of 14.8% to 15.3%, up from our previous projection of 14.3% to 15%. Seller revenues more than doubled to $103 million, driven by electrolyzer project delivery, higher demand for battery electric systems in the North American school bus market and the addition of the Siemens Commercial Vehicle business electric powertrain portion of the --. Our EBITDA loss in the segment of $114 million will continue to support strong future growth. Our guidance for the topline and the bottom line [indiscernible] unchanged with revenues in the range of $350 million to $400 million and net losses of $420 million to [Technical Difficulty]. Our effective tax rate for the year is expected to be approximately 22% in 2023, excluding any discrete items. Our outlook for capital investments is unchanged and expected to be in the range of $1.2 billion to [indiscernible]. We will continue to focus on deploying cash to fund investments that drive profitable growth, debt reduction, and returning cash to shareholders through dividend this year. In summary, we delivered strong sales, solid profitability in the third quarter and record operating cash flow. We'll continue to focus on managing working capital delivering strong margins and investing in the products and technologies that will drive future growth. As we indicated last quarter, we see signs of softening aftermarket demand and weaker demand in some industrial parts. These, combined with less production days in the fourth quarter are expected to contribute to lower revenues and profitability. Have initiated some steps to the costs, as Jennifer outlined, and we'll continue to monitor our end markets closely and assess the need for further actions. Our priorities in 2023 for capital allocation, as I've said, to reinvest for growth, increase the dividend, and reduce debt. In July, we announced a 7% increase in the dividend, our 14th consecutive year of quarterly dividend growth. And through the end of the third quarter, we have reduced debt by $390 million. Furthermore, in October, we reduced debt by a further $650 million, consistent with our plans for the year. Thank you for your interest today. Now, let me turn it back over to Chris. Chris Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we're ready for our first question. Operator: Thank you. Our first question is from Jerry Revich with Goldman Sachs. Please proceed with your question. Jerry Revich: Yes, hi. Good morning everyone. Mark Smith: Hey Jerry. Jerry Revich: Jennifer, congratulations on the joint venture with PACCAR and Daimler. As we look forward to what that means for Cummins product availability and offering within EVs, can we just expand on that in terms of what's the opportunity to bundle it with e-Axles, battery management systems? And if you could just talk about, is there a plan use the plant to source batteries globally for your customers? Or is this strictly focused on the U.S. initially? Just would love your broader comments. Thank you. Jennifer Rumsey: Yes. So Jerry, I'll add a little bit more color to what we're doing with this partnership. As I said, this partnership is really focused on battery cell manufacturing. So, we have previously been investing and focusing on battery packs, e-Axles, motors, inverters, other key components and integrated powertrains for the electrified powertrain. And together with our partners saw the need to bring production of battery cells into the US and really design what we think is going to be a winning cell solution for commercial vehicles and industrial applications. So, this will be supplied into the battery packs that Cummins will produce. The cell will also go to PACCAR and to Daimler trucks here in North America for their battery cells, really is targeted at the US market. and having a domestic offering that we think will really do the market. And the chemistry here, for this, we will continue to offer battery packs around the world and chemistries, including LSP and NMC. But this one is focused on LFP technology, which, again, together, we think is going to be a winning commercial vehicle battery cell chemistry, lower cost, better durability, less dependency on some of these minerals that can be harder to source and also improve safety. So, really good opportunity for us and also to stay closely connected with those two partners as we're launching these electrified powertrains. Our intent is to offer that battery cell through our packs to other commercial vehicle and industrial applications here in the US as well. Jerry Revich: Okay. It's super. And Mark, can I ask just a shorter-term question on the Engine segment, you folks had pretty solid performance in the quarter and for the year. The reduced margin rate at the midpoint seems like a big step down in profitability implied fourth quarter versus third quarter. Can you just talk about is that a significant production cut, China JV? Or is that just taking the midpoint of the range versus thinking about the broader, maybe higher end potential outcomes? Mark Smith: Yes, I think it's not related to China. It is related to the fact that we're going to have less production days. That's consistent with the industry forecast for lower heavy-duty truck, which isn't a surprise, but that's what we've kind of been projecting for a couple of quarters. The thing that's really changed through the course of the year, Jerry, is the decline in the aftermarket, particularly running through the engine business. No doubt, some of that's related to customers rationalizing inventory. I don't, I think the underlying rate of decline is less than the headline rate because we've gone from a period of everybody trying to keep up with demand and now like ourselves, many companies are looking at inventory levels and trying to right-size. But just to give you a sense within the engine business between the first quarter of 2023 in the fourth quarter, parts revenues are down about 18%. So that's kind of been slipping each time we've looked at it. So that's the one changing trend. I don't think it's foretelling do. I just think it's mostly inventory adjustments. But that, combined with the lower production days, the lower absorption means that, yes, even though the revenues are holding up for the fourth quarter, it's going to be a little bit tougher. And that's one of the reasons, not the only reason why we've decided to initiate the actions that we discussed earlier. We're not predicting like a precipitous decline in our revenues at all. We don't have a visible clearly a leveling off or a slight decline in some areas, but we feel it's prudent both to do the cost reduction actions, continue our focus on cash flow and debt reduction the year that should leave us with the best chances of being very successful in 2024. Chris Clulow: One quick to add, Jerry. It doesn't change our overall guide for engine business, but it is a difference between Q3 and Q4 is our JV income does step down because of license fees timing. So, we had a lot of that happened in the third quarter that steps down about 40 basis points for Engine business margin from Q3 to Q4. So hopefully, that helps. Operator: Thank you. Our next question is from David Raso with Evercore. Please proceed with your question. David Raso: Thank you. I'm curious, the cost-out decisions. How much is that related to what you're seeing on the horizon in 2024 and if you can give us any insight on what that is? And maybe margins in 2023 being maybe a little more of a, let's say, a heavier lift to expand margins than maybe we see across the machinery space broadly. Just curious how much is it sort of structural to what 2023 is playing out versus what you're seeing in 2024? And obviously, any sense of magnitude the cost outs would be really helpful. Thank you. Jennifer Rumsey: Yes, David, I'll start and then Mark can add if he wants to add anything. So, as we said, we see that many of our markets have leveled off. We're seeing some drifting down in some of the markets, aftermarket, off-highway. And we are continuing to focus on ongoing improvement and profitability and performance of our business and using softening markets as a further opportunity to take costs out. So, we still see a lot of strength as we go into next year. We're not going to provide guidance for 2024. Today, what I will say is if you look at backlog and heavy-duty truck and medium-duty truck continues to look quite strong as you go into the first half of the year. Power generation is very strong. And so we're not seeing any precipitous drop off, but we think it's wise to take some cost-cutting actions here in Q4 and then continue to monitor the situation. And if we need to take further action, of course, we would continue to do that. Mark Smith: And we'll give you a fuller assessment on the next quarterly earnings call about the both the cost and the benefit impact. Of course, what we're announcing today is voluntary actions, so we don't know what the exact take-up is going to be and then our assessment of what is the kind of momentum in markets going forward. There will be some other smaller actions around facilities and other things. But we'll lay that out in detail in the next quarter when we've got a more holistic or hopefully, clearer view of the full year next year. David Raso: That's helpful. Maybe you can educate me on something. I'm a little confused by the comment in the fourth quarter engine margin. And I appreciate Chris' comment about the JV income, how that will impact 3Q to 4Q, but you highlighted a lower parts impact benefit in the fourth quarter. But then when I see the Components business, which, obviously, has a lot of parts as well, it seems like you're implying a strong fourth quarter on margins for components. So, can you educate me on why the difference one division is getting hit on parts and really the parts division you would think for aftermarket, even more so components, is having a step-up in margins in the fourth quarter, at least appears to be… Mark Smith: The size of the parts business in the engine business is significantly bigger than the size of the aftermarket business in the Components. David Raso: Sure. I think difference one step down and one step up. And maybe I'm just doing the math right, but it seems like the component implied fourth quarter margins pretty strong? Mark Smith: Yeah, I think it's pretty stable. I think that's just the dynamics we're seeing between the two different businesses right now. Jennifer Rumsey: Well, both of those segments are anticipating lower volumes for North America, medium- and heavy-duty truck market in Q4 for the reasons that I outlined here. Frankly, there's a combination of focus on inventory reduction and supply constraints that are continuing to prevent OEMs from building to the full demand, and we expect to see that in Q4 impact our revenues for both of those segments. David Raso: All right. Thank you very much. Mark Smith: There can be some differing customer demand for Components and engines in any given short-term period, David. I think you're right in the longer run or medium over multiple quarters should correlate pretty well. But in this case, we're seeing a bit more pressure on the parts on the engine side. It's not all parts that are sourced directly from our Components business. That's the main part. David Raso: All right. Thank you. Operator: Thank you. Our next question is from Rob Wertheimer with Melius Research. Please proceed with your question. Rob Wertheimer: Hey, I have two. One is just on the parts destock that you have mentioned and that makes sense. I'm just curious if you have any sense as to how much channel inventory people carry if you're all the way through that, half the way through. If you just quantify that potential if you're able to? Mark Smith: It's a little hard to say would say what we tend to see more clearly on the Power Systems side is destocking almost every year into the fourth quarter. We are seeing some of that and some lower rebuilds, particularly in the slice of the oil and gas market that we supply, Rob. But I would say the engine -- on the engine side, the on-highway side, the seems to have been a more sustained multi-quarter approach. And I think part of that there was a focus on prioritizing OEM newbuilds, first-fit build as we started to ramp up through the cycle and wrestle through supply chain. And then the parts was in catch-up mode, and now we're finding truck utilization has leveled off. Everybody is trying to do a better job on the inventory management. It feels like it's -- we're getting towards the bottom of that right now. Of course, that always depends on what's the economic environment and what's the underlying level of truck utilization. So if you were to ask me today, do I think we're on a clear trend to have significantly lower parts in Q1? I'd say no. So it feels like this is the strongest step has been in the last three quarters with the information that we have right. Rob Wertheimer: Perfect. And then if I can ask kind of a bigger picture question in China. It's obviously been very weak for a lot of industrials. Maybe it's bottomed in all your end markets maybe in some. I wonder if you could just give just your high-level view of what's going on in the economy there, whether fleet dynamics mean you have to be in recovery mode, whether that's true of trucks or power gen? Or just maybe give an overview of China, what you see in different parts of your business on the recovery? Thank you. Jennifer Rumsey: Yeah. So when we look at the China market, I mean over economic activity has continued to be pretty weak there. We've seen improvements in 2023 compared to 2022 when they were heavily impacted by COVID lockdowns even more extreme weakness. So you've seen some improvement. We've seen the strong demand for natural gas heavy-duty engines because of the cost delta between natural gas and diesel there. We've kind of come through the emissions change over in an on-highway market. And so if we see recovery and continued recovery in the economy there, so I think that will continue to positively impact our business. And with the product investments that we've made, the emissions change, we'll have more content, and we think continuing to increase our penetration. So we'll watch and see if any of the government stimulus does start to drive positive momentum and the economic activity, but it's been relatively weak this year. Mark Smith: Yeah. I mean just to give you a sense, I know we don't like talking about months, but July was like the lowest in a decade, right, in some of our JV production. It's crept up since there, but it has been tough. Again, it's not worse than we thought, but that just gives you a sense of how weak it was in the summer. Hopefully, there's upside from here, but we don't have good visibility to that. Chris Clulow: Yeah, the RMB1 billion bond that's planned, I think that's encouraging to see the government moving that won't impact fourth quarter, but hopefully, it drives more infrastructure growth in next year. We'll wait and see that we're up. Operator: Thank you. Our next question is from Tami Zakaria with JPMorgan. Please proceed with your question. Tami Zakaria: Hi, good morning. Thank you so much. So I just wanted to ask about the Power Systems business. Margins came out really strong. Sales growth is strong as well. But when we look at the fourth quarter guide, it seems like you're guiding to a step down of almost 200 basis points sequentially. So just wanted to get a sense of what's driving that? Is this conservatism? Or is there something that we need to be aware of for the fourth quarter for the segment? Mark Smith: Right. So the good news is they've been performing really well. So that's the underlying, and I think that's -- we expect that to be a continuing trend. As I mentioned earlier, typically, we see, particularly with the industrial side of that business that the customers really dropped down the purchase of parts in the fourth quarter. That's not new, but that that typically happens every Q4, and that's probably the main factor there -- the main negative factor. Otherwise, the underlying demand is strong. There's no major changes to pricing or the cost structure. Tami Zakaria: Got it. That's very helpful. And the next question is R&D spend. The R&D spend over the last five years have stepped up notably. How should we think about that spend, let's say, in the next couple of years, and any color on that? Jennifer Rumsey: Yes, Tami, as you noted in a period of increased R&D investment that we think will position Cummins well for the future. So in particular, now through the 2026, 2027 time frame when we launch these new fuel-agnostic engine platforms, we're making a major R&D and capital investments, and those are bringing new customer business to us and also will position us to have leading products through the energy transition. We've also been increasing our investment in the Accelera business as we ramp up the product investments for our electrolyzers and see growing demand for electrolyzer volume as well as in the electrified components. So that's really what you're seeing come through in the R&D line. And then we're continuing to really focus on improving underlying performance and efficiency in other areas so that we can continue to make the necessary R&D investments. A – Mark Smith : Yes. And that's why we've had a big push on the SG&A and continue to do that. So well, on gross margin. So we can grow margins, grow investment, grow the bottom line and keep improving the cash. That's a simple formula that we're working to. We'd like to see the cash flow come up. The engineering is going to remain these higher levels for a little while yet. And it's also the new engine business platforms are contributing to the -- yes, CapEx being higher in dollar terms. It's in our expected range as a percent of sales. But for the next couple of years, we've got these renewal of these major platforms, which is important for our future. Operator: Thank you. Our next question is from Tim Thein with Citi. Please proceed with your question. Tim Thein: Thanks. Good morning. The first question is on Power Systems. And I'm just curious about kind of the visibility that you have looking into 2024. And backlog isn't something that we historically really talked about with Cummins, but just given the long lead times for large engines and just visibility you have from a rebuild perspective, can you just maybe speak to where you think you exit the year in terms of -- again, I know you're not giving 2024 guidance, but just any sort of help you can give in terms of what kind of revenue visibility you would expect to exit the year with in that business? A – Mark Smith: Yes, you're right, Tim, that there is more visibility, but long lead times and the underlying demand. Certainly, I think we've got great visibility through the first half of the year. And of course, we're seeing -- we're anticipating more pressure on the on-highway side just because not a severe downturn, but generally, market participants are expecting some moderation in heavy-duty truck orders going into next year. So we would expect more revenue headwinds on the engines and components side. Distribution, as you know, is very heavily aftermarket-driven. So absent some massive crush in the economy, that should be more stable. And then Power Systems, certainly, very strong visibility through the first half of the year and some into the second half of the year. We haven't seen a dramatic shift in trajectory at this point in time. Jennifer Rumsey : Yes. I mean we're continuing to, as Mark said, to watch the Power Systems markets and in the industrial markets, we have seen a little bit of softening in oil and gas, which is a relatively small market for us that's kind of its inverse. And so that has softened a little bit. And then in Power Gen, you see a lot of growth this year. And I expect continued strong demand in the data center market for our business, and we're well positioned there. A – Mark Smith: And it's encouraging that both Power Systems and distribution now are on multi-period margin expansion trends that serve us well going forward. Tim Thein: Yes. Okay. And then just a lot of discussion here in terms of the on-highway parts business for you. And again, I know it's probably a bit of apples and oranges, but just listening to the commentary from your largest customer and kind of the outlook there they have for their own parts business. What do you think -- again, I know you don't want to speak for them, but what do you think is the -- you mentioned down 18%, I think from the beginning of the year. I think they're down like 2% or 3%. What do you think is driving that invariability between you come in to experience versus at least some of the OEMs? And yes, I know that the businesses don't align perfectly, but presumably, their impacted by a lot of the same dynamics. Just curious how beyond that. A – Mark Smith: Generally, I think it's destocking, right? We've had -- we have -- there's obviously, we know returns levels and things like that from all parts of our channel have gone up as customers have been deep. Jennifer Rumsey: Yes. I think it's really important to note through this cycle, two very different dynamics because of the supply constraints than what you would previously see. So the aftermarket demand was really strong. And with the supply constraints, it was challenging for some of our customers to get parts. And so there was a lot of focus on building up inventory to try to buffer against those constraints and a focus, frankly, on addressing the gaps that resulted in an overbuild of inventory. So now that some of those supply challenges have eased this getting inventory back to appropriate levels has been a focus, and that's driven a drop-off beyond just the actual aftermarket demand in service. And then the same is true and happening on the first-fit build that we've had supply constraints that have limited our ability to meet industry demand and you see that resulting in the markets holding up longer than you would typically see and continue to see solid demand for first-fit trucks. A – Mark Smith: And then if I just step back from the noise in this kind of correction period, Tim, clearly, our market share in North America on-highway markets has gone up noticeably so that should all go well for the parts that will inevitably be purchased through Cummins. I just think just in this correction period. I was just trying to provide that extra color this time to explain what I think a short-term margin influences, but not long-term market trends. Operator: Thank you. Our next question is from Steven Fisher with UBS. Please proceed with your question. Steven Fisher: Thanks. Good morning. Just curious about how much visibility you have to on-highway engine pricing going forward at this point into 2024. I guess to what extent is your pricing going to be dependent on the pricing of your OEM customers or how independent can that be? Jennifer Rumsey: Yes, we were price cost favorable this year, as we've shared previously, and we have -- we're continuing to focus on pricing with new product launches and where we've seen inflationary costs coming through. So we're working to continue to maintain that positive price/cost ratio. And we're seeing some slowing of course, in pricing in the market, but we'll expect to continue to have some of that. A – Mark Smith: Right. And again, when we give out for next year, then we'll, I'm sure you'll ask us about price cost. We'll be happy to share the dynamic. Steven Fisher: Sure. Yes. Thank you. And then can you expand a little bit on your comments on the construction outlook? I think you cited inventory adjustments in North America, but maybe you can just talk about the broader global view of engine demand for construction applications and how you think the setup there is for 2024. Is there sort of a demand question or is it just sort of near-term inventory management? A – Mark Smith: I think part of it can be the age of construction fleets, right? So we're seeing a drop off in engine demand. That doesn't necessarily mean a dramatic shift in North America construction activity. The three biggest markets both in North America, China and Europe, I think generally, it feels like the pace of economic growth in Europe is slowing. In China, it surprised us a little bit that the construction equipment demand hasn't fallen even further given some of the trails in the overall kind of financial health of construction sector in China, but it has come down some. But yes, no clear picture yet going into next year, I would say, that of all the markets, we still got some tire kick in to do, Steve, to figure out where we land for next year. Operator: Thank you. Our final question will be from Noah Kaye with Oppenheimer. Please proceed with your question. Noah Kaye: Yeah. Thanks. You indicated some favorable testing around the X15 and coming to market next year. So just would love to get a little bit more color on your expectations for demand there, the extent to which this could be a driver of share gains and where you're hearing the sort of the strongest indicators of demand for that product? Jennifer Rumsey: Yeah. So we'll launch the X15 here in North America next as you heard me say, it's performing well in China. We'll have a US version of that, of course, meeting the regulatory requirements here next year, and we'll have availability now through two of our OEMs. And we are seeing end customers testing and interested in that product will have the only heavy-duty natural gas product offered here in North America. So of course, that creates some opportunity for us as customers where they've got infrastructure, environmental goals or even operating cost benefits associated with natural gas will start to adopt that solution more. So there's some opportunity there for sure. Noah Kaye: Okay. And then I think we'd love to get a catch-up on the electrolyzer backlog and quoting activity. Any change in the trajectory there? Anything you noticed during the quarter? And can you update us on where you're at in terms of building out capacity? Jennifer Rumsey: Yeah. Really, on the same trajectory we've talked about previously with building up manufacturing capacity here in the US and Europe, continuing to have backlog growing. We are in the process of commissioning a 25-megawatt electrolyzer with Florida Power and Light over the course of this year. So another big project that we're delivering this year, and we continue to ramp up that business as we described previously. Operator: Thank you. There are no further questions at this time. I'd like to hand the floor back over to Chris Clulow for any closing remarks. Chris Clulow: Thank you very much for your interest today. And as always, the Investor Relations team will be available for calls and answer any further questions that you may have. Thank you. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Good day, ladies and gentlemen, and welcome to the Cummins Inc. Second Quarter 2023 Earnings Conference Call. Our host for today's call is Chris Clulow, VP of Investor Relations. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to turn the call over to your host. Chris, you may begin. Chris Clulow: Great. Thank you very much. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the second quarter of 2023. Participating with me today are Jennifer Rumsey, our Chair and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Chair and CEO, Jennifer Rumsey to kick us off. Jennifer Rumsey: Thank you, Chris. Good morning. I'll start with a summary of our second quarter financial results, then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2023. Mark will then take you through more details of both our second quarter financial performance and our forecast for the year. Before getting into the details on our performance, I want to take a moment to highlight a few major events from the second quarter that demonstrate the continued execution of our strategy. On April 3, United States President, Joe Biden, visited company facilities in Fridley, Minnesota to tour Accelera by Cummins, first U.S. manufacturing location for electrolyzers, a key technology to produce no-carbon hydrogen. Accelera is initially dedicating 89,000 square feet of the existing Cummins power generation facility in Fridley to electrolyzer production with the opportunity to expand to meet the growing demand. Accelera also reached a further milestone of electrolyzer order backlog totaling over $500 million at the end of the quarter. The Fridley facility will help address that growing demand, along with other capacity being added globally. Lastly, progress continues to be made on the separation of the Filtration business. On May 26, Atmus Filtration Technologies Inc. began trading on the New York Stock Exchange under the ticker symbol ATMU in connection with its initial public offering. Upon the completion of the IPO, Cummins retained approximately 80.5% of Atmus outstanding shares. The Atmus IPO generated $299 million of net proceeds and Atmus added $650 million of debt. Cummins realizes the benefit of the IPO proceedings and the debt issuance as Atmus will hold the debt at full separation. Now I will comment on the overall company performance for the second quarter of 2023 and cover some of our key markets, starting with North America before moving on to our largest international markets. Demand for our products continued to be strong across many of our key markets and regions, resulting in record revenues in the second quarter of 2023. Revenues for the quarter were $8.6 billion, an increase of 31% compared to the second quarter of 2022, driven by the addition of Meritor, strong demand and improved pricing. EBITDA was $1.3 billion or 15.1% compared to $1.1 billion or 16% a year ago. Second quarter 2023 results include $23 million of costs related to the separation of the Filtration business. This compares to second quarter 2022 results, which include $47 million in recovery of amounts reserved related to the indefinite suspension of operations in Russia, offset by $29 million of costs related to the separation of the Filtration business. Excluding those items, EBITDA percentage of 15.4% in the second quarter of 2023, represented a slight decline from the 15.7% we delivered in 2022, principally due to the addition of Meritor activity, which currently has a lower gross margin percentage than our other businesses and increased SG&A and development expenses. EBITDA and gross margin dollars improved compared to the second quarter of 2022 as the benefits of higher volumes, pricing and the acquisition of Meritor exceeded the supply chain cost increases. The strong EBITDA performance of the business in the first half drove an increase in selling and administrative expenses versus the prior year as we recorded higher accruals related to our variable compensation plans during the quarter. Research and development expenses also increased in the second quarter as we continue to invest in the products and technologies that will create advantages in the future, particularly in the Engine, Components and Accelera segments. As we noted previously, Meritor results are included in our overall guidance for 2023. In the second quarter, Meritor operating performance and financial results showed improvement with sales of $1.2 billion and EBITDA of 12.2%. The improvement in the profitability from the first quarter EBITDA margin of 9.4% was driven by pricing to cover inflation, operational improvements and cost reduction activities, which more than offset material cost increases that we expect to persist through the second half of the year. Our second quarter revenues in North America grew 31% to $5.3 billion, driven by the addition of Meritor and strong demand in our core markets. Industry production of heavy-duty trucks in the second quarter was 77,000 units, up 11% from 2022 levels, while our heavy-duty unit sales were 29,000, also up 11% from 2022. Industry production of medium-duty trucks was 37,000 units in the second quarter of 2023, an increase of 11% from 2022 levels, while our unit sales were 34,000, up 27% from 2022. We shipped 38,000 engines to Stellantis for use in the RAM pickups in the second quarter of 2023, flat with the 2022 levels. Engine sales to construction customers in North America increased by 8%, driven primarily by positive net pricing. Revenues in North America power generation increased by 16% as industrial and data center demand improved and supply chain constraints eased modestly. Our international revenues increased by 32% in the second quarter of 2023 compared to a year ago, with the addition of Meritor and a strong demand across most markets. Second quarter revenues in China, including joint ventures, were $1.7 billion, an increase of 37% and as markets began to recover compared to a very weak second quarter of 2022, which was impaired by COVID shutdowns in Shanghai and other regions. Industry demand for medium- and heavy-duty trucks in China was 279,000 units, an increase of 61% from last year. Our sales and units, including joint ventures, were 41,000, an increase of 63% due to increased penetration within our joint venture partners and new products launched to meet the NS VI standard. The light-duty market in China was up 21% from 2022 levels at 460,000 units, while our units sold, including joint ventures, were 28,000, an increase of 23%. Industry demand for excavators in the second quarter was 51,000 units, a decrease of 23% from 2022 levels. The decrease in the market size is due to weaker activity and construction. Our units sold were 8,000 units, an increase of 5%, driven by improved share with new and expanded customer relationships for both domestic and export usage. Sales of power generation equipment in China decreased 8% in the second quarter, primarily driven by a decline in the data center market. Second quarter revenues in India, including joint ventures, were $724 million, an increase of 22% from the second quarter of a year ago. Industry truck production increased by 2%, while our shipments increased 1%. Power generation revenues increased by 75% in the second quarter, driven by strong economic activity and customer demand ahead of a July 1 emissions regulation change. Now let me provide our outlook for 2023, including some comments on individual regions and end markets. Based on our current forecast, we are maintaining full-year 2023 revenue guidance of up 15% to 20% versus last year. EBITDA is still expected to be in the range of 15% to 15.7%. We now expect stronger revenue and profitability in both our Power Systems and Distribution segments than we did three months ago, offset by increased cost in the Accelera business. We are maintaining our forecast for heavy-duty trucks in North America to be 270,000 to 290,000 units in 2023. Supply chain constraints continue to limit our industry's collective ability to produce and while end customer demand remains strong currently, our current guidance forecasts lower industry truck production in the fourth quarter. In the North America medium-duty truck market, we are projecting the market size to be 135,000 to 150,000 units, up 5% to 15% from 2022. This is an increase from our previous guidance by 10,000 units. Similar to heavy-duty, supply chain constraints continue to limit our ability to produce and fully meet end customer demand. However, through the rebalancing across our global plant efforts to improve the supply base, we have been able to increase our production, resulting in the improved outlook. The improvement in the medium-duty outlook was offset by decreases in our forecast for two other markets. North America construction is now expected to be down 10% to flat versus our previous guidance of flat to up 10%. Secondly, Brazil truck is expected to be down 30% to 40%, a decline from our prior guidance of down 10% to 20% as the market adjusts to Euro 6 equivalent emission standards. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be $140,000 to $150,000 in 2023. Volume levels in line with 2022. In China, we project total revenue, including joint ventures, to increase approximately 15% in 2023, driven by share growth, better volumes and content increases. We project a 15% to 25% improvement in the heavy and medium-duty truck demand and a 10% to 20% improvement in the light-duty truck demand coming off the low market levels in 2022, consistent with prior guidance. Despite the slow pace of recovery in the China truck market, we are continuing to see strong performance for our products, including the 15-liter natural gas engine, which we launched in 2021. Due to the fuel cost differential, approximately 20% of the heavy-duty market is expected to be natural gas powered by the end of 2023. In the short time since we launched our new natural gas product in China, our share has been ramping up with strong customer reception in the heavy-duty market, and we look forward to launching the 15-liter natural gas engine in North America in 2024. We expect China construction volumes to be flat to down 10%, in line with prior guidance, consistent with the tepid economy and weaker overall activity. In India, we project total revenue, including joint ventures, to be up approximately 6% in 2023, an improvement from our previous forecast of about 1%, propelled by stronger power generation and on-highway sales. We expect industry demand for trucks to be flat to up 5% for the year. We project our major global high horse power markets to remain strong in 2023. Sales of mining engines are expected to be flat to up 10%, an improvement from our previous guidance of down 5% to up 5%. Revenues in global power generation markets are now expected to increase 15% to 20%, up from our previous guidance of a 10% to 15% increase, driven by non-residential construction and improvement in the data center markets. For Accelera, we expect full-year sales to be $350 million to $400 million, consistent with our previous guidance. As noted in my highlights, the electrolyzer market continues to gain momentum with our near-term focus on expanding capacity to meet the growing demand. As we scale up to serve the electrolyzer opportunity, continue to develop our products and support our customers in the field, costs are running higher than originally projected for the year. As a result, we have revised our EBITDA guidance for Accelera to an expected loss of $420 million to $440 million for 2023 versus our prior guidance of $370 million to $390 million. Within components, Cummins expects revenues contributed by the Meritor business for 2023 to be $4.7 billion to $4.9 billion, and EBITDA is expected to be in the range of 10.3% to 11% of sales, consistent with prior guidance. In summary, coming off a very strong first half where we produced record revenues and record EBITDA while delivering for our customers, we are maintaining our guidance of sales up 15% to 20% and EBITDA of 15% to 15.7%. Demand in most of our core markets is strong, while we continue to closely monitor global economic indicators. Should economic momentum slow, Cummins will remain in a strong position to keep investing in future growth, bringing new technologies to customers and returning cash to our shareholders. Our guidance for the full-year implies weaker revenue in the second half of the year. While demand remained strong in several markets, a weaker outlook in China versus the first half, an expected decrease in the North American heavy-duty truck production in the fourth quarter and the previously mentioned North America construction and Brazil truck decrease are some of the factors driving the lower second half run rate. In view of the lowered forecasted revenues in the second half of the year, we expect to manage our operating expenses below the second quarter levels. During the quarter, we returned $223 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to our shareholders. Shortly after quarter end, we announced a 7% increase in the quarterly dividend from $1.57 to $1.68 per share, the 14th consecutive year in which we have increased the dividend. The strong execution from the first quarter of 2023 continued into the second, resulting in record sales and strong profitability despite the ongoing challenges in our operating environment. I want to thank our Cummins employees who continue to work tirelessly to meet customer needs and respond to the strong demand levels by ensuring quality products, strengthening our customer relationships and navigating continued supply chain constraints. Our results reflect our focus on delivering strong operational performance, investing in future growth, bringing sustainable solutions to decarbonize our industry and returning cash to our shareholders. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. Second quarter revenues were a record $8.6 billion, up 31% from a year ago. Sales in North America increased 31% and international sales increased 32%. Our organic sales growth rate was 12%, driven by improved pricing and strong end market demand for our products globally, with a balance of 19% increase in sales driven by the addition of Meritor. Foreign currency fluctuations negatively impacted sales by 1% overall. EBITDA was $1.3 billion or 15.1% of sales for the quarter, including $23 million of costs associated with the planned separation of Atmus. EBITDA in the second quarter of 2022 was $1.1 billion or 16% of sales, including a one-time $47 million benefit related to the adjustment of our reserves as we suspended our operations in Russia and $29 million of costs associated with the planned separation of Atmus. Excluding the Atmus separation costs and the impact from Russia year ago, EBITDA in the second quarter of this year was 15.4% compared to 15.7% a year ago. Lower EBITDA percent was driven primarily by the dilutive impact of Meritor, higher variable compensation costs, which showed up largely in our SG&A line and in higher development spending. To provide clarity on operational performance and comparison to guidance and excluding the costs associated with the planned separation of Atmus and the impacts from Russia in my following comments. Now let's look in more detail by line item. Gross margin for the quarter was $2.2 billion or 24.9% of sales compared to $1.7 billion or 25.6% last year. As a percent of sales, gross margin decreased by 70 basis points as the benefits of higher volumes and improved pricing were offset by the dilutive impact of the Meritor acquisition and higher variable compensation expenses. Our Cummins Meritor business continued to show improvement in the second quarter and is performing in line with our expectations for the full-year. In fact, most of our businesses delivered gross margin expansion in the second quarter. Selling, admin and research expenses were $1.2 billion or 14.3% of sales compared to $892 million or 13.5% last year. The increase in expenses was driven by the addition of Meritor, net of realized synergies, higher variable compensation, higher development costs as we continue to invest in the new products and capabilities to support future profitable growth. Income from our joint ventures was $133 million, up $38 million from a year ago due to a slow recovery in demand in China. Other income was $24 million, an improvement of $42 million from a year ago. In the second quarter last year, we incurred $48 million of mark-to-market losses on investments that underpin our unqualified benefit plans, and those did not repeat this year, which largely explains the change in other income. Interest expense increased by $65 million due to financing costs related to the acquisition of Meritor and also rising interest rates. The all-in effective tax rate in the second quarter was 22.3%, including $3 million or $0.02 per diluted share of unfavorable discrete tax items. All in net earnings for the quarter were $720 million or $5.05 per diluted share compared to $702 million or $4.94 a year ago. All-in operating cash flow was an inflow of $483 million, $116 million lower than the second quarter last year, primarily due to higher working capital associated with the higher sales. I will now comment on segment performance and our guidance for 2023. As a reminder, 2023 guidance includes the impact of Meritor and assumes that the operations of Atmus will be included in our consolidated results for the full-year. Segment results and guidance exclude the costs and benefits related to the separation of the filtration business. Components revenue was $3.4 billion, an increase of 76%. EBITDA percent decreased from 18.2% to 14.7%, with EBITDA dollars growing from $355 million to $504 million, both the big driver of the growth in EBITDA dollars and the decline in the percent was the addition of the Meritor business, which added $1.2 billion in sales and $152 million or 12.2% of sales EBITDA. For the Components segment, we expect 2023 revenues to increase between 32% and 37% and EBITDA margins in the range of 14.1% to 14.8%, in line with our previous guidance. Within components, Meritor revenues are expected to be between $4.7 billion and $4.9 billion and EBITDA in the range of 10.3% to 11%, consistent with our previous guidance. In the Engine segment, second quarter revenues were $3 billion, an increase of 8% from a year ago. EBITDA was 14.2% compared to 15.2% in 2022 due to higher development spending and higher variable compensation costs linked to the stronger overall performance of Cummins year-over-year. In 2023, we project revenues for the engine business will increase 2% to 7% and EBITDA expected to be in the range of 13.8% to 14.5%, unchanged from our prior year guidance. In the Distribution segment, revenues increased 15% from a year ago to a record $2.6 billion. EBITDA increased as a percent of sales to 11.5% compared to 11.2% a year ago. We now expect 2023 distribution revenues to be up 10% to 15% and EBITDA in the range of 11.7% to 12.4% with sales increasing 5% from our prior outlook and margins up 40 basis points, extending the track record of margin expansion in this business. In the Power Systems segment, revenues were a record $1.5 billion, an increase of 21% and EBITDA increased by 58%. As a percent of revenue, EBITDA rose from 10.6% to 13.8% of sales, driven by higher power generation volumes and improved pricing. We have an intense focus on improving the results of the Power Systems business, and this has yielded clear margin expansion over the past year, and we see much more potential for earnings growth going forward. Results for the second quarter include $18 million of costs associated with actions that we have taken to drive further improvement as we seek to transform the long-term earnings power of this business. In 2023, we expect revenues for Power Systems to be up 8% to 13%, an increase of 3% from our previous outlook. EBITDA is now projected to be 14.3% to 15%, an increase of 60 basis points from our last forecast. Accelera revenues more than doubled to $85 million, driven by higher demand for battery electric systems in the North American school bus market and the additions of the electric powertrain portion of Meritor business and Siemens commercial vehicle business. Our EBITDA loss was $114 million as we continue to invest in the product infrastructure and capabilities to support strong future growth. In 2023, we anticipate revenues to be in the range of $350 million to $400 million, unchanged from our previous outlook. And loss is now expected to be in the range of $420 million to $440 million, an increase of $50 million in those losses as we increase the level of resources dedicated to successfully ramp up and meet growing electrolyzer demand. As Jen mentioned, our full-year outlook for the company is unchanged. We maintain our previous guidance with revenues expected to be up 15% to 20% and from last year and EBITDA margins in the range of 15% to 15.7%. Our effective tax rate is expected to be approximately 22% in 2023, excluding any discrete items. Capital investments will be in the range of $1.2 billion to $1.3 billion, consistent with our prior outlook. In 2023, we will continue to focus deploying cash to reinvest in our business, grow the dividend and reduce debt. In summary, we delivered record solid profitability in the second quarter of 2023 with a key feature being the improvement in the gross margins in most parts of our business. In the second half of the year, our focus remains the same, delivering strong incremental margins in our core business, driving improvements in the performance of Meritor, reducing inventory levels and investing in the products and technologies that position us to lead in lower carbon technologies. Our guidance does imply lower revenues in the second half of the year, and we will manage our operating expenses below second quarter levels accordingly. Thank you for your interest today. We delivered solid second quarter and continue to make good progress in executing our strategy. Now let me turn it back over to Chris. Chris Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Operator: At this time, we will conduct a question-and-answer session. [Operator Instructions] We are now ready to begin. Our first question comes from Jamie Cook of Credit Suisse. Your line is open. Jamie Cook: Hi, good morning. I guess two questions. One, the engine margin, I’m just trying to understand. They were a little weaker than I thought. I understand there’s some compensation and investment in there, but your JV income was really high as well and margins in the back half versus the first half were lower. So can you just help us understand what’s going on, on the engine margin side and how to think about, like, what’s required in investment over the longer-term? And does that continue to weigh on the engine margin? And then my second question, Jen, just bigger picture. I know you don’t want to guide to 2024 – for 2024, but I know you’re very close with your customers. So as you look out in 2024, given some of the industry forecasts that are out there, which markets are you more after this [indiscernible] markets that you’re getting a little more cautious that we could see declines? Thank you. Mark Smith: Okay. I’ll go with the first question, Jamie. Thank you. Yes, so in the Engine business, there are really three themes to the numbers. One, we’ve raised the investment level in engineering, really to support all the additional business that we’ve won and meet future emissions and drive that profitable growth. Two, this is the business, more recently, it’s continued to face some continued inflation on material costs. We’re net pricing positive, but we’ve also continued to experience some increase in material costs. And then for the second half of the year, really, we’re expecting China JV earnings to weaken, which is typical having a weaker second half than the first half. And then yes, as you mentioned, the incentive compensation – we’ll describe it as an issue. It is a factor in our results across the company in that our performance is exceeding our internal plan and we trued up our accruals in the second quarter, which happens from time to time and also compares to a quarter a year ago when we were lowering them. But the business issues are really the increased investment and then the lower JV earnings in the second half of the year. Jennifer Rumsey: And on your second question, Jamie, in terms of what we’re seeing in the market, the performance of our products continues to be very positive and strong. And what I would say is my conversations in the – in recent months have continued to have conversations with customers, in particular in the medium-duty space, and even in the electrolyzer space, there’s a lot of demand and interest in Cummins products. And I noted that we’ve made some shifts in our global plants to increase capacity and medium-duty for North America to meet that demand. So there’s still really strong demand in that market. And we’re cyclical business. We’re used to being a cyclical business, I think this is going to likely be a more gentle cycle across markets than what we’ve typically seen, but we do see some indications in certain markets, a little bit softening in aftermarket, some anticipated down days and our guidance implies heavy-duty a little bit lower in the fourth quarter, in particular, construction a little bit lower. And China, really not growing significantly, seasonally softer in the second half versus first half. So I still feel quite good about market outlook and how we’re performing. And yes, we think the Q2 is going to be our revenue peak and we’re – our guide reflects that and we’re taking actions to make sure we’re prioritizing the places we need to invest for the future while also managing headcount discretionary spending and just SG&A down for the second half of the year. Jamie Cook: Thank you. Mark Smith: Thanks Jamie. Operator: Your next question comes from Jerry Revich with Goldman Sachs. Your line is open. Jerry Revich: Yes. Hi. Good morning, everyone. Mark Smith: Hey, Jerry. Jerry Revich: Jennifer. Hi. I’m wondering if you could just talk about the interest that you’re seeing from your customers in alternative fuel technologies. Over the course of the quarter, we have the positive EPA mandate essentially for a landfill gas, given the changes in the RIN structure. I’m wondering if you could just talk about what you’re seeing from your customers on interest in the 15-liter engine in North America specifically for that product. And any other comments that you would add on internal combustion hydrogen or other moving pieces, based on the visibility on the regulatory side? Thanks. Jennifer Rumsey: Yes, great. Thanks, Jerry. Yes, as you noted, I think there’s growing interest in what I call some of these bridge technologies, alternate fuels and engines, the natural gas product, we’re seeing growth in that in China. We’re going to launch that here. We expect to see some success in that market and looking at hydrogen engines where we’ve – we’re developing those and trying to figure out in which markets they’ll play a role. It’s slow going because of the infrastructure build out that’s required. And so we’re really focused on investing to have the right products, but at the right time. And so you’re still going to see a lot of demand for diesel in the next few years. One key thing that happened this quarter was progress with the car regulation and the alignment now to EPA in ‘27, which is a real positive. So we could focus on a nationwide solution and then some of these bridge and zero emission solutions to start to adopt and applications and places where the infrastructure exists. Jerry Revich: Super. And Mark, can I ask within components, your EBITDA margins were up a touch sequentially 2Q versus 1Q, given just all the different piece in the portfolio between Meritor and Atmus. Can you just talk about how the different parts of business are performing? Mark Smith: Yes. I think in that business, they’re all performing well. Obviously, the change in the mix has an impact, but clearly, Meritor results stepped up from the first quarter. So that was probably the biggest thing to change. I don’t want to talk about Atmus. They’re going to have their own earnings call shortly. But I would just say in general, the performance trends are strong across that portfolio. Jerry Revich: I thought I’d try. Thanks. Mark Smith: Thank you, Jerry. Operator: Your next question comes from Tim Thein with Citigroup. Your line is open. Tim Thein: Thank you. Good morning. The first one is on power systems. I’m just curious if maybe you could give an update there on anything of note within the order boards. I’m guessing that as you walk through some of the end markets, a lot of the revisions were to the upside. And yet, if you look at the second half revenue growth, there is a slight step down from the first. So I’m just curious, is that a capacity issue or has there been any changes in terms of, some of the individual end markets. Just curious, your thoughts on that. Mark Smith: Hey, Tim, it’s Mark. Thanks for the question. I think the only market change, which isn’t new this quarter that’s been coming for a few months has really been a weakening order board on some of the consumer side, particularly the RV market where we’ve got a very strong presence, not surprising with interest rates where they are that overall market started to – the demand started to drift down. So I would say that’s the only one with some momentum change. I mean, oil and gas, there are different opinions at different points in time. That’s the one clear trend I would say right now. And then you’re right. The backlog is seeing us through this year. So we’re watching everything closely. But I would say, it’s stable outside of RV. Jennifer Rumsey: Yes. And the thing we’ve been able to do, we had a lot of supply challenges in that business last year. So through the first half, we’ve been able to really produce at a better level. And we see strong demand in particular data center demand, the order board is out through next year for the data center market. We revised – you heard us revise mining up a little bit. So we’re seeing strength in parts of those markets. And then as Mark noted, it’s a little bit of softening in other parts of that market. But the situation there is really stabilized from where it was last year. Mark Smith: And then, of course, we’re pleased with the step up in performance over the last year. And then you heard in my comments that we’ve taken yet more actions to keep boosting that profitability up. So we’re very pleased with the momentum in that business. Tim Thein: Yes. Okay, good. And just – and then on distribution. So the – and maybe tying back to, Jen, to your comments on aftermarket activity. But if you look at parts had been in the kind of mid-40% as a percentage of distribution sales and it stepped down. I imagine there was some mix headwind associated with that, but – and maybe just is there an area worth calling out, typically that business can kind of be a good early warning signal? So maybe just a little bit more color on what you mentioned earlier in terms of that? Jennifer Rumsey: No, I mean, the color I'll give there is, we were at incredibly high aftermarket levels because what was happening was customers couldn’t buy new trucks. So they were using trucks longer that drove more aftermarket demand. And so it’s still very healthy. We believe we’ve seen some – we’re seeing some inventory adjustment happening. And that the overall aftermarket demand has come down a little bit, but it’s still very, very healthy to your point, the aftermarket business for us from our margin perspective is a favorable one, but we still see it being healthy is what I would say. Tim Thein: Got it. Mark Smith: A bit more signs, it’s leveling off than accelerating, I would say, Tim. Tim Thein: Yes, okay. Thanks for the time. Mark Smith: Thank you. Operator: Your next question comes from David Raso with Evercore ISI. Your line is open. David Raso: Hi, thank you. The comments about truck production in the fourth quarter. Can you give us a little more color on that in the sense of magnitude? How much is this your perspective versus already been laid out by your customers? And how to think about sort of dovetailing that into conversations for pricing for 2024? Mark Smith: So I would say, first of all, it’s a shorter quarter just because of the holiday periods. I think the industry has a lower build rate building at Q4, so that’s not coming specific. And then, yes, I think the rest is our assumption, David. It is not current outside of the shorter quarter. That’s not what we’re hearing from customers at this point in time. The question is really going to be what are the order momentum for the rest of this year and what’s sentiment as we get towards that end of the year? That’s how I would characterize what we’ve got embedded in our guidance and that doesn’t change. We’ve had that instance the start of the year. David Raso: That’s what I was trying to figure out. Have you heard a tone change? Nothing to do with less production days. Just truly daily line rates being communicated. Hey, we’re taking it down in the fourth quarter or so just your view. I’m just trying to make sure we understand… Jennifer Rumsey: It’s a tricky one. And as you can imagine, we are debating this a lot. So as I said, a little bit softer aftermarket is typically an indication that we’re going to see some softening in the market more down days in the fourth quarter. There’s just uncertainty from an economic perspective and the typical cyclical nature that we see in our markets that is causing us to anticipate in the fourth quarter. And as we look to next year that the market size is going to start to come down a little bit. As I said, I think it’s a softer cycle than we would typically see, but it just – it’s at a very high level right now. We – our Jamestown is producing as much as they can. Mark Smith: Yes. We’re not trying to signal some Cummins specific issue here, David. It’s just assumption about the market activity at the end of the year. David Raso: That’s fine. And the question on pricing? Mark Smith: Can you repeat that, David, sorry. I don’t think I pick it up. David Raso: The conversations for 2024 on pricing, and I know you have supply agreements, but just trying to get a sense of – and you might be able to take your costs down as much, but I think people are just trying to figure out, is there some price give back after the last 18 months or so very strong price increases. And I just want to see if you could provide some perspective on early conversations you’re having for your truck engine pricing? Jennifer Rumsey: Yes, look, we’re – our goal is to continue to balance the price with the cost pressure that we’ve been seeing, which is stabilized. And then we’ll launch some new products next year as well. So that will allow us to continue to have those conversations with customers, but really nothing dramatic there. David Raso: Okay. Thank you very much. Mark Smith: Thanks, David. Operator: Your next question comes from Rob Wertheimer with Melius Research. Your line is open. Robert Wertheimer: Hi, I also had a question on price and then maybe just generally on the truck market and your market share and mix developments. So the first one is truck OEMs have had some really good success in margin as prices have gone up. I’m actually just a little bit curious mechanically, when a customer walks in to buy a truck, and they choose either Cummins Engine or the OEMs engine, you don’t control the price of that engine at retail, right? So, maybe, I guess, in effect, the truck OEM would be making margin on the increased price of the truck and engine. Is that the way to think about it? And do you still have catch up to come there? Jennifer Rumsey: Correct. We don’t control the pricing that happens to the end customer. We have long-term agreements and we price our engine and powertrain solutions and options to the OEM. And we typically follow those long-term agreements with metal market adjustments and have done some inflationary adjustments with them over the last few years, but we don’t fundamentally dictate that pricing to the end customer. Our goal is to have a product offered to work with the end customers to create goal for our product through the performance of our powertrain compared to others in the market. Mark Smith: We made a big shift away from influence in retail price 20 years ago. Robert Wertheimer: Okay. No, I think that’s clear. And then just a big part... Jennifer Rumsey: I was going to say, of course, in the heavy-duty space, a big factor and customer choices as fuel economy. Robert Wertheimer: Got it. Second one is just trying to get up to date on mix shifts in North American truck and how it flows through for Cummins. So, if long haul truck declines in vocational/day cab come up and I guess medium-duty comes up. I’m just trying to sort out, which of those are market share/mix negative for you and not? So is your market share in long haul higher than your market share in vocational, or I guess your market share in medium-duty quite high? So I’m just trying to think about how the evolving mix in the truck market affects Cummins? Mark Smith: Yes. I mean, the main delta in all those things is – whilst our share has gone up in heavy-duty over the last couple of years and it’s very strong. Medium-duty, it’s much stronger, right? That’s the main difference. And then I would say it’s a different kind of angle to your question, Rob, the larger fleets, we tend to have higher share with the larger fleets than we do with the overall – within heavy duty than the overall market itself because that’s where we’ve got those deeper, stronger relationships. So there’s a theme that’s been support as larger fleets are becoming more effective, more competitive. That’s been a trend that’s been helping us. But individual take and we’re really getting into splitting as the trend has been shared going up in heavy and in medium. Robert Wertheimer: Perfect. Thank you. Operator: Your next question comes from Tami Zakaria with JPMorgan. Your line is open. Tami Zakaria: Hi, good morning. So, can you update us on your price realization and price cost assumptions for the year? Mark Smith: Well, yes, we’ll be at about 3.5% to 3.75% plus on pricing. And on costs, we’ll be about 1.5% inflation. Tami Zakaria: Got it. And on your full-year guide, I’m just trying to understand, the segment sales guide was raised for both distribution and power systems, but the full-year guide was unchanged. So can you help me bridge that? Mark Smith: Yes, we really – well, Chris, why don’t you go? Chris Clulow: Yes. So, yes, Tami, you’re right. We did raise in power systems and distributions. And as we looked at the overall guide, just given the uncertainty in the markets we elected not to change the overall, it probably would trend towards the higher end of that revenue guide is what we’re looking at right now, but we didn’t want to change it at this point. Tami Zakaria: Okay got it. Thank you so much. Mark Smith: I think construction, though, construction and Brazil truck were the two key areas. And then I would say parts, it’s not dramatically different, but it’s leveling out. Those are the three themes that are going – go in the other way or not improving. Tami Zakaria: Got it. Thank you. Operator: Your next question comes from Steven Fisher with UBS. Your line is open. Steven Fisher: Thanks. Good morning. I just wanted to follow-up on the truck market messaging again. I have the sense that you guys were getting increasingly confident about the business for 2023 and thinking that 2024 might not be too much of a downturn, if at all. So has that thinking changed at all? And was that aftermarket trend you mentioned sort of, like, a catalyst for different thinking, or is it more just something in the macro that’s gotten your thinking changed, or is it not really changed at all? Jennifer Rumsey: Yes, I don’t – it really hasn’t changed notably from the thinking before and that this idea that we’re going to see a gentle cycle. So, some downturn in the market, not dramatic and anticipating that, that happening. And it’s really dependent on some of these broader economic things and what really happens, how that plays out. Mark Smith: I think it’s correct that the forecast for the industry are a lower Q4, right, just because of the number of the production days in the quarter. Part of it is just math for the remainder of the year, which is not. And then part of it is just history tells us if there is some erosion in confidence, which we haven’t seen in customer orders. Just to be clear, if there is, we tend to have a bigger fade into the December holiday period and a slow ramp up. So we just – we built that into our guidance at the start of the year. That’s simple as that. Jennifer Rumsey: But in the meantime, layered on that, what you’re seeing is we’re improving gross margin across the business, right? The base business gross margin performance has been strong, Meritor has continued to improve quarter-over-quarter. And we think now is the time to start managing our operating costs, expecting that we’re going to see some downturn and then continue to look at places as you’ve seen us do some structural things to improve the business and the focus this year has really been within the Power Systems business where we’re doing that. Steven Fisher: Okay. And it sounds like part of your second half outlook is a bit weaker trend in China. How are you thinking about the potential for stimulus there? And whether there’s any chance for upside still that might come out of that? Jennifer Rumsey: Yes. At this point, we’re continuing to assume there’s no stimulus. There was, in a meeting, a few weeks ago, well, the – I think the government recognizes that they want to try to improve the economy. They want to do it and fiscally responsible stable way. And so we’re not assuming stimulus. China is playing out pretty much as we anticipated some improvement off of a very low 2022 and typical seasonality between first half and second half. And if there’s stimulus that comes in that impacts demand that would impact our outlook as well. Mark Smith: Yes, but I would say that just seem the most likely size source of upside to our guidance right now. Steven Fisher: Got it. Thank you very much. Mark Smith: I’m worried about it. Just looking for more and there is much sign of it right now. Steven Fisher: Right. Makes sense. Thanks. Operator: Your next question comes from Matt Elkott with TD Cowen. Your line is open. Matthew Elkott: Good morning. Thank you. I was wondering if you guys still expect EBITDA neutral for Accelera by 2027, or are there any emerging new structural costs and investments needed that could change that timeline? Jennifer Rumsey: Yes. We are still – with the strategy we have in place right now, we continue to work towards the EBITDA neutral in 2027. A big piece of that is this electrolyzer revenue growth as you saw with the comments on backlog that we continue to be confident in the outlook there and we – the increased investment this year is really focused on making sure we’ve got the product and the supply chain right to enable us to do that. Matthew Elkott: Okay. And Jennifer, just one more question here on the construction side. The tempered outlook for the kind of latter part of the year, data centers are strong and public sector, non-residential construction is strong. Can you talk about some of the end markets driving a somewhat tempered outlook for construction in North America? Jennifer Rumsey: Yes. So, our outlook for U.S. construction down to flat, right? So data – and data centers would show up for us and power generation data center market is definitely strong. There’s parts of the market where construction, infrastructure investment and construction remains strong and there’s other segments of that market with rising interest rates and that we’re seeing things. Mark Smith: Part of it is just a timing issue of like what’s the replenishment of the fleet been a lot of ordering of engines for construction equipment. So it doesn’t necessarily mean it’s just the demand on us is kind of leveled out, right now. And again, we’ll see where that is going. Matthew Elkott: Does any of the data center construction market, does any of it show up in the – in construction for you guys, or it’s all most of your exposure to business… Mark Smith: That’s in our Power Systems segment. Jennifer Rumsey: Yes, it’s not a huge factor for us. I mean, the data center factor for us is that they buy these very large gensets for backup power and that drives significant revenue for power systems. The actual construction itself… Mark Smith: It’s hard for us to track exactly where the construct – we’re selling to the OEMs sometimes rental. Matthew Elkott: That makes sense. Thank you so much. Mark Smith: Thank you. Chris Clulow: Thanks, Matt. Operator: Your next question comes from Noah Kaye with Oppenheimer. Your line is open. Noah Kaye: Hi, thanks for taking the question. Just wanted to expand if I could on Accelera and the increased investment spend this year about $50 million. I think you mentioned a couple of times it’s really to get electrolyzer production and product right. It is an operating expense, right? So is this mainly engineering resources? Maybe you can give us a little color on what you felt you needed to spend on to get ready for this ramp? And maybe you can even put in the context of some of the industry and policy changes that you’ve seen come through, obviously, some significant ones over the last year? Jennifer Rumsey: Yes. Yes. The industry and policy changes drive that optimism and the outlook and the growing demand, the higher cost of shifts, not capital expenses of the plants as much as it is operating costs in engineering and in customer support as we’re scaling up that product or running higher than we had previously forecasted. Noah Kaye: Okay. So customer support as well as product engineering. All right. That’s helpful. But just to make sure we understand, there’s no change to the revenue guidance. The current book of business, which I think is more weighted towards EV, I mean, is that delivering kind of the expected margin contribution? We hear mixed indicators on EV adoption, particularly in North America, would love to sort of understand where that side of the business is tracking versus your expectations? Mark Smith: Right. So on the EV side, no, our demand today is mostly concentrated in the bus markets. I would say our margins have definitely been improving. The Accelera leadership team has done good work on improving the margins even with, yes, relatively modest, albeit increasing demand at this point in time. Yes, so we’re really looking for those next waves of demand, but the margins have been improving there. And on the electrolyzers, the demand keeps going up. The issue is not demand. It’s just making sure that we’re ready. There aren’t that many electrolyzers, new ones out in the field yet, right? We’re still building that capability. Yes, we’re shipping some, but that’s going to be going up to just making sure history shows a bit of investment now. It pays off multiple times in the long run. Jennifer Rumsey: Yes. Here’s a – there’s a couple of things that we watch on this, how the market develops. So on the electrolyzer side, there’s investments, but the actual details of how that government money flows and when it flows are still being defined. So that is a bit of a timing impact on some of that. And then in the electrified powertrain, there’s still a lot of uncertainty beyond the bus market where you’ve got cities and corporations that have incentives and want to electrify on exactly how that infrastructure is going to build out. So there’s regulations that’s going to start to drive more of that, but a lot of uncertainty I would say on the exact pace of that. Noah Kaye: Appreciate it. Good to see you making the investments. Thanks so much. Jennifer Rumsey: Thank you. Mark Smith: Yes. Thanks, Noah. Operator: At this time, there are no further questions. I’d like to turn the call back to Chris Clulow for any closing remarks. Chris Clulow: Great. Thanks very much. That concludes our teleconference for today. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Have a good day. Operator: This concludes today’s Cummins Incorporated second quarter earnings conference call. Thank you, everyone, for your participation. Have a wonderful rest of your day.

Operator: Greetings and welcome to the Cummins Inc. First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Clulow, Vice President of Investor Relations. Thank you. Please go ahead. Chris Clulow: Thank you Donna. Good morning, everyone, and welcome to our teleconference today to discuss Cummins’ results for the first quarter of 2023. Participating with me today are Jennifer Rumsey, our President and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed Quarterly Reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today’s webcast presentations are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our President and CEO, Jennifer Rumsey, to kick us off. Thank you. Jennifer Rumsey: Thank you, Chris. Good morning. I’ll start with a summary of our first quarter financial results, then I will discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2023. Mark will then take you through more details of both our first quarter financial performance and our forecast for the year. Before getting into the details on our performance, I want to take a moment to highlight a few major events from the first quarter. In March, Cummins announced the launch of Accelera by Cummins, a new brand for our New Power business unit. Accelera provides a diverse portfolio of zero emission solutions for many of the world's most vital industries, empowering customers to accelerate their transition to a sustainable future. Coupled with our brand announcement, Accelera shared that it will supply a 90-megawatt PEM electrolyzer system for Varennes Carbon Recycling plant in Quebec, Canada. This will be the largest PEM installation in North America and a key step in advancing the green hydrogen economy. Accelera and Blue Bird also announced, we will increase production of electric school buses more than doubling the zero emission school buses that we've collectively put into operation over the next 12 to 18 months. In addition, progress continues to be made on the planned separation of the filtration business. In February, we announced that our filtration business, Atmus Filtration Technologies filed a registration statement on Form S-1 with the US Securities and Exchange Commission for a proposed underwritten IPO of newly issued common stock. Now I will comment on the overall company performance for the first quarter of 2023 and cover some of our key markets, starting with North America, before moving on to our largest international markets. Demand for our products continue to be strong across all of our key markets and regions with a slow improvement in China, resulting in record revenues in the first quarter of 2023. Revenues for the first quarter were $8.5 billion, an increase of 32% compared to the first quarter of 2022, driven by the addition of Meritor, strong demand, and improved pricing. EBITDA was a record $1.4 billion or 16.1% compared to $755 million or 11.8% a year ago. First quarter 2023 results include $18 million of costs related to the separation of the Filtration business, while the first quarter of 2022 results include $158 million related to the suspension of operations in Russia, and $17 million related to the separation of the Filtration business. Excluding these costs, EBITDA percentage increased in the first quarter, driven by higher volumes and improved pricing, offset by supply chain and compensation cost increases. Research and development expenses also increased in the first quarter of 2023 as we continue to invest in the products and technologies that will create advantages in the future, particularly in the Engine, Components, and Accelera segments. Gross margin dollars improved compared to the first quarter of 2022 as the benefits of higher volume, pricing, and the acquisition of Meritor exceeded the supply chain cost increases. As we noted previously, Meritor results are included in our overall guidance for 2023 and we will continue to provide updates on the progress of our value capture initiatives, which will be focused on the portion of the business within our Components segment. In the first quarter, Meritor operating performance and financial results showed improvement with sales of $1.3 billion and EBITDA of 9.4%. The improvement in profitability from the comparable EBITDA margin of 7.2% in 2022 was driven by improved pricing, operational improvements, and cost reduction activities aligned with our value capture initiatives. Our first quarter revenues in North America grew 39% to $5.1 billion, driven by the addition of Meritor and strong demand. Industry production of heavy-duty trucks in the first quarter was 76,000 units, up 17% from 2022 levels, while our heavy-duty unit sales were 29,000, up 27% from 2022. Industry production of medium-duty trucks was 33,000 units in the first quarter of 2023, an increase of 11% from 2022, while our unit sales were 30, 000, up 13% from 2022. We shipped 39,000 engines to Stellantis for use in the RAM pickups in the first quarter of 2023, down 5% from 2022 levels. Engine sales to construction customers in North America decreased by 6% as volumes declined, partially offset by positive net pricing. Revenues for North America power generation increased by 14% as industrial and data center demand improved and supply chain constraints began to ease. Our international revenues increased by 24% in the first quarter of 2023 compared to a year ago with the addition of Meritor and strong demand across most markets. First quarter revenues in China, including joint ventures, were $1.7 billion, an increase of 16% as on-highway markets began to recover. Industry demand for medium and heavy-duty trucks in China was 268,000 units, an increase of 2% from last year. Our sales and units, including joint ventures, were $46,000, an increase of 31% due to increased penetration within our joint venture partners and new product launches to meet NS VI standards. The light-duty market in China was up 2% from 2022 levels at 476,000 units, while our units sold, including joint ventures, were 36,000 units, an increase of 6%. Industry demand for excavators in the first quarter was 57,000 units, a decrease of 26% from 2022 levels. The decrease in the market size is due to the change in emissions regulations and related adjustments and inventory levels. Our units sold were 9,000 units, a decrease of 8%. The decrease in the excavator market was offset by improved share with the new and expanded customer relationships and first quarter engine sales to replenish inventory levels at construction OEMs. Sales of power generation equipment in China decreased 28% in the first quarter, primarily driven by a decline in data center activity. First quarter revenues in India, including joint ventures were $752 million, an increase of 21% from first quarter a year ago. Industry truck production increased by 26%, while our shipments increased 7%. Power generation revenues increased by 30% in the first quarter as economic activity remains strong. In Brazil, our revenues increased 48%, driven by improved demand in most end markets. Now let me provide our outlook for 2023, including some comments on individual regions and end markets. We have raised our forecast for total company revenue in 2023 to be up 15% to 20% compared to our prior guidance of up 12% to 17%. This guidance reflects an improved outlook in North America, including stronger demand for Meritor. We are forecasting higher demand in heavy-duty truck and power systems markets and expect aftermarket revenues to increase compared with 2022. We are increasing our forecast for heavy-duty trucks in North America to be 270,000 to 290,000 units in 2023 compared with our prior guide of 260,000 to 280,000. While supply chain constraints continue to limit our industry's collective ability to produce, end customer demand remains strong. In the North America medium-duty truck market, we are continuing to project the market size to be 125,000 to 140,000 units, flat to up 10% from 2022. Similar to heavy duty, supply chain constraints continue to limit our ability to produce and fully meet end customer demand. Consistent with our prior guidance, our engine shipments for pickup trucks in North America are expected to be 140,000 to 150,000 in 2023, volume levels consistent with 2022. In China, we project total revenue, including joint ventures, to increase 16% in 2023, an improvement from the previous guidance of up 7% driven by share growth better than expected construction volumes and content increase. We project a 15% to 25% improvement in the heavy and medium-duty truck demand and a 10% to 20% improvement in the demand in the light-duty truck market, coming off the low market levels in 2022, consistent with the prior guide. We expect China construction volume to be flat to down 10%, improved from our prior guidance of a decline of 25% to 30%. While the market is adjusting to new emissions regulations, shipments to replenish inventory and export demand exceed our prior expectations. As we discussed previously, our guidance assumes a slow recovery in demand in China this year. We have continued to improve our presence in the region, through the down cycle of 2022 and are well-positioned for continued outgrowth. Our technological expertise and emissions experience positions us well to outgrow the market and support our partners. We are seeing this in 2023 with improved on-highway share now that NSVI is fully implemented, along with higher share in the construction market as we expand our partnerships. We also continue to ramp production and expand our presence in automated manual transmissions as our market share increases in the heavy-duty market is increasingly adopting this technology. In India, we project total revenue, including joint ventures, to be up 1% in 2023. We expect industry demand for trucks to be flat to up 5% for the year. We project our major global high horsepower markets to remain strong in 2023. Sales and mining engines are expected to be down 5% to up 5%, consistent with the prior guidance. Demand for new oil and gas engines is expected to increase by 15% to 25% in 2023, driven by increased demand in North America. Revenues in global power generation markets are expected to increase 10% to 15%, driven by increases in non-residential construction and improvement in the data center market. For Accelera, we are expecting full year sales to be $350 million to $400 million, consistent with our prior guidance. Revenues are expected to approximately double from 2022 due to higher battery demand in North America school bus market and the additions of the electronic powertrain portion of the Meritor business and Siemens commercial vehicle business. The electrolyzer market continues to gain momentum as well with the near-term forecast on expanding capacity to meet the growing demand. As mentioned on our previous call, Meritor results are included in our overall guidance for 2023. Within components, Cummins expects revenue contributed by the Meritor business for 2023 to be between $4.7 billion to $4.9 billion, an increase from $4.5 billion to $4.7 billion in our previous guidance. EBITDA is expected to be in the range of 10.3% to 11% of sales, consistent with prior guidance. In summary, coming off a very strong first quarter with visibility to strong demand beyond the first half of the year, we have raised our sales growth outlook for the year to 15% to 20%. We have also revised our forecast for EBITDA to be in the range of 15% to 15.7% from our previous guidance of 14.5% to 15.2%, reflecting very strong incremental margins while continue to invest for the future within our core business and Accelera. Demand in most of our core markets is strong. Our products are performing well, and we are excited about the investments we are making in the future. During the quarter, we returned $222 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. Strong execution resulted in record sales, EBITDA, net income and earnings per share in the first quarter, despite the continued challenging operating environment. I'm impressed and grateful for the commitment of our employees and leaders around the world who are delivering for our customers and generating strong financial performance at the same time. Our excellent results further enhance Cummins' ability to keep investing in future growth, bringing sustainable solutions that will protect the planet for future generations and return cash to our shareholders. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We had a strong first quarter with organic revenue growth of 12%, record quarterly EBITDA, net income and earnings per share, an improved operating cash flow compared to a year ago. Given the strength of the first quarter results and improved outlook, we have raised our full year expectations for sales and profitability. Now, let me go into some more details of the first quarter performance. Revenues were a record $8.5 billion, up 32% from a year ago. Sales in North America increased 39% and international revenues increased 24%. Of the total increase, 20% was driven by the addition of Meritor. Organic growth was driven by strong demand for products in all segments and improved pricing. Foreign currency fluctuations negatively impacted sales by 2%. EBITDA was a record $1.4 billion or 16.1% of sales for the quarter, including $18 million of costs related to the planned separation of the Filtration business. EBITDA for the first quarter of 2022 was $755 million or 11.8% of sales, including $158 million of costs related to the suspension of our operations in Russia, and $17 million of costs related to the separation of the Filtration business. Excluding these items, the higher EBITDA percent was driven by higher volumes and improved pricing, partially offset by increased investment in new products and capabilities. To provide clarity on the first quarter operational performance of our business and allow comparison to prior year and guidance and excluding the costs related to the separation of the Filtration business and the suspension of our operations in Russia in my following comments. Let's look a little more detail by line item. Gross margin of $2 billion increased $440 million, but as a percent of sales decreased by 90 basis points, as the benefits of higher volumes and improved pricing were offset by the dilutive effect of Meritor. Across our businesses, we saw mixed trends on input costs, with the Engine business experiencing some increases, while other segments saw some benefits in freight and commodity costs. Results for Meritor improved from prior quarters due to improved pricing and operational improvements. Selling, admin and research expenses increased by $191 million, driven by the addition of Meritor, higher variable compensation and research costs, as we continue to invest in new products and capabilities to support future profitable growth. Selling, admin and R&D decreased 110 basis points as a percent of sales. Joint venture income of $119 million decreased $8 million from the prior year, with higher earnings from joint ventures operations offset by lower technology fees. In China, we did see higher earnings than anticipated, as truck OEMs increased build rates to restock channels after a very challenging 2022. We not yet seeing signs of sustained improvement in end user demand, however. Other income was $71 million, an increase of $123 million from a year ago. The improvement in other income is driven by a gain of $19 million in mark-to-market investments compared to a loss of $37 million a year ago. We -- also, a year ago, we incurred an asset write-down of $36 million. Interest income and gains on foreign exchange also increased year-over-year in this line item. Interest expense increased by $70 million due to financing costs related to the acquisition of Meritor and rising interest rates. The all-in effective tax rate in the first quarter was 21.7%, including $3 million or $0.02 per diluted share of favorable discrete items. All-in net earnings for the quarter were $790 million or $5.55 per diluted share, up 90% from the $418 million or $2.92 per diluted share a year ago. Our strong performance in Q1 continues our trend of raising performance over successive cycles. All-in, operating cash flow was an inflow of $495 million, $331 million higher than the first quarter last year, primarily due to higher earnings. I'll now comment on segment performance and our guidance for 2023. As a reminder, 2023 guidance includes the impact of Meritor all year and it assumes that the operations of the Filtration business will be included in our consolidated results for the full year. Segment results and guidance exclude the costs or benefits related to the separation of the Filtration business as and when that occurs. Components segment revenue was a record $3.6 billion, an increase of 79%, while EBITDA decreased from 16.4% of sales to 14.6%, primarily driven by the addition of Meritor. Meritor revenues in the first quarter in the segment were $1.3 billion and EBITDA was $120 million or 9.4% of sales, up from last quarter and in line with our expectations. Components, we expect total 2023 revenues to increase between 32% and 37%, up 4% from prior year guidance and EBIT margin to be in the range of 14.1% to 14.8%, unchanged from three months ago. For the Engine segment, first quarter revenues were a record $3.3 billion, an increase of 8% from a year ago. EBITDA was 15.3%, flat with a year ago as the benefit from pricing was offset by higher material and variable compensation expenses. In 2023, we expect revenues for the Engine business to grow between 2% and 7%, up 2% at the midpoint from our prior guide, driven by continued strength in the North American truck market and a lower pace of deceleration in the China construction market. 2023 EBITDA is projected to be in the range of 13.8% to 14.5% of sales, flat with previous guidance. And our overall projections for the Engine business include a modest tapering in both the top line and the bottom line in the fourth quarter. In the Distribution segment, revenues increased 14% from a year ago to a record $2.4 billion. EBITDA also increased to 13.9% of sales compared to 9.9% a year ago, driven by higher volumes in both whole goods and aftermarket as well as improved net pricing. We expect 2023 distribution revenues to be up 5% to 10% and EBITDA margins in the range of 11.3% to 12%, and we've raised our guidance for sales by 3% at the midpoint and margins by 100 basis points. In the Power Systems business, we also had a strong quarter with the revenues of $1.3 billion, up 16% year-over-year. EBITDA increased from 9.5% to 16.3% of sales driven by higher volumes, strong Parts business, and higher pricing. In 2023, we expect revenues to be up 5% to 10% consistent with our prior guidance. EBITDA is projected to be approximately 13.7% to 14.4%, an increase of 70 basis points from our prior projections. Accelera revenues more than doubled to $85 million, driven by higher demand for battery electric systems in the North American school bus market, and the additions of the electric powertrain portion of Meritor and Siemens commercial vehicle business. Our EBITDA loss was $94 million as we continue to invest in the products, infrastructure and capabilities to support strong future growth. In 2023, we anticipate Accelera revenues to increase to the range of $350 million to $400 million and net losses to be in the range of $380 million at the midpoint, entirely consistent with our projections from three months ago. As Jen mentioned, given the strong performance in the first quarter and the outlook in our key regions and end markets, we are raising full year company guidance. We now project 2023 company revenues to be up 15% to 20%, a 3% increase from our prior guidance. Company EBITDA margins are now expected to be approximately 15% to 15.7%, up 50 basis points from our prior projections. Our effective tax rate is expected to be approximately 20%, 22% in 2023, excluding any discrete items. Capital investments will be in the range of $1.2 billion to $1.3 billion, consistent with our prior forecast. As we continue to make the critical investments necessary to bring to market new products and capacity expansion to support future growth. We remain committed to our long-term goal of returning 50% of operating cash to shareholders over time. And as we said last time, in 2023, our primary focus will be on dividends and strengthening our balance sheet by reducing debt for this year, whilst we continue to deliver profitable growth for our shareholders. In summary, we delivered record sales, EBITDA, net income and earnings per share in a very strong first quarter. Our customers are indicating stronger visibility into the second half of the year, giving us confidence to raise our forecast. We will continue to focus on delivering strong incremental margins in our core business, driving improvements in the performance of Meritor, reducing inventory levels and investing in the products and technologies that position us to lead in the adoption of new technologies. There is one last matter I would like to bring to your attention. You will see in our Form 10-Q to be filed later today that we have updated our risk factor disclosure related to our ongoing discussions with the EPA and CARB on their review of our emission systems, most notably our pickup truck applications. We understand that these agencies are likely to propose resolving this matter by requesting in the relatively near future that we agree to one or more consent decrees and pay certain civil penalties. We are not able to estimate the amount of these penalties today, but we anticipate that the amount is likely to be material. We look forward to providing additional information on this topic when we reach a resolution. Thank you for joining us today, and now I'll turn it back over to Chris. Chris Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have any additional questions, please rejoin the queue. Operator, we are ready for our first question. Operator: Thank you. The first question today is coming from Jerry Revich of Goldman Sachs. Please go ahead. Jerry Revich: Yes. Hi, good morning, everyone. Jennifer Rumsey: Good morning, Jerry. Mark Smith: Good morning, Jerry. Jerry Revich: Congratulations on a really strong quarter. I just wanted to ask for the Power Systems and Distribution businesses, outstanding first quarter, the guidance is for margins to decline significantly off of the first quarter run rate. Can you just step through? Is that just early in the year, and we want to make sure the results are sustainable, or are there any discrete items that you think declined sequentially for these two businesses? Mark Smith: Yes, we've definitely been asking those questions internally as well, Jerry. Really strong results from both. I think pricing, of course, has been positive. I think in both those businesses, we haven't yet seen some of the cost increases that we anticipated for the full year. We had some beneficial moves in commodities that help power systems. So we're not assuming that they continue. And then in distribution, of course, very strong parts margins, and some lag effect before some of the cost increases take place. So we're still expecting strong full year results. Of course, we'll continue to push for improvement everywhere we can. And again, there was modest benefits from one or two corporate items that improved all of the segments. But I think the main takeaway I want you to leave with, we're really pleased with the performance in particular of those businesses. The Distribution business now has established quite a track record of improving margins over time, and we're really encouraged over the last three or four quarters by the progress in the Power Systems business. So we'll keep pushing for more. But I think one or two factors that we're not certain can continue through the subsequent quarters. And we are trying to drive down inventory a little bit, which may have some absorption impact in the Power Systems business a little. Jerry Revich: Super. Thank you, Mark. And then can I just shift gears, Jennifer, you folks do a really good job of expanding your market share every time we have new regulations. I'm wondering can you just expand on the comments that you folks made in the prepared remarks and just talk about the opportunities that you folks have in terms of potential market share gains as we do see rising content and rising complexity on these engines, particularly within the context of the EPA's electric vehicle plans laid out recently as well? Thanks. Jennifer Rumsey: Yes. Great. Thanks for the question, Jerry. So as I commented and you saw start to come through in Q1, our pattern of leveraging emissions regulation change to drive outgrowth in market position as well as added content is playing out in China now following the launch of the NSVI. We've seen that playing out in India with BSVI regulation previously. And we do believe that there's continued opportunity both in the Engine space with future EPA regulations of the ultra-low NOx build rule to -- to some degree, increase our position in the market, although, of course, we have a strong position today in the US market. So content expansion. So that continues to be a tailwind and outgrowth opportunity slowing to some degree in North America on-highway, but there continues to be upside there. And then we are working clearly in our Accelera business to establish position in the electrified powertrain and in particular, our position in key components and as well as integrated powertrain. So batteries, power electronics and motor generators, eAxles, fuel cells. We feel like we've got the right portfolio of technologies and are forming partnerships and getting experience in the market to position ourselves over time as that market starts to electrify. Operator: Thank you. The next question is coming from Tim Thein of Citi. Please, go ahead. Tim Thein: Thank you. Good morning. Mark, maybe just one on -- to start on the Engine segment. You've taken up the full year revenue outlook and as well as JV income and the margin guidance, I believe, was unchanged. So what's working against the top line there in terms of the profit or the EBITDA guidance? Mark Smith: Yes. In the near term, that's the one segment where we've actually faced more pressure on the cost front, on input cost inflation. We made quite a bit of progress in some of the other areas. So that's probably the biggest single factor in there. The JV income, we're not sure we've got -- found a footing in the market yet, Tim, it was better than we expected in Q1. It wasn't exceptional. It was just better than we expected. But we're just not -- we don't have a clear sight into the improving end user demand. I mean, eventually, that will pick up and that will be an upside. We just don't have visibility to it right now. But basically, that's the one business that's still wrestling with -- I wouldn't say the other businesses don't have challenges, but that's the one that continues to have some challenges on the supply side, and that's the biggest factor. Tim Thein: Got it. Okay. And then, just on -- wouldn't be a Cummins call without an update on China. And you mentioned that on the on-highway side, you've seen a pickup from a production standpoint is not translating yet on the retail side. What just -- what is the team seeing and hearing, not just on the on-highway, but maybe some of the other key end markets for you. You mentioned excavators, but maybe some of the other ones in China and just kind of what's baked in into the balance of the year for the China operations as a whole? Thank you. Jennifer Rumsey: Yes, I'll start and then Mark can add additional points that he'd like to. But as you -- as Mark alluded to, in the on-highway business, we're forecasting and believe we're seeing a slow recovery in the market and that there was some inventory buildup in the quarter, not significant increase in end user demand to slow recovery and opportunity outgrowth as we've already talked about. In off-highway, in construction, we have the emissions changeover that is negatively impacting the China market, less so than our previous guide, because we've seen again, some stocking up in the channel as well as higher export demand. We continue to see markets holding up in mining and oil and gas. And so, overall, a little bit of upside in on-highway kind of a mixed story and off-highway construction and power gen. Operator: Thank you. The next question is coming from Jamie Cook of Credit Suisse. Please, go ahead. Jamie Cook: Hi. Good morning and congrats on a nice quarter. I guess, Mark, first question, similar to engines, on components too were increasing our sales guidance marginally, but the margins are unchanged. So what would be the reason behind that? And then, Jen, I guess, based on what you're saying, it sounds like you're seeing fairly good demand trends everywhere in your order book, is pretty good for 2023. But are there any areas where you're sort of seeing red flags? And in the event of a recession or downturn, how do we think about decrementals, or is there any other self-help that Cummins could do to sustain higher earnings, assuming the macro weakens? Thank you. Mark Smith: Yes. I think, Jamie, I think components continues to do well. The main factor is just really the mix in the business. The underlying businesses are performing well. Again, not such a big help from price/cost in this segment relative to power systems and components. But I think really it's really some minor changes in the mix going forward. We've obviously got strong North America. Meritor continues to improve, but it's still dilutive to that overall segment, but no fundamental . Jennifer Rumsey: And I'll just add, I mean, from a margin performance perspective, we're really focused on improving the Meritor business performance consistent with what we said when we did the acquisition, driving the incremental margin improvement across our other core businesses and then scaling up investing in a sustainable way and moving towards breakeven and Accelera business. And so we're paying attention to those -- each of those items to track that we're driving towards our targets. In terms of the broader picture, Jamie, to your question, the end market demand, order boards, our customers have, the comments that we continue to get from end customers remains fairly strong. Our confidence, as we said, is growing into the second half of the year, and we continue to watch these broader macroeconomic indicators and understand that we're in a cyclical business. And while this hasn't been a typical cycle because of the supply constraints, we are preparing and we'll take action to deliver decremental margins and outperform through the down cycle as we have in the past. So, already this year, we are making investments in key areas for our future, but also limiting investment in headcount growth in other areas and continue to monitor plant operations and operate at the level appropriate for the demand that we're seeing, and we'll continue to watch that closely and adjust as we need to. Jamie Cook: Okay, thank you. I appreciate it. Operator: Thank you. The next question is coming from David Raso of Evercore ISI. Please go ahead. David Raso: Hi. Sort of picking up on trying to look beyond 2023. I'm just curious, the conversations you're having with your off-highway customers for initial thoughts on what they need from you in 2024 relative to on-highway. Just curious if you have any distinguishing features between those different conversations? Mark Smith: David, is in the construction area or more in the high horsepower markets just to make sure we're answering your question correctly? David Raso: Open question on purpose. Off-highway versus on-highway. Mark Smith: Yes. So I would say on the -- we don't really have -- we haven't given guidance, of course, for 2024. We haven't seen any weakening in the construction markets in North America similar to what we're seeing in on-highway, though we're watching this one closely. I think it's probably a very similar state as we look at construction versus on-highway, cautious probably as we move into the fourth quarter, but good visibility now that that's probably going into the -- well into the third quarter now. Jennifer Rumsey: And I'll just add, of course, in China, you talked about the emissions changeover. So, there's a dynamic in that market and a question on does China do any action in the economy there that we'll pay attention to. And in Power Systems, same in terms of broader macroeconomic indicators I'm watching that, but we do have places where we're starting to take orders into 2024. And so it's a space that we're just watching closely at this point. David Raso: I appreciate that. And people also are just curious about truck historically hasn't been the best market for maintaining price. But it's also been a pretty unique pricing power era we're living through right now. So, I'm just curious how are you thinking about or what are the early conversations like for 2024. I'm not saying if you have to give back price, there can't be commensurate offset and lower cost for you. But just trying to think about pricing in isolation, what are the initial conversations for 2024 given the pricing levels where we've been coming up to the last 12, 18 months? Jennifer Rumsey: Well, we have emissions change overcoming in some of our markets in 2024. So, of course, that's a factor. But what I would say is we have long-term agreements with some of our customers. We price more regularly with some other customers in the market. We're continuing to pay attention to what's going on with price costs. As Mark said, it's still a mixed picture. And so we're committed to continuing to deliver strong returns and stay on top of price cost as that moves. But right now, this year, we're seeing improvements in some areas, and we're still seeing inflationary pressure and other areas. So it's a little bit difficult in -- 2024, yeah. David Raso: But for price -- I'm just curious, any price concessions. When we hear some component suppliers, or I mean they were even being asked for concessions mid-year because I guess the answer would be why not if you're the OEM. But I'm just curious more structural for 2024. Is -- are we getting some price concession request? Should that be a base case and then it's about getting the cost down even more ideally? Mark Smith: I think there a lot of factors go into pricing, David, included in input costs, agreements with customers, supplier available. A lot of those things, but that's not a main topic conversation right now at all. I think the thing we're most thinking about is the -- how long does this cycle run on and off-highway and right now, customers are telling us their confidence for the rest of the year is, on average, has gone up, not stayed the same. We recognize and appreciate the same questions really about demand levels for 2024. That's our radar is mostly upon any signals around demand. That's going to be the biggest driving factor of our performance. Operator: Thank you. The next question is coming from Rob Wertheimer of Melius Research. Please go ahead. Rob Wertheimer: Almost just following up on that question with maybe a slightly different plant. Your businesses where you, I think, have more pricing control and distribution power systems did really well at margin. And the OEMs that you serve and on-highway truck have had a really good quarter as well. Just overall, is your general sense that you're pricing to those OEMs and components should catch up over time, and there's still your runway to go, or is that too strong? Mark Smith: Well, first of all, we can't really -- we can't -- we're not aware of all the dynamics of the OEM pricing. That's really their business. We really have to look at the costs and the performance of our business. The other thing that's going on within our margins, of course, quite significant investment, we've got a lot of new products that we're excited about, and some of our customers are excited about. So the engineering cost of elevated. So that is the other factor that's really particularly in the engine components. I'm going to accelerate everything new and doesn't come with an enormous amount of revenue today. But in the engines and components, we have secured more business for the future, right? And we're planning to secure even more with the new technologies that we're bringing forward. We're price cost positive for this year. That's clearly a factor in our results, so where we can get pricing, we will do that. Aftermarket, there's obviously a stronger source of pricing for us generally, Rob. But I think looking at the margins, you've got to take into effect, how much are we investing? Because I think how much others are investing is also a signal about who's investing for more growth. And right now, we are putting more into the engineering across the business because we're excited about the future. Rob Wertheimer: That's a helpful answer. Thank you. And if I can -- I think I've asked this before, I am not – easy to answer, but in Accelera, how should we think about as revenue start to ramp, what margins do? I mean are project level economics going to be consistently positive on the margin line and maybe not more be. Are you still bidding loss-making deliveries as your volumes to come through? How do we sort of think about what the underlying dynamics are of the margin there? Mark Smith: I think there have been some higher fixed costs on the battery electric side. And then on electrolyzers, we are going to expect to have positive gross margins as we ramp up. And then we've stated previously that based on our current strategy, we're aiming to get at or around EBITDA neutral by 2027. So yes, as revenues go up, we're going to expect to see those losses clearly come down over time. And we've got -- we're building momentum on the sales, particularly yesterday, the Q1, most of the sales growth was on battery electric, excuse me. But as we've talked about recently, the electrolyzer backlog is really -- I won't use the word accelerate, has picked up quite a lot. And so we're bullish about that. But yes, very focused on the margins as the volumes come up. Battery is a little bit higher fixed cost rate. Operator: Thank you. The next question is coming from Tami Zakaria of JPMorgan. Please go ahead. Unidentified Analyst: Hi, this is Ishan [ph] on behalf of Tami. Congratulations on the great print. My first question is, are you preparing to ramp production assuming 2025 or 2026 could be pre-buy years ahead of the emission regulations in 2027? And then if I may ask a second on -- sorry, if I may ask a second on Meritor as well. Are you able to pass on cost inflation as anticipated, or are customers pushing back? Thanks. Mark Smith: Yes. So what I'd say is we are making planned investments because we're -- irrespective of the economic cycle, we're expecting to pick up more business. So we're increasing capacity in parts of our business and launching new products. The nature of our business is such that we have to be prepared to ramp up and ramp down based on the economic cycle. So it's hard to predict with great certainty two or three years out. But as a general statement, yes, our CapEx is up this year because we're kind of bullish on our longer-term prospects. And then on pricing cost, of course, it's always competitive and challenging. But I think we're all aware that there's been significant inflation across the industrial space over time, and that's what's really necessitated the price increases and quite frankly, earlier on in the cycle late in 2021. It took us a while before we were able to increase prices. So to an extent, we've been kind of catching up with the trends there. Yes, so that's an ongoing… Jennifer Rumsey: You saw some of that as Meritor specifically reflected in the EBITDA improvement. Operator: Thank you. The next question is coming from Steven Fisher of UBS. Please go ahead. Steven Fisher: Hi, thanks. Good morning. Wanted to just follow up, if I could, on the EPA and CARB legal situation that you mentioned, if there's any color on the potential timing of resolution that you can offer? And then I know this is obviously sensitive and I suspect you don't want to negotiate with yourself on a conference call, but just how to think about framing the size of what this might be? Is this something that might be in sort of the multi-hundreds of millions of dollars? Is this something that you could fund within your just ongoing cash flow and might it affect any other investment plans or spending plans that you might have? Jennifer Rumsey: So, first, thanks for the question. I do want to start by saying that Cummins is fully committed to emissions compliance. We have been and we'll continue to cooperate with agencies all along and work through this matter to the best of our abilities. And our updated disclosure today is consistent with what we've done since we first announced our voluntary internal review in 2019 of disclosing transparently throughout this process. So, as Mark said, we think that we are nearing the end. It's premature to speculate though exact timing or exact amount at this point. We feel like the business is well positioned in a strong financial position and continuing to generate strong returns. Steven Fisher: Okay. That's helpful. And then, I'm wondering, just to follow up on some of the price versus cost discussions. Are you able to actually quantify the price versus cost kind of cadence for this year and sort of the margin cadence for the rest of the year? And I'm thinking about the whole company, but if it makes sense to talk about highlight any specific segments, that would be helpful. Thank you. Mark Smith: Well, in first quarter, we were about 2% net positive between price and cost. And as we said on the -- in the earlier remarks, it very much varied by business. And in fact, you can see it, since you're asking a lot of questions about the different margins in the business, you can see that. I mean, the pricing is pretty much set. Aftermarket is one area where we have the potential that were just prices more frequently. That's the nature of the aftermarket business. I don't think that's unique to Cummins. But pretty much, I think, the course is largely set for this year and then, it's really looking for efficiencies in every part of operations, working with customers, working with suppliers. We all enjoy it when the costs are lower. That's just not where we'd be. It's been an unprecedented period of supply constrains, some of which, frankly, we're not out of yet and it's been a period of unprecedented complexity and very, very robust demand. And we've continued to grow our business faster than some of the underlying markets. So that's been a positive, but that’s been a lot of work for our supply chain teams. But I think, largely, it's going to be a net positive for this year, Steve. I don't imagine dramatic changes quarter-to-quarter. The commodities can ebb and flow a little bit, and we saw some benefit copper prices in the Power Systems business. And again, we're using hedging and other techniques to try and smooth out those costs. But I don't expect fundamental changes to the reason for variation in earnings. We're really focused on this demand side. And right now, our confidence has gone up based on the confidence of our customers through the rest of this year. Jennifer Rumsey: And just to keep in mind as context here. Over the last couple of years, as we saw that rapid increase in demand, there's really been two factors at play with the inflationary pressure and supply challenges. So one is cost versus our ability to pass that on a price, and we made a lot of progress through 2022, and you see that continue in 2023 to offset the inflationary pressure and then it's operating leverage. And because of all the supply disruptions we didn't see in those early quarters, the normal operating leverage that we would, and that has also improved and is reflected in some of the numbers that you see in Q1. So just to give you a sense of what that's like for us now in our Rocky Mount Engine Plant, which produces midrange engines. Last year, our on-time delivery from our suppliers was at 60%. In Q1, it was at 70%. And historically, we would expect something closer to 80%. And so that plays out in operating efficiency for us in our plant. So, it's improved. There's still a little bit of opportunity. But running at the rate that we are, we are continuing to be constrained by a couple of our supplier components. I'm shocked we've made it this far into the call without asking -- anybody asking me about supply chain. Yes, chips and electronics have improved, but they're still operating at capacity, which means small disruption hasn't impacted. But overall, underlying operating leverage has improved. Operator: Thank you. The next question is coming from Matt Elkott of TD Cowen. Please go ahead. Matt Elkott: Good morning. Thank you On the rail side, wondering if you see any potential long-term content opportunities from the new locomotive rule that California issued on Thursday, which includes mandates on freight, passenger, and industrial locomotives. So, if it stands and goes national, there could be a big build cycle as well as a lot of new technology upgrades. Is there any opportunity for you guys from that? Jennifer Rumsey: It's still early for me to add a lot of response here. We, of course, now are in the passenger rail business with our 95-liter engine. We have a Tier 4 compliant product, and then we've also entered the rail market with certain customers with fuel cells. And so we'll continue to explore opportunities with the product offerings that we have in that market. Matt Elkott: Got it. And just one higher level question in light of your strong results and improved outlook. Do you see this bifurcation between your strength and the strength of the machinery sector as a whole on one hand and the rest of the economy being weak? Is that nearly a function of just catching up the demand from the last two and a half years or so while disruptions hampered production levels, or is this -- you mentioned, Jen, that this is not a typical cycle. Is there something more than that, more than just catching up the demand? Jennifer Rumsey: Well, there is -- I mean, definitely, what you said is a factor, limitations in supply and high use, right, at high use and then new products are more fuel efficient. So, there's still a lot of factors that are causing customers to -- in commercial trucking to continue to want to buy. There's investments in infrastructure that's driving demand and construction and there's growing investments in the cloud, it's driving data center demand. And so there are some specific indicators for our business that maybe are decoupled from the broader economy. That said, the broader economy does have some influence, which is why we continue to be cautious about where we're making investments and increasing headcount. Mark Smith: We do -- just like you as an observer of other parts of the economy and sometimes wonder at the rate of hiring and resources being added into new areas, and then you get retrenchment. And sometimes, that's very different from the business model that we operate in. We work with very efficient customers. A lot of efficiency is the focus, right, even when some growing are going through strong cycles in other sectors of the economy, you see some very different dynamics that just don't translate well to what we have experienced. Operator: Thank you. Ladies and gentlemen, unfortunately, we have run out of time for questions. I would like to turn the floor back over to Mr. Clulow for closing comments. Chris Clulow: Thanks very much, Donna. Before we conclude, I want to turn it back over to Jennifer for a few closing comments. Jennifer Rumsey: Yeah. Thanks, Chris. Just to wrap up today, I want to again recognize the strong performance of the company in the first quarter, delivering record revenue, EBITDA, net income and earnings per share. We're in a strong financial position and are confident in our strategy and our leaders in the future of the company and look forward to continuing to update you on our progress in future calls. Chris Clulow: Thank you. That concludes our teleconference for today, and thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Have a good day. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time or log off the webcast, and enjoy the rest of your day.

Operator: Greetings, and welcome to the Cummins Inc. Fourth Quarter 2022 Earnings Conference. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Clulow, Vice President of Investor Relations. Thank you. Please go ahead. Chris Clulow: Thank you very much. Good morning everyone and welcome to our teleconference today to discuss Cummins’ results for the fourth quarter of 2022 as well as the full year performance. Participating with me today are Jennifer Rumsey, our President and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that, some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities and Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures and we will refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today’s webcast presentations are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our President and CEO, Jennifer Rumsey, to kick us off. Jennifer Rumsey: Thank you, Chris. Good morning. I’ll start with a summary of 2022, discuss our fourth quarter and full year results and finish with a discussion of our outlook for 2023. Mark will then take you through more details of our fourth quarter and full year financial performance and our forecast for this year. Last year was an incredibly exciting one for Cummins and our stakeholders. We made significant strides in our inorganic growth strategy, most notably through the acquisitions of Jacobs Vehicle Systems, Meritor and the Siemens Commercial Vehicles business. We also navigated complex global supply chain challenges, advanced our preparation for the separation of our filtration business and transition from Tom to me as the CEO. We accomplished all of this and delivered record revenues, EBITDA, and earnings per share in 2022. We did so with the focus on the exciting opportunity in front of us to lead the industry to a broader clean economy and do so in a way that is best for our stakeholders and the planet. Decarbonization is a growth opportunity for Cummins, uniting our business and climate goals. In 2022, we launched our long-term decarbonization growth strategy, Destination Zero, which includes making meaningful reductions in carbon emissions through advanced internal combustion technologies widely accepted by the market today, while continuing to invest in and advance zero emissions technologies ahead of widespread market adoption. As part of our organic growth strategy, we unveiled the industry’s first unified fuel-agnostic internal combustion powertrain platforms, and we continue to see momentum in our electrolyzer technology and green hydrogen production opportunities. Demand for our products remains strong across all of our key markets and regions with the notable exception of China, resulting in strong revenues in the fourth quarter. Fourth quarter revenues totaled $7.8 billion. Excluding the Meritor business, revenues for the fourth quarter of 2022 were $6.6 billion, an increase of 13% from the fourth quarter of 2021, primarily driven by increased demand in many of our North America markets. To provide clarity on the fourth quarter and 2022 full year operational performance of our business and allow comparison to our prior guidance, I’m excluding the Meritor operating results and associated acquisition and integration costs, the costs related to the separation of the filtration business and the costs associated with the indefinite suspension of our operations in Russia. Mark will provide more detail on the reported results in his comments. With these exclusions considered, EBITDA was $1.1 billion or 16.1% of sales in Q4, above our guidance of 15.5% and stronger than the $705 million or 12.1% reported a year ago. EBITDA and percentage improved due to an increase in gross margins with positive pricing, higher volumes, lower product coverage costs and some improvement in logistics costs, all of which offset increases in material costs. Gross margin improvement is key to meeting our long-term goals of increasing the returns in our core business while transitioning our New Power business to break even EBITDA by 2027. In the fourth quarter, Meritor operating performance and financial results showed improvement, and we continue to accelerate value capture opportunities across the business. Our employees have done an excellent job in integrating the Meritor operations and people within Cummins and continue to make strides in identifying cost reduction opportunities. We remain confident in our ability to achieve the $130 million in pretax synergies we referenced upon completion of the acquisition. And in addition, we expect to deliver incremental tax synergies as we integrate the business. Excluding Meritor, 2022 revenues were a record $26.2 billion, 9% higher than 2021. Also excluding Meritor, the costs related to the planned separation of the filtration business and the impact of the indefinite suspension of our Russia operations, full year EBITDA was $4 billion or 15.1% of sales compared to $3.5 billion or 14.7% of sales in 2021. Improved volumes, better price realization and an improved supply chain environment more than offset higher compensation expenses, increased material costs and lower joint venture income for the year. EBITDA percent improved year-over-year in Engine, Power Systems, Distribution and Components segments. Leading the way was the Components segment, which delivered 150 basis points of EBITDA margin expansion. The Power Systems business finished 2022 with another solid quarter and delivered full year EBITDA of 12.2%, up from 11.2% last year. The improvement in performance in this segment over the past six months is encouraging, and you will see from our guidance that we expect further margin gains this year. EBITDA margins in the distribution business increased by 110 basis points. Our reported full year 2022 results include five months of operational performance for Meritor or $1.9 billion of revenue and $26 million of EBITDA, including $115 million of acquisition, integration and purchase accounting related costs. Now, let me provide our overall outlook for 2023 and then comment on individual regions and end markets. Our 2023 guidance includes our expected results of the Meritor business and excludes the costs or benefits associated with the separation of the filtration business. We are forecasting total company revenues for 2023 to increase 12% to 17%, compared to 2022 and EBITDA to be 14.5% to 15.2% of sales, driven by the inclusion of a full year of sales from Meritor, continued strength in the North American truck market, improved demand in power generation markets, overall pricing improvement and slow improvement in the China on-highway markets. Industry’s production for heavy duty trucks in North America is projected to be 260,000 to 280,000 units in 2023, a range of a 5% decline to 2% improvement year-over-year. In medium-duty truck, we expect the market size to be 125,000 to 140,000 units, flat to up 10% from 2022. We expect our deliveries in North America to continue to outpace the market, as the engine partnerships we announced in 2021 continue to phase in. Our Engine shipments for pickup trucks in North America are expected to be 140,000 to 150,000 units in 2023, volume levels consistent with 2022. In China, we project total revenue including joint ventures to increase 7% in 2023. We project a 15% to 25% improvement in heavy and medium duty truck demand and 10% to 20% improvement in demand in the light duty truck market, coming off the low market levels in 2022. Industry sales of excavators in China are expected to decline 25% to 35% in 2023 as the market adjusts to new emissions regulations and digests inventory on hand. We are watching the situation in China closely, with ensuring the safety and well-being of our people as our first priority. The change in the country’s COVID lockdown policy could positively impact our operations in the coming months. The current events make it difficult to gauge. The markets within China are at a low point, as we close out 2022 and our guidance assumes a slow recovery in 2023. In India, we project total revenue including joint ventures to be up 1% in 2023. We expect the industry demand for trucks to be flat to up 5% for the year. We project our major global high-horsepower markets to remain strong in 2023. Sales of mining engines are expected to be down 5% to up 5%, dependent upon the trajectory of commodity prices and supply chain improvement. Demand for new oil and gas engines is expected to increase by 15% to 25% in 2023, primarily driven by increased demand in North America. Revenues in global power generation markets are expected to increase 10% to 15%, driven by increases in non-residential construction and improvements in the data center market. In New Power, we expect full year sales to be $350 million to $400 million, more than doubling our 2022 revenues. We have a growing pipeline of electrolyzer orders, which we expect to convert to backlog and to be delivered over the course of the next 12 to 18 months. At the end of the first quarter of 2022, we shared that we had reached the milestone of a $100 million in electrolyzer backlog. This tripled to $300 million at the end of 2022, demonstrating the strong momentum in this market. With demand continuing to rise, we are focused on adding capacity for electrolyzer production. During 2022 we announced several capacity expansion investments and expect to have more than two gigawatts of scalable capacity in the 2024 to 2025 timeframe across Europe, North America and China. Additionally, we will continue to deliver battery, electric and fuel cell systems along with electric powertrain technologies as adoption continues in the transportation markets. As mentioned, Meritor results are included in our overall guidance for 2023. We are continuing to drive improvement in our margins post-acquisition and expect Meritor to be accretive to earnings per share in 2023. We will continue to provide updates on the progress of our value capture initiatives, which will be focused on the portion of the business within our Components segment. Within Components, we expect Meritor to add $4.5 billion to $4.7 billion in revenue in 2023 with EBITDA margins in the range of 10.3% to 11%, an improvement from the comparable 2022 EBITDA margin of 7.2%. The electric powertrain portion of the Meritor business has been integrated within the New Power portfolio with projected 2023 EBITDA losses of $55 million included in the overall guidance for that segment. In 2023 we anticipate that demand will remain strong in most of our key regions and markets, especially in the first half of the year. While some macroeconomic indicators have weakened in recent months, we have not seen a significant change in customer orders at this time. In summary, we expect full year sales growth of 12% to 17% and EBITDA to be 14.5% to 15.2% of sales. We have taken a number of actions to improve our EBITDA in 2023 and expect to generate very strong incremental margins within our core business and improve the margins of the Meritor business while continuing to invest in our New Power business. Having effectively managed through the challenges of the past couple years we expect improved performance in 2023 and are well positioned to invest in future growth while continuing to return cash to shareholders. Now, let me turn it over to Mark, who will discuss our financial results in more detail. Mark Smith: Thank you, Jen, and good morning, everyone. There are four key takeaways from my comments today. First, we delivered strong results in the fourth quarter of 2022, exceeding our own projections for revenue and EBITDA from three months ago, and we delivered stronger margins Engines, Components, Distribution and Power Systems compared to a year ago. Second, we continue to make good progress on the integration of Meritor and we remain on-track to deliver $130 million of pretax synergies by the end of year three. We returned $1.2 billion to shareholders in 2022 in the form of dividends and share repurchases. Finally, demand for our products remains strong, supporting increased revenues in our core business and New Power and growth in EBITDA and earnings per share in 2023. Now, let me go into more details on the fourth quarter. Fourth quarter reported revenues were $7.8 billion and EBITDA of $1.1 billion or 14.2%. For the full year, revenues were $28.1 billion and EBITDA of $3.8 billion or 13.5% of sales. Also in the fourth quarter, Meritor generated $1.2 billion of revenue, $60 million of EBITDA, after incurring $27 million of acquisition and integration related costs. Our fourth quarter results also included $19 million of costs related to the planned separation of the filtration business. Full year 2022 results included five months of operational performance for Meritor, yielding $1.9 billion of revenue, $26 million of EBITDA, reflecting $115 million of acquisition, integration and purchase accounting related costs. We will all look forward to a cleaner set of numbers in 2023. Our full year 2022 results also included $81 million of costs related to the planned separation of the filtration business and $111 million of costs related to the indefinite suspension of our operations in Russia. To provide clarity on the fourth quarter and 2022 full year operational performance of our business and allow comparison to our prior guidance. I am excluding the Meritor results and the separation of filtration and the indefinite suspension of Russia in my following comments. But hopefully, you are clear after my earlier remarks about the magnitude of those -- each of those items. Fourth quarter revenues were $6.6 billion, an increase of 13% from a year ago. Sales in North America were up 25%, driven by continued strong demand in truck markets. International revenues decreased 1% with stronger demand for power generation and mining equipment in most markets, offset by declines in China and, of course, the impact of our suspension of our operations in Russia. Currency movements negatively impacted sales by 4% due to a stronger U.S. dollar. EBITDA was $1.1 billion or 16.1% compared to $705 million or 12.1% a year ago. EBITDA increased by $359 million due mainly to improved pricing, higher volumes, lower product coverage expenses, all of which contributed to stronger gross margin performance and more than offset higher material costs. Now, let’s go into our income statement, a little more detail by line item. Gross margin of $1.7 billion or 26.3% of sales increased by $420 million or 380 basis points from a year ago. Selling, admin and research expenses increased by $52 million or 6% due to higher compensation and research costs as we continue to invest in new products and capabilities to support future profitable growth, particularly in the Engines and New Power segments. Joint venture income decreased $28 million due to lower demand for trucks and construction equipment in China. Other income was $44 million, an increase of $13 million from a year ago, primarily due to higher pension income. Interest expense increased $58 million, largely driven by the financing costs associated with the acquisition of Meritor. The all-in effective tax rate in the fourth quarter was 17.2%, including $52 million or $0.36 per diluted share -- favorable discrete items. All-in net earnings for the quarter was $631 million or $4.43 per diluted share, up from $394 million or $2.73 a year ago. Operating cash flow in the quarter was an inflow of $817 million, including Meritor and, $85 million higher than the fourth quarter last year, driven primarily by higher earnings. For the full year ‘22, revenues were a record $26.2 billion or up 9% from a year ago, with sales in North America up 18% and international revenues down 2%. Currency movements negatively impacted revenues for the full year by 2%. EBITDA was $4 billion or 15.1% for 2022 compared to $3.5 billion of 14.7% of sales a year ago. Improvements in Components, Distribution, Power Systems and Engine margins were partially offset by increased investment in New Power and more than $100 million of mark-to-market losses on investments that underpin some of our nonqualified benefit plans. All of that run through our operating EBITDA. All-in net earnings were $2.2 billion or $15.12 per diluted share compared to $2.1 billion or $14.61 per diluted share a year ago. Full year cash from operations was $2 billion, down from $2.3 billion, primarily due to higher inventory levels. Capital expenditures in 2022 were $916 million, an increase of $182 million from 2021 as we continue to invest in new products and capacity expansion critical for future growth. We returned $1.2 billion of cash to shareholders or 63% of operating cash flow in the form of share repurchases and dividends last year. Now, moving on to our guidance for 2023, which includes Meritor, and thankfully, reduces the number of exclusions we’ll have to explain each quarter, and I appreciate your patience as we work through that in 2022. We are excluding any separation costs associated with filtration, and for now, we’re assuming that the operating results of filtration are in our guidance for the full year 2023, as the timing of that separation is not yet determined. We expect Meritor to add $4.5 billion to $4.7 billion of revenue in 2023. We currently project 2023 company revenues, including Meritor, to be up 12% to 17% and company-wide EBITDA margins expected to be in the range of 14.5% to 15.2%. In ‘23, we expect revenues for the Engine business will be flat to up 5%, driven by continued strength in North American truck market and a modest recovery in China. 2023 EBITDA is projected to be in the range of 13.8% to 14.5% compared to 14.4% in 2022. We expect distribution revenues this year to be up 2% to 7% and EBITDA margins to be in the range of 10.3% to 11% compared to 10.5% in 2022. Including Meritor, we expect 2023 components revenues to increase 28% to 33% and EBITDA margins in the range of 14.1% to 14.8% compared to 15.0% in 2022. In ‘23, we also expect Power Systems revenues to be up 5% to 10% due to higher demand for oil and gas engines and power generation equipment globally. EBITDA there is projected to be between 13% and 13.7%, up from 12.2% of sales last year. And also this year, we expect New Power revenues to increase to the range of $350 million to $400 million. We expect New Power net losses to be in the range of $370 million to $390 million as we continue to make targeted investments in capacity, technology to support growing customer demand. Our goal remains to achieve breakeven EBITDA in 2027. Our effective tax rate this year is expected to be approximately 22%, excluding any discrete items. Capital investments will be in the range of $1.2 billion to $1.3 billion this year. We remain committed to our long-term goal of returning 50% of operating cash flow to shareholders over time and have accelerated cash returns to shareholders in recent years above that 50% goal when we have generated more cash than required to support our strategy. In 2023, we will prioritize cash towards dividends and debt reduction following the acquisition of Meritor while continuing to invest to deliver future profitable growth. Having a strong balance sheet is an important asset as we navigate through economic cycles and sustain our investments in new products for existing and new markets. To summarize, we delivered record sales, strong full year earnings in 2022, while managing through supply chain challenges and a very weak demand environment in China. As we move through 2023, demand for our products remains strong in most of our core markets with good visibility into the first half of the year. We’ll continue to focus on raising margins in our core business, driving improvements in the performance of Meritor, generating strong cash flow and investing in the products and technologies that position us to lead in the adoption of new technologies and penetrate new markets through our New Power business. Thank you for your interest today. Now let me turn it over to Chris. Chris Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we’re ready for our first question. Operator: [Operator Instructions] The first question today is coming from Jerry Revich of Goldman Sachs. Please go ahead. Jerry Revich: I know it’s early post the acquisition of the Siemens propulsion systems and Meritor, but wondering if you could just comment on what the acceptance has been of the products in the marketplace? Post-Cummins ownership, what’s the pipeline from the developments look like? How is that cross-selling working out versus what you folks had expected before acquiring the assets? Thanks. Jennifer Rumsey: Yes. Thanks, Jerry, for the question. Yes, we are right now really focused on integrating the Meritor business, the Siemens Commercial Vehicle business and the investments that we were already making within New Power and having a number of conversations with our customers on how we bring that together to deliver those electric powertrains and components to meet their needs. So, it brings some strong products, employees as well as customer relationships, and we’re seeing growing opportunities as we have relationships at a senior more strategic level with these customers to grow our business going forward. It’s really early days at this point, so we’ll continue to talk about that as we bring those businesses together. Jerry Revich: Sounds good, Jennifer, thanks. And Mark, can I ask in terms of the pricing that you’re expecting in ‘23 within the outlook? And if you could just touch on the logistics costs embedded in the guide as well. You folks have been running pretty hot to hit deliveries in ‘22. I’m wondering to what extent does that a tailwind within the guidance? Mark Smith: Yes, we’ve got about 2% of price cost benefit embedded in the guidance, Jerry. That’s the biggest single driver of margin improvement. Operator: The next question is coming from Jamie Cook of Credit Suisse. Please go ahead. Jamie Cook: I guess, two questions. Just given the concern on the macro out there, can you guys speak to by business line where you see the most visibility or where demand trends do you see sort of weakening? And then, I guess, on the engine margin guidance. I guess, I would have thought margins would have been a little better in implied guide just given maybe price cost going away, China improving. So, if you can just help me bridge 2023 to 2022 engine margins what’s implied? Thank you. Jennifer Rumsey: Great. Thanks, Jamie. Let me speak first to what we’re seeing in the market. And we, of course, are paying attention to some of these macroeconomic trends. If you take just the North America truck market as a starting point, while there has been some decrease in spot rates, we still continue to see healthy freight activity and strong backlogs out through the first half, which gives us confidence that the market is going to remain strong, certainly through the first half of the year. And it’s important to note, it’s just not been a typical cycle for us because for the last two years, we’ve been undersupplying to the market demand. They’ve been using that equipment. We’re seeing that reflected in very high aftermarket demand which continues, and these new trucks provide efficiency benefits to the fleet. So, we continue to expect strong North America truck market. In the Power Systems business, again, we have a healthy backlog of products and strong demand across many of our markets. Mining, we’re forecasting to remain around flat, but growth in power generation, growth in the oil and gas business. So, we’re feeling pretty confident about that as well. The biggest uncertainty is really around China. And as I said in my comments, we do project some slow recovery throughout 2023. With the lift of the stringent lockdowns that they had in the last couple of years in December, we expect that that may result in economic strengthening and certainly, less operational disruption, but we’re still monitoring what happens with the COVID waves there, is there any government stimulus into the economy. We feel really well positioned there. We’ve launched our NS VI products, which we think will enable Cummins to grow our position in the market. We’ve launched the automated manual transmission there. We’ve got a new natural gas platform. So, we’re really well positioned as China continues to strengthen and just uncertainty on exactly what the shape of that will look like. I’ll let Mark talk about the margin question. Mark Smith: Yes. I think the main thing on the Engine business margins is that we haven’t got building a very strong recovery in China. And then the other piece that you didn’t mention, Jamie, is that we’ve got fairly sustained investments ahead of us over the next couple of years because we’re updating several of our platforms. We’ve won a lot of external business, and we’ve got to meet future emissions regulations. So, that’s the only other element that’s running through the Engine business that may not be obvious from the outside, but otherwise, we’ll expect them to do well if markets continue to be strong. Operator: The next question is coming from Stephen Volkmann of Jefferies. Please go ahead. Stephen Volkmann: Maybe just following on, on the Engine margin question, Mark. Given what you just described around increased spending, R&D, et cetera, should we think about sort of flattish incremental margins over the next few years, or can it still be better than that, if we have some volume? Mark Smith: I think it can definitely be better than that. We’re still battling some inefficiencies here and there Steve. We’re still expecting to have aftermarket growth over time. So no, we’re not locked into these margins. I was just trying to be clear on what the underlying factors. I’ve seen a few comments around Engine business margins, but no, I think they can go higher. Getting China, which is the world’s biggest truck market, I know the earnings come through JV, we have the lowest market in a decade. And we think we still got more share to gain there. We’ve got more content in the Components business. So, if I sit here today and say what could be the one thing that could move that could change our guidance most clearly, I would agree with Jen, it would be China, right now. We don’t have visibility. People are more enthusiastic, but the activity hasn’t yet materially picked up. So, that would be one important factor. Stephen Volkmann: Great, understood. And then, my follow-on maybe a bigger, broader question. But as we start very early days but we start to think about the 2027 emissions regulations, do you guys feel like you have line of sight to what you need to do technically to get there? We’re starting to hear that this is going to be sort of the biggest emission hurdle ever and that some people may have trouble getting there or maybe have some massive costs associated with it, which has some implications for prebuys and maybe whether people do it themselves or outsource it to you, just your big picture thinking on 2027 and how that kind of plays through. Jennifer Rumsey: Yes. We are focused on continuing to meet more stringent regulatory requirements and do so with products that will provide benefits to the environment and exceed our customer needs. We now have clarity on the EPA 2027 NOx regulations that happened late last year, and they finalize that standard at a 0.035 gram NOx. And our intention is to offer a full product lineup with our new fuel-agnostic engine platforms to meet that regulation, and we’re finalizing our product plans right now with our customers on those. But we really feel well positioned to invest in really as a part of our Destination Zero strategy, reduce CO2 and NOx impact to the environment and offer products -- market-leading products to our customers with that regulation. Operator: The next question is coming from David Raso of Evercore ISI. Please go ahead. David Raso: Hi. Thank you. The China guide, the up 7%, I assume that includes consolidated and JV revenue, sort of how you usually kind of speak to it. Mark Smith: Yes. David Raso: Even -- maybe can you update us on the mix of your end markets? It feels like the consolidated off-highway, the construction exposure you have that shows up in the P&L more so than JV, and the JV is more of the on-highway. I’m surprised with the mix because that construction business at this stage must be pretty small after the declines we’ve seen. So, to have truck up double digit for China, for heavy and light, even though the excavator is down a lot, the mix would suggest you’d be up more than 7%, if truck is up double digit and at now relatively small construction business is down. Are there other businesses keeping it only at 7%? Is there a share comment there? Just trying to understand why only up 7% with that China end market guide? Mark Smith: I don’t think there’s anything significant in there, David. I mean, obviously, whether it’s consolidated or unconsolidated, trucks probably [70%] plus when you add up all of our markets. So, the truck does better, we’ll be up more than 7%. If it doesn’t, we won’t. I think for components, that’s all consolidated revenue. That’s almost entirely on-highway. It’s really the engine business that has the off-highway business of any of any size. And then, yes, I think Power Systems has been pretty strong last year in China. It has probably been the exception to what we’ve seen in every other market. But there’s no big change in dynamics. Jennifer Rumsey: Just on your share, we expect to continue to grow our share in the China market with the launch of the NS VI product. So, that’s assumed in our guidance. David Raso: I’d even think with some of the transmissions as well. So, I’m just trying to understand like Photon is struggling more than I would have thought. It’s still barely making money now for two quarters in a row. Is there something about that dynamic we should be more sensitive to on the margin recovery in China in the JV because of Photon? Mark Smith: No. We did get some sizable tech fees and other things from the early part of last year, which kind of helped -- the wrong word, we were entitled to those based on product launches, but no, I don’t think there’s anything significant there. David Raso: And I’ll hop off, just one kind of modeling question. If you take the interest expense in the fourth quarter and annualize it, it’s $348 million. You mentioned there’s debt reduction, but your guide is $380 million. I mean, what are we assuming for interest rates from the fourth quarter on to have up interest expense, but you’re targeting debt reduction? Mark Smith: Right. So, I think the answer to that is, we’ll need to keep working that down. I think we’ve got some floating rate exposure. It’s not all fixed, and probably, the debt reduction will come in the second half of the year, but let me come back to you on that, David. Operator: The next question is coming from Rob Wertheimer of Melius Research. Please go ahead. Rob Wertheimer: Hi. I know it’s still early days, but you’re starting to see some ramp in electrolyzers. And I guess there’s obviously a lot of uncertainty as to what the ultimate margin structure is going to be, New Power or clean energy generally. So I wonder if you have any thoughts on when you see clarity, any thoughts on where gross margins might trend. Maybe you’re still heavily investing, but the gross margins are improving, or just your thoughts on how the curve of profitability is shaping up in clean tech. Jennifer Rumsey: Yes, the electrolyzer business is really going to drive the majority of our progress towards breakeven in ‘27 for New Power and the growth aspirations that we shared for 2030. And so, we expect during that time frame to scale up the product, the supply chain and manufacturing and continue to see growing backlog and conversion of orders into revenue. And so through that time period, you’ll see margins going positive and improving, the exact margin structure of that business is still unclear. There’s not a lot of suppliers in the market, and we expect demand to be quite strong through that time period. So, I’m optimistic on what margin structure for the business will look like. But, obviously, we’ll share more as we get towards that breakeven point and go margin positive. Mark Smith: Yes. Rob, one thing I’ll add is, for the gross margin on a project basis, we’re at gross margin positive last year, which is a good early indicator. We have other costs that are going in, too, for capacity expansion and other things that obviously offsets that, but it’s a good indicator that we’re on the right path for profitability as we move forward with more volume. Rob Wertheimer: Okay. That’s helpful. Thank you. And obviously, there’s just still a lot of build-out in manufacturing and supply chain. So, do you have a sense as to how you stack up competitively on either design cost, or I guess you have a lot of advantages in manufacturing as you build out and off the top there. Jennifer Rumsey: I mean one of the advantages we have here is we’re able to leverage our existing footprint and capability that we have as a part of the broader comment. So, you saw us announce recently, we plan to use our Fridley manufacturing facility for electrolyzer production in North America. So, we are tapping into that strength we have in our footprint and supply chain capability to help build out profitable both product as well as supply chain. And that’s an advantage that I think Cummins has here. Operator: The next question is coming from Nicole DeBlase of Deutsche Bank. Please go ahead. Nicole DeBlase: Maybe just on the distribution margins. It looks like you guys aren’t expecting margin expansion there, even though sales are up 2% to 7%. I guess what is the reason for that? Mark Smith: I think there’s a little bit of improvement baked into the guidance, but we’ve got a pretty strong track record of improving. There’s no structural impediments to growing margins over time. It’s a range. So, under the different revenue scenarios, some variation, Nicole. But over the time, we expect the margins to keep going up. Nicole DeBlase: Okay, understood. Thanks. And then I guess Power Systems stood out to me. On the other side, it’s just the margins look really impressive year-on-year in 2023. Is price/cost the biggest driver of that, or is there any other big drivers of the margin expansion that you guys are expecting? Mark Smith: I think, certainly, that’s been a big factor, and we’ve got pretty healthy demand locked in now. So, there’s been a lot of focus on that business. We’ve been pleased with the solid results, particularly in the second half of this year, and we just -- we’ve got a very, very strong focus on continuing to drive… Jennifer Rumsey: For that business, it’s important to keep in mind, you see a very long -- we have a very long lead time on orders. So, as costs accelerated, it took a while for us to pass on some of the price increases to offset that, and that is in part what drove the strong margin improvement from ‘21 to ‘22. Operator: The next question is coming from Matt Elkott of Cowen. Please go ahead. Matthew Elkott: If you can give us a sense of how much of a growth moderation can we expect in the second half? I’m assuming that will be the case directionally because you’ll have the Meritor comps. And also, it sounds like you guys are more cautious on the second half. So, how much of a growth moderation are we expecting? Mark Smith: You can roughly split our revenues 52% to 53% in the first half versus the second half, Matt. Matthew Elkott: Got it. That’s very helpful. And then, just one follow-up on the New Power front. It’s been about a year since you guys announced the fuel agnostic engine. So, any update on that and the receptiveness from customers in your conversations? And also, I think back in August PACCAR announced that they’re using your new natural gas engine. So, is there anything new on that front as well? Jennifer Rumsey: Yes. So, the fuel agnostic platform, just to clarify, that’s being developed as a part of our Engine business. And as I mentioned earlier, we’ll launch a full lineup in North America of that product as a part of the 27 EPA regulation. As you’ve seen, PACCAR is integrating and plans to introduce the natural gas version, and we have customers that are very interested in that product, including with renewable natural gas, and we announced partnerships around that. We also announced a memorandum of understanding with Tata late last year on the hydrogen version of that platform. And so really, we see a lot of interest in those platforms, both as a way to improve efficiency of diesel engines and then create flexibility to move to other fuels such as natural gas or hydrogen with the platform and really minimizing the integration pair up that’s required for customers as they move between those platforms. So, we’ll begin to launch those with the natural gas version here, in North America in late ‘23, early ‘24 and then accelerate introduction in the coming years after that. Operator: The next question is coming from Noah Kaye of Oppenheimer. Please go ahead. Noah Kaye: Can you characterize the current mix of investment spending in New Power? Just kind of give us a sense of the key buckets where you’re spending? Maybe you can even give us some guidelines on how much of the CapEx for this year would be attributed to New Power? And then, I think the higher question here is, are you ready to call 2023 kind of the peak of net investment spending for the segment? Jennifer Rumsey: At a high level, the different categories of investment in New Power, of course, there’s big investments happening in electrolyzers, and we talked about the growth and capacity investments that we’re making there. The other buckets include investments in batteries, other electrified components in the electric powertrain and then in fuel cells. So, we’re investing end of the prime mover as well as some of the key components to position ourselves as our current markets start to move to electrified powertrains to be both the powertrain provider as well as provide key components similar to the model we have today with Engine business and Components. You want to talk about allocation of investment? Mark Smith: Yes. So CapEx, probably in the $100 million to $125 million range. So just under 10% of the total for the company in the New Power segment, and most -- more of that’s weighted towards electrolyzers where, of course, we’re ramping up production, albeit using existing Cummins sites, where possible and appropriate. And then, yes, I’d love to call the peak in New Power losses. They’re going to have to peak soon because we’re aiming towards breakeven in 2027 at the EBITDA level. The only caveat is, if there’s a significant change, should we invest in some new capabilities that aren’t part of our current portfolio? That’s not part of our plan today, Noah, but that would be the only variation. Noah Kaye: That’s helpful. And then just to give us some expectations around the cadence of earnings this year, obviously, you’re guiding to EBITDA, not EPS. But thinking about China JV modestly improving, getting better synergies, capture on Meritor throughout the year, but then maybe some offset from potential deterioration in some end markets. So, just any guideposts you would give us on first half versus second half, the EBITDA or even EPS? Mark Smith: No. I mean, by and large, it will go along with the revenue. Unfortunately, we had a tough Q3 in 2022. So that probably gives us the easiest comp, just kind of going through by quarter, and then we started the year much stronger. So ex-JV, I think we’ll have a good first half of the year. The JV will be the biggest single swing factor. When you look at our P&L, I would think -- in the first half of the year, maybe that helps in the second. Q3 gross margins were disappointing. We’ve rebounded well in here in Q4. So yes, modestly expect first half to be stronger all in, unless revenues in the second half change direction significantly from what we’ve guided. Operator: The next question is coming from Tami Zakaria of JPMorgan. Please go ahead. Tami Zakaria: So my first question is, are you expecting any synergy savings from the Meritor acquisition this year? I believe you were expecting $130 million in total by year three. So, anything this year? Mark Smith: Absolutely. Yes, we’re working very hard on that. I mean personally, along with many members of the Meritor, Cummins team. So yes, and we’ll talk about those as we go along, but yes, we’re feeling confident about that progress towards that $130 million. Tami Zakaria: And some of that is embedded in guidance and assuming -- or would that be incremental? Mark Smith: We’ll try and get as much as we can -- both helps the long-term interest of that business and improve the cost structure. So yes, we expect the results clearly to improve, especially in the Components segment. We’re assuming that’s all in for now. If we get more, then we’ll be happy to report. We won’t get more than $130 million, just to be clear. That’s a year three number, but we’re making good progress. Tami Zakaria: Got it. And so, I’m sorry if I missed it, but can you give some color on the embedded Meritor margin expansion cadence for the year? Should it be in the guided 10% to 11%, or does it ramp towards the back? Jennifer Rumsey: Yes. So, let me just reiterate the guidance that we had within the Components business. We have $4.5 billion to $4.7 billion in revenue and EBITDA margins for the Meritor business, 10.3% to 11% compared to in 2022, that was 7.2%. And some of that is progress on price/cost in that business, operating efficiency as well as synergy cost savings. Tami Zakaria: Got it. Thank you. Mark Smith: I think you should just expect sequential improvement through the first half of the year from the Q4 levels. Operator: The next question is coming from Avi Jaroslawicz [ph] of UBS. Please go ahead. Unidentified Analyst: Hey, guys. Thanks for taking our questions on for Steve Fisher. Just in terms of the power generation market, can you talk a little bit more about what’s driving that market to be so robust this year? We might have expected data centers weakening a little bit. It sounds like you’re expecting that to be up still again this year. But, if you could just talk about some of the drivers in that market. Jennifer Rumsey: Yes. The power generation market really nonresidential construction as well as data centers, and despite some of the announcements that you’ve seen from our data center customers regarding staffing levels, they continue to show interest in investing in data centers and have demand and drive backup power -- demand on our products in that market. So, we are still quite bullish about the opportunities there for 2023. Mark Smith: I think it’s fair to say, it’s pretty broad-based across multiple markets, broad parts of the economy. Yes, the data center gets a lot of attention. It is a significant individual segment, but we’re seeing robust underlying demand for power generation across multiple segments. Unidentified Analyst: Okay. I appreciate that. And then just in terms of the New Power business, have you seen acceleration in the recent months following the IRA in terms of customer interest there? And does that possible acceleration in the market change your view on when we could be breakeven in that business? Jennifer Rumsey: Yes. How I would describe it is, the inflation reduction act and the investments around that are really going to be key to enable the adoption rate that we anticipate is going to drive an acceleration in hydrogen investment. The details around that investment are being clarified right now. So, it’s going to take several years before you really see that translate into actual projects and business. Definitely, it’s going to drive growth in the hydrogen market in the U.S. between now and 2030 as that -- as those incentives come in place to both put the hydrogen production in place as well as drive adoption of some of these technologies, which today, frankly, just cost more. So, you need those incentives in order to start to drive customer adoption and bring down the costs and make them more viable in the market. I mean, in the short run, we’re investing more because we’re building up capacity as are others in the industry. So, the faster we go in the short run could consume more cash. But obviously, we want the market to move, and we expect to deliver good gross margins once we get this kind of investment phase. So, it could go faster. It’s quite a long incubation period, so very different from, say, our on-highway engine business, while we take an order. And then typically, we’re shipping in a few weeks. It’s not been that typical in the last 12 months versus sometimes more than a year between headline announcements to actually putting equipment into place and sometimes even more than a year. But we are encouraged, strong adoption for our technology, and yes, business is doing well on the business development side. Operator: We’re showing time for one final question today. The final question is coming from Michael Feniger of Bank of America. Please go ahead. Michael Feniger: When we look at China revenue, the consolidated plus JV in 2022, it’s basically the lowest it’s been over three, four years. I think slightly below 2019. I’m just curious, in those three years, how profitability looks maybe post some restructuring optimization? If units in China recover, are you more profitable in each of those units than maybe you were in the past? Mark Smith: Well, what’s happening over time is that the content is going up, right? So, one thing that’s been a big positive for our business is China consistently adopting more advanced emission standards. So the amount of revenue that we’re selling is going up per vehicle quite significantly over time. And certainly, cycle over cycle, it’s billions of dollars of extra revenue growth a year. We’re just at the lowest market in a decade. So, we agree that that growth rate is modest. We don’t have any signs yet of a rapid adoption. We’ll be looking at the same data you’re looking at, and obviously, taken on board the feedback from our customers, but we are profitable in our operations. We don’t disclose profitability by region, but for sure, when China volumes improve, our profits will go up. Michael Feniger: Thank you. And we’ve seen quite a few emerging suppliers in the EV, e-mobility space really struggled in the last 12 months with deliveries or profitability. Do you see some of those dynamics driving OEM conversations back to you and traditional suppliers as we start looking ahead to some of these key dates and trying to adopt more of this altered powertrain? Jennifer Rumsey: Yes. We talked about this in our Analyst Day about a year ago. We expect that this transition is going to take a long time for our industry, and that positions incumbents like Cummins well because you need to invest for the long term. Regardless of what our customers are adopting, we’ve got the solution in our portfolio. And so for sure, you see the benefit of a company like us that has a portfolio of options to meet their needs, it’s going to be around for the long term and continuing to invest in some of these new technologies, be able to do that and support the product as an advantage, and it’s playing out to be more of an advantage as time goes on compared to some of the new entrants. We continue to pay attention to those new entrants though and how they advance the technology and work to enter the market. So, we wouldn’t discount them, but certainly, this long investment period makes it more challenging for them to stay in and be successful. Mark Smith: And I think also our footprint, our reputation for dependability, wherever our customers operate, is leading us to be approached in new segments by global large industrial players. So, it’s not just in the market that we operate in today, we’ve been approached to expand into different market applications. That’s particularly exciting. Operator: At this time, I’d like to turn the floor back over to Mr. Clulow for closing comments. Chris Clulow: Thank you all for your participation today. That concludes our teleconference. I really appreciate the interest. And as always, the Investor Relations team will be available for questions after the call this afternoon. Take care. Operator: Ladies and gentlemen, thank you for your participation and interest in today’s conference. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Operator: Good day, ladies and gentlemen, and welcome to the Cummins, Inc. Q3 2022 Earnings Conference Call. All lines have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. [Operator Instructions]. At this time, it is my pleasure to turn the floor over to your host, Chris Clulow, Vice President of Investor Relations. Sir, the floor is yours. Christopher Clulow: [Technical Difficulty]. Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we'll refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our President and CEO, Jennifer Rumsey to kick us off. Jennifer Rumsey: Thank you Chris and good morning. I will start with a summary of our third quarter financial results, then I will discuss our sales and end market trends by region, and I will finish with a discussion of our outlook for 2022. Mark will then take you through more details of both our third quarter financial performance and our forecast for the year. Before getting into the details of our performance, I want to take a moment to highlight a few major events from the third quarter. On August 3rd, Cummins completed the acquisition of Meritor, a leading global supplier of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for the commercial vehicle and industrial markets. The integration of Meritor’s people, products and capabilities in axle and brake technology will position Cummins as a leading provider of integrated powertrain solutions across the internal combustion and electric power applications. We've been excited to welcome our new colleagues into our company. The company announced several collaborations that further enable our customers to achieve their decarbonization goals and advance our destinations Euro strategy. During the third quarter, Cummins announced collaborations with Werner Enterprises, Transport Enterprise Leasing and Versatile to deliver 15-liter hydrogen internal combustion engines when available. The X15H hydrogen engine, part of Cummins’ fuel agnostic platform, will enable a more-timely solution to reduce carbon emissions by providing customers with an option that has powertrain installation commonality and end user familiarity. The New Power business continued to expand its green hydrogen presence globally as demand continues to rise in the key markets of North America, Europe, and China. Cummins announced it will expand PEM electrolyzer manufacturing capacity at its Oevel, Belgium, factory to 1 gigawatt. The company also announced it will begin producing electrolyzers in the United States, underscoring our continued dedication to advancing the nation’s green hydrogen economy. Electrolyzer production will take place at our Fridley, Minnesota facility, starting at 500 megawatts of manufacturing capacity annually and scalable to 1 gigawatt in the future. In addition we continue to make progress and preparing for the separation of our filtration business. The addition of Meritor and the planned separation of the filtration business are positive mood moves for our future. However, there are upfront costs associated with both transactions, which you can see from our press release and earnings materials, heavily influenced, our reported results this quarter. We expect that the most significant costs associated with both transactions are behind us and we look forward to updating you on our progress in future quarters. Now, I will comment on the overall company performance for the third quarter of 2022 and cover some of our key markets starting with North America before moving on to our largest international markets. Demand for our products remained strong across all of our key markets and regions with the notable exception of China, resulting in strong revenues in the third quarter. Third quarter revenues totaled $7.3 billion. Excluding the Meritor business, third quarter revenues were $6.6 billion, an increase of 11% from the same quarter in 2021. EBITDA in the third quarter was $884 million or 12.1% of sales. Excluding the Meritor business results and the $25 million related acquisition and integration cost, EBITDA was $907 million or 13.8% of sales compared to $862 million or 14.4% of sales a year ago. Third quarter results include cost of $16 million or $0.09 per diluted share related to the planned separation of the filtration business. Adjusting for these costs, EBITDA without Meritor and filtration cost was $923 million or 14% of sales. My comments moving forward will exclude the results of Meritor, the costs associated with its acquisition and the costs associated with the expected separation of our filtration business. Our EBITDA percentage declined in the third quarter for three main reasons; first, we saw a 32% drop in joint venture income from the third quarter of 2021, driven primarily by the slowdown in the China markets; second, we increased investments in research and development as we continued to invest in the products and technologies that will create competitive advantage in the future, particularly in the engine and new power segments; and finally, we made an investment in our people, through a one-time bonus in recognition of their intense work and commitment to meet customer demand and navigate supply chain and other challenges. This bonus did not apply to company officers. A motivated and highly effective workforce is critical to delivering our customers, executing on our strategy, and creating shareholder value. And this bonus will pay dividends over time in the retention and engagement of our people. We continue to make positive progress in improving gross margins of our business and offsetting the impact of elevated supply chain and other inflationary costs that we have experienced since the start of 2021. Gross margin percentage improved in the third quarter, compared to the third quarter of 2021, as the benefit of higher volumes and pricing exceeded the manufacturing, logistics, and material cost increases and higher product coverage costs during the quarter. Our third quarter revenues in North America grew 19% to $4 billion driven by improved pricing, higher volumes, and higher after market demand. Industry production of heavy duty trucks in the third quarter was 64,000 units, up 23% from 2021 levels, while our heavy duty unit sales were 25,000, up 15% from 2021. Industry production of medium duty trucks was 29,000 units in the third quarter of 2022, an increase of 26% from 2021 levels. While our unit sales were up 27,000, up 20% from 2021. We shipped 41,000 engines just to Stellantis for use in their Ram pickups in the third quarter of 2022, down 4% from 2021 levels. Engine sales to construction customers in North America increased by 16% over 2021 due to strong capital spending by rental companies and pricing. Power Systems North America sales were up 30% compared to 2021 driven by higher volumes and strength in aftermarket. Power Systems North America industrial sales were up 122% compared to the third quarter of 2021 driven by strong oil and gas demand. North America power generation sales also increased by 10% from the third quarter of 2021. Our International revenues decreased by 1% in the third quarter of 2022 compared to a year ago. Third quarter revenues in China, including joint ventures, were $1.2 billion, a decrease of 18% due to lower sales and on highway and construction markets. Industry demand from medium and heavy-duty trucks in China was a 164,000 units, a decrease of 25% from 2021. Weaker new vehicle demand, contracted property investment, and economic impacts from the shutdown as the country continues to respond to the COVID-19 outbreaks have pushed the market to the lowest level in a decade instead of our projected recovery of the market in the second half of the year. Our sales in units including joint ventures were 30,000 a decrease of 27%. The light duty market in China decreased 8% from 2021 levels to 387,000 units in the third quarter while our units sold including joint ventures were 24,000, a decrease of 30%. Industry demand for excavators in the third quarter was 57,000 units, an increase of 3% from 2021 levels and our units sold were 7,800 units, a decrease of 8%. Sales of power generation equipment in China decreased 29% in the third quarter, due to the economic impacts of the COVID-19 resurgence. Third quarter revenues in India, including joint ventures were $614 million, an increase of 18% from the third quarter a year ago. Industry truck production increased by 37% while our shipments increased 20%, lagging the industry production due to the lower growth in the heavy commercial vehicle segment. Demand for power generation increased in the third quarter as economic activity continued to improve, resulting in record revenue in the quarter for that market. Now, let me provide our outlook for 2022 including some comments on individual regions and end markets. To provide clarity on our projections, we will first provide guidance excluding the results of Meritor from the acquisition date through the end of 2022. We will then provide a view of the expected Meritor results for 2022. Based on our current forecast, we are maintaining full year 2022 revenue guidance of up 8% versus last year. This guidance reflects stronger performance in North America and a continued weak market outlook in China, as well as the indefinite suspension of our operations in Russia. We are forecasting higher demand in global mining, oil and gas, and power generation markets, and expect aftermarket revenues to increase compared with 2021. EBITDA is now expected to be approximately 15% of sales, excluding the Meritor results and costs associated with the acquisition and integration, the cost of the indefinite suspension of our operations in Russia and the costs associated with preparing for the expected separation of our filtration business. This is below our previous guidance of approximately 15.5% of sales as a result of the lower than expected market in China in the second half of 2022, and the one-time employee bonus investment made in the third quarter. This guidance reflects our expectations of increased profitability in the fourth quarter, as we continue to drive the improvements we've seen throughout the year on pricing relative to inflationary cost and improve our operating efficiency. Based on our current forecast we expect production of heavy duty trucks in North America to be at 260,000 units in 2022, a 15% increase year-over-year. The supply chain constraints in our industry is expected to continue to limit our collective ability to fully meet the sustained strong end customer demand. In North America medium-duty truck market we are continuing to project the market size to be 120,000 to 130,000 units, a 5% to 10% increase from 2021. We are projecting our engine shipments for pickup trucks in North America to be flat compared to 2021 consistent with prior guidance. In China we now project total revenue including joint ventures to decrease 25% to 30% in 2022, an update to our previous guidance of down 20% to 25%. We now project a 55% reduction in heavy and medium-duty truck demand and a 15% to 20% reduction in demand in the light duty truck market compared to a 50% decline and 15% reduction respectively in our previous guidance. Industry sales of excavators in China are expected to decline 30% from record levels in 2021 consistent with our prior guidance. Despite the difficult economic and market environment in China we have continued to improve our presence in the region through the down cycle and are well positioned for continued out growth across our end markets in the region. As we look ahead industry volume of NS6 products will continue to increase as the new regulations are implemented more broadly. Our technological expertise and emissions experience positions us well to outgrow the market and support our partners through this transition. With our NS6 share continuing to run ahead of our NS5 share. We also continue to ramp production and expand our presence in automated manual transmissions, as our market share increases and the heavy-duty market is increasingly adopting this technology. In India, we project total revenue including joint ventures to increase 15% to 20% in 2022, an improvement from our previous guidance of up 15%. We expect industry demand for trucks to increase approximately 30% in 2022. Strong performance in power generation within India is also contributing to this improved outlook. Most major global high-horsepower markets are expected to remain strong through the end of 2022. Sales of mining engines are now expected to be up 5% compared to the prior year, an improvement from our previous guidance of flat. Demand for new oil and gas engines is expected to increase by 120% consistent with our prior guidance. Strong demand in the U.S. and other oil and gas markets amid energy and security has fueled this strong outlook. Revenues in global power generation markets are expected to increase 10%, driven by increases in non-residential construction. This is an increase from our prior guidance of 5% driven by the increased production as supply chain constraint slightly eased and improved pricing. We are projecting aftermarket sales to increase 15% to 20% from 2021 consistent with our previous estimate. This strong outlook is driven by parts demand within our North America On-Highway business, as well as global Power Systems markets. In New Power we expect full year sales to be approximately $180 million down from our previous guidance of $200 million due to customer scheduling and supply chain impacts. We have a growing pipeline of electrolyzers which we expect to convert to backlog and be delivered over the course of the next 12 to 18 months and we are seeing increased momentum in North America following the passage of the Inflation Reduction Act. Additionally, we will continue to accelerate our collaboration with customers on both electrified power and fuel cell applications in 2022. This was demonstrated in the third quarter as we successfully launched the Cummins HD 120 fuel cell system in China by delivering 52 units to the Lin-gang Government for a bus application. For Meritor, we are expecting full year revenue since the date of acquisition to be between $1.7 billion to $1.9 billion. EBITDA is expected to be approximately 4.5% of sales during the same period, including the impact of required purchase accounting and integration costs. This represents the financial impact of Meritor across our Components and New Power businesses. During the quarter, we returned $245 million to shareholders in the form of dividends and share repurchases, consistent with our plan to return approximately 50% of operating cash flow to shareholders for the year. As I sum up the third quarter, I want to emphasize that we are making progress in our strategy to lead in decarbonizing our industry. Although profitability dropped from the second quarter levels, the fundamentals of our business have not changed. Our products are performing well, leading to record demand from customers and rising market share in some of our core markets. This is the direct result of the contribution from our outstanding workforce. I do want to acknowledge the clear improvement in the financial performance of the Power Systems business this quarter, and I'm enthusiastic about the prospects for future earnings growth. We do expect total company profitability to improve in the fourth quarter from third quarter levels, as implied in our guidance for the fourth quarter. We are committed to improving the underlying financial performance of our business and delivering strong incremental margins through the remainder of 2022 and beyond. Now let me turn it over to Mark. Mark Smith: Thank you, Jen and good morning everyone. There were a number of factors that impacted our reported results in the third quarter, and I will step through them to provide clarity on the underlying performance of the company and allow for comparison to our prior guidance. But the key takeaway I want you to leave with is that the fundamentals of our business remain strong. As you are aware, we completed the acquisition of Meritor in August and are actively working through the business integration. Our third quarter results included two months of operational performance for the Meritor business, resulting in $737 million of sales and a total EBITDA loss of $23 million, which includes both the impact of purchase accounting and acquisition and integration costs. Our third quarter results also included $16 million of costs related to the planned separation of the Filtration business. To provide clarity on the operational performance of our business, excluding the acquisition in comparison to our prior guidance, I am excluding the impact of these items in my following comments. Now let me get into more detail on our third quarter performance. Revenues were $6.6 billion, up 11% from a year ago. Sales in North America were up 19% while international revenues decreased 1%, driven by the decline in China, the impact of the suspension of our operations in Russia, and the unfavorable foreign currency fluctuations primarily due to a stronger U.S. dollar, which reduced our reported sales by 3%. Earnings before interest, taxes and depreciation and amortization, or EBITDA, were $884 million or 12.1% of sales. Excluding the Meritor business results, acquisition and integration costs and the costs associated with the separation of Filtration, EBITDA was $923 million or 14% of sales for the quarter compared to $862 million or 14.4% of sales a year ago. The lower EBITDA percent was driven primarily by an increase in engineering support, engineering spend to support new product development, weaker joint venture earnings in China and the onetime bonus to recognize the commitment of our employees. This onetime bonus totaled $56 million and impacted the reported results of all operating segments, with $41 million of those costs reported within gross margin and $15 million reported within selling, admin, and research costs. Now let me go into more detail by line item. Gross margin of $1.6 billion or 24.7% of sales increased by $213 million or 100 basis points compared to last year due to the benefits from stronger volumes and higher pricing, which more than offset higher material and people costs. Selling, admin, and research expenses increased by $110 million or 13%, primarily due to higher research costs supporting the development of products critical to achieving our Destination Zero strategy, including the fuel-agnostic engine platform, battery electric, hydrogen fuel cell, and PEM electrolyzer technologies. Joint venture income declined by $30 million compared to last year, primarily driven by lower demand for trucks and construction equipment in China. Other income was $10 million, $22 million lower than a year ago, driven by $29 million of mark-to-market losses on investments that underpin our qualified benefit plans. And this compared to a gain on those investments of $1 million a year ago. Interest expense increased by $33 million due primarily to financing costs related to the acquisition of Meritor. Net earnings for the quarter were $468 million or $3.30 per diluted share, down from $534 million or $3.69 a year ago, with the decrease primarily attributed to an increase in the effective tax rate for the quarter. The all-in effective tax rate in the quarter was 32.7%, including $57 million or $0.40 per diluted share of unfavorable discrete items primarily related to the planned separation of the Filtration business. Operating cash flow in the quarter was an inflow of $382 million versus $569 million in Q3 of last year. Now let me comment on the segment performance and our guidance for 2022. For the Engine segment, third quarter revenues increased 8% from a year ago to $2.8 billion, and EBITDA decreased from 15.2% to 13.1% of sales as the benefits of pricing were more than offset by higher manufacturing and product coverage costs and lower joint venture income in China. For the full year 2022, we expect revenues to be up 10%, consistent with our prior guidance. EBITDA is expected to be approximately 14.25%, a decrease from our previous guidance of 14.5% due to a weaker outlook in China and the impact of the onetime employee bonus. In the Distribution segment, revenues increased 14% from a year ago to $2.2 billion. EBITDA increased as a percent of sales to 10% compared to 9.8% a year ago due to pricing and stronger demand for parts, engines, and power generation equipment. We expect 2022 Distribution revenues to be up 11% compared to last year, in line with our prior guidance. EBIT is now expected to be approximately 10.5% of sales, consistent with our prior projection. Components revenue increased 10% in the third quarter, primarily driven by strong demand in North America. EBITDA increased from 14.1% of sales to 16.2% of sales, driven by the benefits of pricing actions and lower warranty expense. We expect full year revenues to increase 3% and project EBIT margins -- EBITDA margins to be approximately 16.75%, unchanged from our view three months ago. Clearly, the Components segment results are most impacted by the acquisition of Meritor, and I just want to underline that the performance excluding the addition of Meritor was exactly in line with our guidance for the quarter and for the full year. In the Power Systems segment revenues increased 16% in the third quarter to $1.3 billion, a record for the segment. EBITDA increased from 11.5% to 14.3% due to higher volumes, strong price realization, and the increased demand for aftermarket parts. In 2022, we expect revenues to be up 10%, an increase from our prior guidance of up 8%. EBITDA is projected to be approximately 11.25%, also up from our prior guidance of 11%, driven by stronger price realization and continued strength in sales. In the New Power segment, revenues were $45 million, up 96% from a year ago due to stronger demand for battery electric systems. Our EBITDA loss was $86 million in the quarter as we continue to invest in the products, infrastructure, and capabilities to support strong future growth. For the full year 2022, we expect New Power revenues to be up approximately $180 million, down slightly from our prior guidance of $200 million due to delays in some customer projects and some supply chain constraints. Underlying demand, however, continues to grow for both battery electric systems and electrolyzers. Net expense for this segment is now projected to be $310 million compared to our prior guidance of $290 million, driven by increased investment to scale up electrolyzer production capacity and bring new products to market. As Jen mentioned, we are maintaining our 2022 expectations of total company revenues to be up 8%, and we now expect our EBITDA margins at approximately 15% for the full year. To be clear, once again, that this guidance excludes the Meritor business and related acquisition and integration costs, the impact of the indefinite suspension of our operations in Russia, and any expenses associated with preparing for the separation of the Filtration business. This guidance does imply an improvement in profitability in the fourth quarter. We expect earnings from joint ventures to decline by 25% to 30% in 2022 due to the ongoing weakness in China and the impact of suspension of our business in Russia, and that is slightly worse than our prior guidance of down 25%, all due to the conditions in China. Our effective tax rate is now expected to be approximately 22% in 2022, lots of 22s there, excluding any discrete items, an increase from our prior guidance of 21.5%. Excluding Meritor, our capital expenditures in the quarter were $179 million, up from $150 million a year ago, and we're maintaining our full year guidance for capital expenditures to be in the range of $850 million to $900 million. We returned $245 million to shareholders through dividends and repurchase of shares in the third quarter, bringing our total cash returned to shareholders to $1 billion year-to-date. For the full year 2022, we still anticipate returning approximately 50% of operating cash flow to shareholders through dividends and share repurchases. And as I've already mentioned, we expect the Meritor revenues to be in the range of $1.7 billion to $1.9 billion for the five months of this year under our ownership, and EBITDA to be approximately 4.5%, including the impact of purchase accounting. In closing, I want to again reinforce that Cummins is in a strong position, growing our leadership in our core markets while setting up the company for a stronger future through investment in new products and capabilities. And we are adjusting our portfolio of businesses, all while returning cash to shareholders. We do expect to deliver stronger profitability in the fourth quarter as implied in our full year guidance. Thank you for your guidance today -- no, your interest today. My guidance, your interest. Thank you. Now let me turn it over to Chris. Christopher Clulow: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. If you have an additional question, please rejoin the queue. Operator, we are ready for our first question. Operator: Okay, our first question comes from Stephen Volkmann with Jefferies. Please state your question. Stephen Volkmann: Great. Good morning guys. Thank you. Mark, I'm interested in your guidance. Mark, you kind of have my head spinning here. I apologize for that, it's a busy day. But how are you going to report the next quarter in terms of Meritor? I assume that will be in the numbers, but you'll probably adjust out maybe the purchase accounting, I'm just trying to figure out sort of on a like-for-like basis, kind of how we're supposed to think about the next quarter? Mark Smith: Yes, so what we're trying to do and we realize it's complex for us also, there's a lot going on, Steve. So what we're trying to do is make clear how we're performing against our guidance in the Cummins business prior to the Meritor acquisition, which we lowered that guidance just to be clear and we'll try to be clear for the reasons why. And then we'll layer on the Meritor performance. So we're trying to give projections for both. We will report all in and then just as we've done this quarter in the earnings material, we'll break out the business pre-Meritor, Meritor separately, and the different elements so you can try and get a fuller picture and then next year, we'll move to the all-in reporting. But we will continue to provide details around Meritor, so that you can gain confidence that we're making progress on executing on the integration and growth of that business going forward. So the answer is yes, it's going to look similar in Q4 to this quarter. The noise from the purchase accounting will start to go -- will taper down next quarter and in subsequent quarters. But we're going to report with and without, so we're not reducing the visibility of our performance on either front. That's the main goal. Stephen Volkmann: Okay, all right, fair enough. Maybe just a quick switch then, we've seen a couple of months now of pretty amazing heavy truck orders in the United States, North America. And I'm curious kind of what you're hearing as you talk to customers and sort of the outlook longer term, I mean, are you guys starting to slot in deliveries for these big orders that we're seeing and just kind of any color that you can give us there would be great? Jennifer Rumsey: Yes, Steve. We continue to see strong heavy-duty customer order interest. The conversations that I have with both end customers and OEMs are around how we're working through supply constraints that continue to exist and increase production rates. And this has just not been a typical cycle, so all of those fundamentals for the business remain strong. We project that the market will remain strong into next year because they've been using the trucks at a high rate. They've not been able to replace at the level that they want to. And as well, these new trucks that are coming out, new powertrains have improved efficiency and as you see higher fuel prices, that's also attractive. So we continue to watch the broader economic indicators and what that may mean over time. Right now, we're continuing to work to increase production rates and see strong underlying demand. Stephen Volkmann: Okay, thanks. I will pass it on. Appreciate it. Jennifer Rumsey: Thanks Steve. Operator: Our next question comes from Jamie with Credit Suisse. Please state your question. Jamie Cook: Hi, good morning. I guess just two questions. The R&D is up considerably sequentially. So -- and I know we're continuing to invest, but I'm wondering if we should think about that as a new run rate, is R&D going to be structurally higher and sort of the implications for 2023? And I guess my same question is on the SG&A side, even if we back out the $15 million that hit SG&A because of the bonus, the onetime bonus that was also up materially .And I'm just trying to think about spend in the context of concerns on the macro, understanding your customers are still saying things are strong now, but are we taking any actions in the case the macro does weaken? Thank you. Jennifer Rumsey: Yes, great. Thanks, Jamie, for the question. Good to hear from you. We have, as you noted, taken up our R&D spend in particular in the Engine business and the New Power business where we have strategic investments in the fuel-agnostic platform and growing investments in electrolyzers and other key New Power technologies. And so we will continue to make those investments. And as we have in the past, we're going to manage through the cycles and improve performance, underlying financial performance of the company through the up and the down cycles while still making these key strategic investments that will position us to outgrow over time. We are looking closely at our priorities for next year. We are starting to more closely manage any headcount addition, so that we make sure that we're continuing to invest in key strategic areas while also managing those investments for potential downside scenarios. So we are more closely scrutinizing those priorities right now. Mark Smith: Yes, and I would just add to that. We have lowered our admin costs like three quarters in a row. There is a tremendous focus on trying to flatten our costs out there, in particular, the increase in the SG&A was really in the selling side, which is a lot of that's tied to our aftermarket business and the Power Systems business, which is [Technical Difficulty] engineering on with the upward pressure and these are under the other type of pressure. Jamie Cook: Okay, thank you. I appreciate it. Operator: Our next question comes from Rob with Melius Research. Please state your question. Robert Wertheimer: Thanks and hello, everybody. My question would be and I'm not sure it's an easy one to answer off the cuff. But when you look at your blended pricing on engines versus the OEM pricing on trucks across your customer base or if you wanted to specify North America, do you feel like you're caught up in that regard or do you have a couple of hundred bps to catch up? And could you lay out the time frame at which you would catch up if you think you are behind the OEM prices, which have a little bit more flexibility? Jennifer Rumsey: Yes, Rob, this is how I would describe it. Over -- since the start of 2021, what we've seen is supply challenges and inflation that has driven cost and inefficiency into our business. For 2022, we are expecting a 400 basis point improvement in price compared to a 230 basis point impact on cost. So we are ahead for the year when you think about that price/cost balance, and we're also working to make improvements in operating efficiency. And we continue to have work to do to get back to where we were at the start of 2021. And we're able to price more rapidly into our aftermarket business. But of course, where we've got high backlog in the Power Systems business or long-term contracts, right, that takes time to flow through as we negotiate with customers and that we have metal market and other contractual agreements that also flow through over time, but not immediately. Mark Smith: And just to confirm, the reason -- one of the reasons why we're ahead on price and material cost this year was, in fact, we bore a lot of those costs in the second half of 2021. Robert Wertheimer: Are you still there, Mark? Mark Smith: Yes, yes. Robert Wertheimer: Okay, sorry. Got it, got it. And then could you give a general comment on just supply chain, do you feel like we've peaked out on risk, China may be doing lockdowns again, so if you take that after globally how does the risk of upside/downside on cost and supply chain feel to you? And I'll stop there. Thanks. Jennifer Rumsey: Sure, on the supply chain side, we continue to see improvement and we also still have issues. So at this point, electronic component continues to be our biggest risk and disruptor. But as you said, there continue to be these dynamic lockdowns in China, congestion in certain ports that is more in the East Coast, more in Europe. And so we continue to see some supply chain disruption. So from where I sit, quarter-over-quarter it's been improving and we've been taking build rates up and able to drive some operational improvement, and those issues are not completely gone. And so that is, in part, influencing this continued expectation that we'll see improvement going into Q4 and into next year. Robert Wertheimer: Alright, thank you. Mark Smith: Thanks Rob. Operator: Our next question comes from David with Evercore. Please state your question. Mark Smith: David, you there? David Raso: Yes, I am. Sorry about that. Just so I can understand exactly the fourth quarter, sort of what you're adding back to 3Q, can you tell us what is your implied EBITDA margin for the fourth quarter, just so I can level set? Mark Smith: 15.5 ex Meritor. David Raso: So 15.5 for the fourth quarter? Mark Smith: Compared to core -- yes. David Raso: Then when I think about China, obviously, it's a big driver in the EBITDA margin, just given a lot of the truck business comes in as JV income. I know the consolidated aspect of construction activity there for your business. But obviously, truck, looking forward, how should we think about what you're seeing in China just from what you normally would see around Chinese New Year, obviously, with the Congress they just had their stimulus, a lot of things going on, I'm just curious, I thought Beijing Photon, in particular, was a little weaker than I would have thought, but I'm just curious what you're seeing on the truck side in particular? Mark Smith: No significant momentum at all there right now, Dave, so that's certainly not part of the improvement from Q3 to Q4. Jennifer Rumsey: Yeah, and as you noted, I mean, they just had -- the Congress elected Xi to third term. We typically see some seasonality in that market. It's difficult to predict at this point. So as Mark said, we're not projecting improvements through the end of the year. David Raso: And when it comes to the power gen business, and within that you obviously have some of the mining. Can you give us a little perspective, I mean, early look at 2023, how you're thinking about that business, just given the recent results were pretty healthy? Jennifer Rumsey: Yes, like the U.S. truck market, the Power Systems markets continue to remain strong. We have -- there's a large back order there so we're projecting strength going into next year. David Raso: Thank you very much. Mark Smith: Thanks David. Operator: Our next question comes from Jerry with Goldman Sachs. Please state your question. Jerry Revich: Yes, hi, good morning everyone. Mark Smith: Good morning Jerry. Jerry Revich: Hey Mark. I'm wondering if you folks can talk about, as we head into 2023, you've got a number of tailwinds in terms of electrolyzer production ramping up, the eAxles ramping up at Meritor and maybe some medium-duty engine production ramping based on your recent wins. Looking at the new product contribution 2023 versus 2022, can you just outline for us the magnitude of tailwind, it feels like the electrolyzer opportunity is tracking ahead of expectations, but maybe I can get you to expand on that, if you don't mind. Mark Smith: What I would say is, yes, we've got line of sight into improving demand in New Power business I would expect at this point in time without getting into specific numbers, both growth in battery electric systems and electrolyzer sales next year. So I think the momentum is going to continue in New Power. And then yes, we've got strong customer demand on the eAxle side. Again, I don't think that's going to be a dramatic change relative to a $27 billion company. But demand is strong. I've got clearest visibility into the New Power side right now. Jennifer Rumsey: Yes, and on the electrolyzers, as I talked about some of the investment in production capacity. So we're in the early stages of building up that production capacity, building up the backlog. It's going to be lumpy at this point, and it's going to grow, as Mark said, over time. And we still feel really good. In fact, the Inflation Reduction Act and the climate provisions around that are strengthening the hydrogen outlook in the U.S. Jerry Revich: Super. And can I ask, the initial customer response on the Meritor integration. Can you talk about what those conversations have been like, particularly as it pertains to selling eAxle and conventional axles to traditional Cummins customers that haven't been Meritor customers? And if you could touch on within the Meritor margin guidance, what's the inventory step-up that's embedded, that's depressing results looks like by at least two points, but I'm wondering if you could outline that relative to the full year guide on Slide 14 for Meritor? Thanks. Jennifer Rumsey: Yes, we're obviously in the early days of integrating the Meritor business, excited to have that as part of us, starting to have conversations with customers at a strategic level. And it's a positive for them that we have added Meritor to our portfolio and can talk about how we're serving them both in the core businesses and New Power business going forward. Early days and those conversations are both on operational and supply as well as the strategic opportunities that we have. Mark Smith: Yes, a lot of focus on demand and delivery right now as there is in other parts of our business, Jerry. So we aren't short of demand. We need to keep raising those production rates. Christopher Clulow: And Jerry, on your question on the inventory step-up and there's a good reconciliation in the earnings deck, which talks through the complicated picture that is Meritor for this quarter. It's about $32 million was the impact in the third quarter of that inventory step-up. Jerry Revich: Any in the fourth, Chris? Christopher Clulow: Just a small bit. Most of that inventory burns off quickly as you would expect, Jerry. Jerry Revich: Super, thank you. Operator: Our next question comes from Tami with J.P. Morgan. Please state your question. Tami Zakaria: Hi, good morning. Thank you for taking my questions. So I have a couple of modeling questions. So my first question is, I saw in your presentation that Meritor's GAAP EBITDA rate I think you said, was 4.5%. And so can you help us with what it would have been on a non-GAAP basis because as we think about incorporating Meritor in our model, let's say for next year, what non-GAAP EBITDA rate should we be using and do you expect that rate to improve over the next few years just to better integrate that business? Christopher Clulow: Yes. So let me try to unpack that a little bit. So the U.S. GAAP results essentially for Meritor at itself was essentially breakeven in the second quarter. And as Jen mentioned, our guidance for the full year for 2022 is about 4.5%. So that implies the U.S. GAAP, when you take out -- including the purchase accounting in Q2 and a little bit in Q3, implies an EBITDA of about 9% in the fourth quarter and that was up from, if you take out some of the noise in the third quarter, that was approximately 7.3% operating EBITDA. So we're seeing a step-up there. And then we would continue to -- as we go towards the future, continue to drive improvement there, both through the synergies we gain as well as other improvements in the business. So that gives you some view of kind of the trajectory there. I'm happy to talk through more separately, if you like. Mark Smith: But also the performance in the short run, of course, is going to be dependent on the market. And we'll give you all of those elements, both in the Q4 and as we get to next year. I realize it's messy and appreciate everyone's patience as we've tried to work out the best disclosures to give you all this information. We'll continue to err on the side of sharing more and not less to make it as clear as possible. Tami Zakaria: Got it. That's super helpful. And another quick one from me from a modeling perspective, the bonus that you gave to employees this quarter, as we lap it next year, we should be treating it as one-off for now, right? Mark Smith: Yes, it won't be present even in the fourth quarter results and that's one of the factors why our EBITDA margins will -- not the only factor but one of the factors why our margins will be better in the fourth quarter. Tami Zakaria: Okay, awesome, great. Thank you so much. Mark Smith: Thanks Tami. Operator: Our next question comes from Steven with UBS. Please state your question. Steven Fisher : Thanks, good morning. So lots of puts and takes, but just to kind of summarize at a high level, is the overall message that basically your power gen business is a bit better than you're expecting, China is a bit worse and the China drag is just kind of a bit bigger than you have the benefit from power gen and you have slightly higher investments in New Power, I mean, is that sort of the key summary of it of the core business? And then you gave the 15.5% margin implied for Q4. Is there any bridge you can give us from Q3 EBITDA to Q4, I know you just mentioned, obviously, the $56 million of employee costs, is there any other sort of just direct bridge you can give us to help go from Q3 to Q4? Mark Smith: Yes, there are really three core elements to that bridge, Steve: the bonus we've mentioned, a little bit of improvement in pricing from Q3 to Q4; and then we did have some operational challenges concentrated in one or two areas and we expect those to improve. And those three elements are the key drivers of the margin rebound. No improvement in China baked in, no significant increase in expenses expected in the fourth quarter. Steven Fisher : Okay. And would you agree with that sort of the summary I gave of kind of what the main puts and takes of the core business were? Mark Smith: Yes. And the only other thing is we continue to incur these mark-to-market losses so we didn't call them out. At some point, that will stabilize and rebound. Those were present in the third quarter but at a lower rate than in the second quarter. So that's noise in the other income line. Steven Fisher : Okay. That's very helpful. And then just in terms of the heavy-duty truck market in North America, I'm curious how much visibility you have to the second half of 2023 at this point. I know you talked earlier about the order strength. I guess I'm just curious how far into 2023 the OEMs have given you their work plans and the confidence you have there relative to the first half? Thank you. Jennifer Rumsey: Yes, I mean we are of course talking about outlook and forecast with our OEM customers and staying close to them on that. At this point, we've got about a nine-month backlog based on strong orders in September and October. And we'll continue to stay close to them to watch how that outlook evolves in the second half of the year. Steven Fisher : Perfect, thank you. Mark Smith: Thanks Steve. Operator: Our next question comes from Matt with Cowen. Please state your question. Matthew Elkott: Good morning, thank you. Can you just talk about the rationale behind doing a onetime bonus rather than further pay increases, I mean, is it that just you didn't want to lock in to pay increases ahead of a possible moderation of labor costs overall in the economy or did something specific happen in the quarter that made it necessary to do the bonus in order to not have a lot of attrition? Jennifer Rumsey: Yes, really it was more of the latter. So of course, we're always looking at pay and what's happening with the market as it relates to labor costs. But really, we felt very strongly that given the tremendous effort of our employees over the last 18 months to deliver revenue at the level we did and work through all of the supply chain challenges and continue to commit to deliver key strategic growth initiatives, and given the environment where they are experiencing higher inflation, the impact to them, and the labor market is tighter. We felt that this onetime recognition was very appropriate to show appreciation, to mitigate attrition, and really motivate people to be connected to delivering and continuing to deliver for the company. Matthew Elkott: Got it, makes sense. And then just a bigger picture question. You're expecting strong demand in mining and oil and gas for the rest of the year. Does it look like this momentum should continue into 2023? And on the mining side, does it look like the -- this demand is being driven by equipment replacement, I know we had equipment replacement cycle threatening to happen for the last decade, and it's been false starts, does it look to you guys like this time, it could be a multiyear replacement cycle on the mining side? Jennifer Rumsey: Yes, we do see that demand continuing into next year. Of course, in oil and gas with the energy challenges, there's a lot of demand to invest there. And we'll have to continue to monitor those economic indicators over time. But right now in both of those markets, we continue to see strong demand holding into 2023. Mark Smith: Yes, we're pretty much sold out for this year. There are some regional factors, increased coal production in India. There's some local factors as well as the overall security and availability of energy across borders. Matthew Elkott: Thanks very much. Jennifer Rumsey: Thank you. Operator: Our next question comes from Noah with Oppenheimer. Please state your question. Noah Kaye: Alright, thanks for taking my questions. Just sticking with Off-Highway first. You mentioned that it's really the engine sales to some of the construction customers in North America, that growth being driven by CAPEX from rental companies and pricing. Have you started to see any benefits kicking in from IIJA yet, is that sort of a demand tailwind for 2023 or potentially beyond? Jennifer Rumsey: Yes. I mean, the Inflation Reduction Act is going to drive investment in infrastructure to support some of these clean energy technology. So we expect, over time, we'll see increased electrolyzer demand, as I alluded to earlier, and that could also provide benefit to underlying construction demand in the U.S. It's early, right, to actually see the specific impact of that. But certainly, it should provide a positive benefit. Noah Kaye: Sorry, I know we've had a lot of legislation out of Washington. I was talking about the IIJA, the Infrastructure Bill. Jennifer Rumsey: Sorry. Did I respond on the wrong one? Noah Kaye: Yes. It sounds you have multiple shots on goal, but just wondering if you can talk through kind of any impact from the Infrastructure Bill so far? Christopher Clulow: Yes, thanks, Noah. I think the Infrastructure Bill is similar -- actually it's having a very similar outcome, whereas obviously, the IRA is driving more into the New Power space. We are seeing some good momentum in that space. And we benefit that whether through the rental companies or some of the other construction equipment in North America has remained strong through this year and is carrying forward that momentum as those -- we continue to build out and there's a lot of work to be done, as you know. So that is certainly helping us. Noah Kaye: Okay, great. And then I know a couple of folks have asked about Meritor impact going forward for next year. So I know we won't be precise here, but just for everybody's modeling, as we think about Components margin, I mean you annualized this year 7.5% EBITDA margin, add some synergies capture and some growth, it's still going to be a margin headwind in Components of probably a couple of hundred bps, right, as we look at 2023, is that a good starting point? Mark Smith: Yes. On a percentage basis, it's clearly going to be dilutive in the early part of the ownership and the goal is to keep working that up over time. Noah Kaye: And any early color on the cadence of the synergies capture that you can give us? Mark Smith: No. I mean, we're working on that. We've got teams dedicated to that, working on that every day. Still feel confident about the numbers we gave earlier of $130 million pretax by year three. And I will say we're finding some other synergies as well in taxes and other things that are not included there. But lot of work still ahead of us, a lot of good progress to start and, of course, integrating the employees, that's a lot of work but we're off to a good start. I will say the business -- that business is also very busy with demand and supply challenges just as we are in our core. So we very much appreciate the hard work of the employees. We're listening towards driving synergies and improvement in their operations. They're all very busy and we appreciate that. Noah Kaye: Okay, thanks so much for the color. Mark Smith: Thanks Noah. Operator: That was our final question, and that concludes the Q&A session of this call. I'll turn it back over to Chris for closing remarks. Christopher Clulow: Thank you, everyone -- much, everyone, for joining. As always, we will be available this afternoon to answer any questions that you may have from the Investor Relations perspective, and I appreciate your attendance today. Thank you. Operator: Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time, and have a great day.

Operator: Greetings, and welcome to the Q2 2022 Cummins Inc. Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Clulow, Vice President, Investor Relations. Please go ahead, sir. Christopher Clulow: Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the second quarter of 2022. Participating with me today are Tom Linebarger, our Executive Chairman; Jen Rumsey, our President and Chief Executive Officer; and Mark Smith, our Chief Financial Officer. We will all be available to answer questions at the end of the teleconference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in the slide deck and our filings with the Securities and Exchange Commission, particularly the risk factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. During the course of this call, we will be discussing certain non-GAAP financial measures, and we'll refer you to our website for the reconciliation of these measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website within the Investor Relations section at cummins.com. With that out of the way, I will turn you over to our Executive Chairman, Tom Linebarger one more time. Thanks. Thomas Linebarger: Thank you, Chris. Brilliant. Good morning, everybody. I just -- I had to start by telling you about some rough math I did before I walked in today. And I believe this is my 70th earnings call. It's also going to be my last. I'm very grateful to the analysts and investors who are part of this journey with me. Many of you help me better understand the perspective of our shareholders, which influenced how we ran the company, how we developed our strategies and priorities, and how we communicated about our results and plans for the future. I always try to ensure that the senior leaders in the company understood your views and perspectives, and they understood who they were really working for. Some of you have been at this work almost as long as I have, and your commitment to understanding our company and its potential has been remarkable. I just want you to know that it meant a lot to me. I'm very proud to have served as the CEO for this company for 10 years, as a senior executive for more than 20 years. It was an honor and a privilege. This company stands for more than its products and technology, its revenue or its earnings, and even its performance for customers all over the world. The people that work here are exceptional humans, not just exceptional workers. That's why this transition was so important to me. It is perhaps the most important work of my entire career. And I have a smile a mile wide today because of the quality of the individual that replaces me and the strength of the team beneath her. Jennifer Rumsey is a once in a generation leader. She combines the leadership and technical skills needed, with the characters and values required and the inspiration of a CEO that can take this company to places where I could not. I'm as proud as I was on the day I took the job to see her succeed me. Jen? Jennifer Rumsey: Thank you, Tom. Good morning. I'm excited to join you this morning in this new capacity as President and CEO for Cummins. In July, we announced that Tom would end his term as CEO effective August 1. It is a bittersweet moment for me as he's been one of the most significant influences in my career and leadership. Tom has been an incredible leader for this company and a true partner and coach to me. Because of his leadership, we are in a strong position to navigate what comes next and execute our Destination Zero strategy. Tom and I share a common vision for Cummins and the role that our company plays empowering a more prosperous world. I feel deeply honored and proud to serve as the new CEO of Cummins, the first woman and just the seventh CEO of this great company. My life and leadership have prepared me for this role at this moment during the critical period for Cummins and our planet. A focus on purpose, people and impact has shaped my career and will influence how I lead. I look forward to working with all of you as we move forward. I'll start with a summary of our second quarter financial results. Then I will discuss our sales and end market trends by region. And I will finish with a discussion of our outlook for 2022. Mark will then take you through more details of both our second quarter financial performance and our forecast for the year. Before getting into the detail on our performance, I wanted to take a moment to highlight a few major events from the second quarter. The company achieved significant milestones related to 2 previously announced acquisitions: Jacobs Vehicle Systems, or JVS, and Meritor. In April, Cummins completed the acquisition of JVS, adding engine braking, cylinder deactivation, start-stop control and thermal management technologies, which are key components to meeting current and future emissions regulations. On May 26, Meritor's shareholders voted in favor of the Cummins acquisition bid, further validating the potential of what Cummins and Meritor can achieve together. The companies are working together to complete the acquisition this week as we have received all regulatory approvals to close the transaction. During the second quarter, Cummins announced collaborations with Daimler Truck, North America and Scania to deliver fuel cell electric powertrains for heavy-duty truck applications and with Komatsu on development of zero-emission haulage equipment, including hydrogen fuel cell solutions for large mining haul truck applications. Cummins, Chevron and Walmart also share plans to integrate Cummins X15N natural gas engines, powered by renewable natural gas into Walmart's heavy-duty truck fleet. These customer collaborations are significant steps in alignment with our Destination Zero strategy to evolve our company, our products and our customers' products to the technologies needed for a decarbonized world. This strategy, which represents a significant growth opportunity for Cummins, includes reducing carbon emissions now by making improvements in engine-based solutions that are broadly available today while rapidly advancing the 0 emissions technologies of the future. We continue to focus on our people and their development as a strategic advantage for the company. In the second quarter, the company posted its first human capital management report, detailing our commitment to creating and maintaining a dynamic and exciting work environment for our employees. Now I will comment on the overall company performance for the second quarter of 2022 and cover some of our key markets, starting with North America before moving on to our largest international markets. Demand for our products remained strong across all of our key markets and regions, with the notable exception of China, resulting in record revenues in the second quarter. Revenues for the second quarter of 2022 were $6.6 billion, an increase of 8% compared to the second quarter of 2021. EBITDA was $1.1 billion or 16% compared to $974 million or 15.9% a year ago. Second quarter results included costs of $29 million related to the preparations for the separation of the Filtration business. As discussed previously, we recorded a charge of $158 million in the first quarter related to the indefinite suspension of our operations in Russia. In the second quarter, received certain inventory and other expense amounts reserved previously and incurred some small additional charges, resulting in a net recovery of $47 million. Adjusting for these items, EBITDA was $1 billion or 15.7% of sales. My comments moving forward will exclude the financial impact of the suspension of our Russia operations and the costs associated with the separation of our Filtration business. EBITDA percentage declined in the second quarter as strength in sales and increased gross margin were offset by a 31% drop in joint venture income from the second quarter of 2021, driven primarily by the slowdown in China markets. Research and development expenses also increased slightly in the second quarter of 2022 as we continued to invest in products and technologies that will create advantage in the future, particularly in the engine and new power segment. Gross margin percentage improved compared to second quarter of 2021 as the benefit of pricing and higher volumes exceeded the manufacturing, logistics and materials cost increases during the quarter. This pricing only partially offset the impact of elevated supply chain and other inflationary costs that we carried through from 2021 and experienced in the first half of 2022. Our second quarter revenues in North America grew 15% to $4 billion, driven by improved pricing, higher volumes and higher aftermarket demand. Industry production of heavy-duty trucks in the second quarter was 62,000 units, up 9% from 2021 levels, while our heavy-duty unit sales were 26,000, up 12% from 2021. Industry production of medium-duty trucks was 30,000 units in the second quarter of 2022, an increase of 5% from the 2021 levels, while our unit sales were 27,000, up 21% from 2021. We shipped 38,000 engines to [indiscernible] for the use on the Ram pickups in the second quarter of 2022, down 9% from 2021 levels due to supply chain issues, which temporarily limited truck production. Engine sales to construction customers in North America increased by 9% as other companies maintained strong capital spending. Power Systems North America sales were flat compared to 2021 as strength in aftermarket offset lower volumes. Demand remains high in North America markets for Power Systems, but revenues for North America power generation declined by 3% as supply chain constraints limited our production for both U.S. military and mobile power applications. Our international revenues decreased by 2% in the second quarter of 2022 compared to a year ago. Second quarter revenues in China, including joint ventures, were $1.2 billion, a decrease of 43% due to lower sales in the on-highway and construction markets. Industry demand for medium- and heavy-duty trucks in China was 173,000 units, a decrease of 70% from 2021. Last year's numbers were strong, supported by a prebuy ahead of NS VI. But weaker new vehicle demand and economic impacts from shutdowns as the country is responding to a COVID-19 resurgence have pushed the market to the lowest level since 2007. Our sales and units, including joint ventures, were 25,000, a decrease of 70% despite the very difficult environment in China. We did see growth in some of our power systems markets, particularly mining and oil and gas. The light-duty market in China decreased 38% from 2021 levels to 380,000 units. While our units sold, including joint ventures, were 23,000, a decrease of 40%. Industry demand for excavators in the second quarter was 66,000 units, a decrease of 32% from 2021 levels. The decrease was driven by declining demand within the property market and the COVID-19 impact on infrastructure demand. Our units sold were 9,900 units, a decrease of 41%. Sales of power generation equipment in China decreased 5% in the second quarter due to the economic impacts of the COVID-19 resurgence. Second quarter revenues in India, including joint ventures, were a record $594 million, an increase of 51% from the second quarter a year ago. Industry truck production increased by 131%, while our shipments increased 78%, lagging the industry production due to lower growth in the heavy commercial vehicle segment. The high level of growth in the second quarter is coming off a very low base when India was experiencing a COVID-19 peak in 2021. Demand for power generation and construction equipment increased in the second quarter as economic activity continued to improve. In Brazil, our revenue increased 7%, driven by improved demand in most end markets. Now let me provide our outlook for 2022, including some comments on individual regions and end markets. Based on our current forecast, we are maintaining full year 2022 revenue guidance of up 8% versus last year. This guidance reflects stronger performance in North America and a weaker market outlook in China as well as the indefinite suspension of our operations in Russia. We are forecasting higher demand in global oil and gas and power generation markets and expect aftermarket revenues to increase compared with 2021. We are maintaining our forecast for heavy-duty trucks in North America to be 250,000 units to 260,000 units in 2022, a 10% to 15% increase over a year ago. The supply chain constraints our industry is experiencing continue to limit our collective ability to fully meet strong end customer demand. In North America medium-duty truck market, we are continuing to project the market size to be 120,000 to 130,000 units, a 5% to 10% increase from 2021. We are now projecting our engine shipments for pickup trucks in North America to be flat compared to 2021, an update to our previous guidance down 5%. In China, we are now projecting total revenue, including joint ventures, to decrease 20% to 25% in 2022, an update to our previous guidance of down 10%. We now project a 50% reduction in the heavy and medium-duty truck demand and a 15% reduction in demand for the light-duty truck market compared to a 40% decline and a 12% reduction, respectively, in our previous guidance. Industry sales of excavators in China are expected to decline 30% from record levels in 2021, consistent with our prior guidance. Despite the difficult economic and market environment in China, we have significantly improved our presence and profitability in the region compared to private -- prior cycles and are well positioned for continued outgrowth across our end markets in the region. As an illustration from 2019 to 2022, the demand for heavy and medium-duty trucks is projected to be down 40%, while across the same period, we are forecasting an increase in earnings from joint ventures in China. As we look ahead, industry volume of NF VI product will increase through 2022 as the new regulations are implemented more broadly. Our technological expertise and emissions experience positions us well to continue to outgrow the market and support our partners through this transition. We also continue to ramp production and expand our presence in automated manual transmissions as our market share increases and the heavy-duty market is increasingly adopting this technology. In India, we project total revenue, including joint ventures to increase 15% in 2022, an improvement from our previous guidance of up 10%. We expect industry demand for trucks to increase approximately 30% in 2022. We continue to project most major global high horsepower markets will improve in 2022. Sales of mining engines are expected to be flat in 2022 compared to the prior year, consistent with previous guidance. Demand for new oil and gas engines is expected to increase by 120%, an update from our previous guidance of up 95%. Strong demand in the U.S. and other oil and gas markets have fueled this improved outlook. Revenue in global power generation markets are expected to increase 5%, driven by increases in nonresidential construction, consistent with our prior guidance. We are now projecting aftermarket sales to increase 15% to 20% from 2021, an improvement from our previous estimate of up 15%. This is driven by parts demand within our North America On-Highway business as well as global Power Systems markets. In New Power, we continue to expect full year sales to be approximately $200 million. We have a growing pipeline of electrolyzers, which we expect to convert to backlog and be delivered over the course of the next 12 to 18 months. Additionally, we will continue to accelerate our collaboration with OEMs on both electrified power and fuel cells for applications in 2022 as highlighted by the announcements I noted previously. We are maintaining our full year 2022 EBITDA guidance of approximately 15.5%, excluding the impacts of the indefinite suspension of our operations in Russia, the costs associated with preparing for the expected separation of our filtration business and the expected costs associated with the pending acquisition of Meritor. We expect to deliver the strong profitability despite the supply chain constraints and rising inflationary costs that we are experiencing. During the quarter, we returned $240 million to shareholders in the form of dividends and share repurchases, consistent with our plan to return approximately 50% of operating cash flow to shareholders for the year. Strong execution resulted in record sales in the quarter despite very difficult operating environment. The ongoing supply chain constraints and rising costs throughout the industry, continued COVID-19-related impacts and the effect of the conflict in Ukraine all present challenges to operating our business. I am grateful for the commitment of our employees across the organization who have worked tirelessly to overcome these challenges. Their efforts resulted in a strong quarter, enabling us to support our customers while generating solid returns. Cummins is in an excellent position to continue to execute our Destination Zero strategy, invest in the products and technologies that will fund future growth and drive advantage for our customers. We will accomplish this while generating strong financial results and meeting our commitment to return cash to shareholders. It's an exciting time to become CEO. Thank you for joining us today. Now let me turn it over to Mark. Mark Smith: Thank you, Jen, and good morning, everyone. We delivered strong results in the second quarter, especially in the context of a challenging global business environment. As Jen mentioned, our second quarter results included a $47 million benefit from adjusting the reserves related to the suspension of our operations in Russia and $29 million of costs related to the separation of the Filtration business. To provide clarity on operational performance, I'm going to exclude the impact of these items in my comments. We have provided a breakdown of the costs associated with Russia and the filtration separation costs by line item and by segment in our earnings material to help you understand the underlying performance more clearly. Now let me go into more details on the second quarter performance. Second quarter revenues of $6.6 billion were up 8% from a year ago. Sales in North America were up 15%, while international revenues declined by 2% due to a sharp slowdown in China. Foreign currency fluctuations, primarily a stronger U.S. dollar, reduced sales by 1%. EBITDA was $1 billion or 15.7% of sales for the quarter compared to $974 million or 15.9% a year ago. The lower EBITDA percent was driven primarily by negative other income and lower joint venture earnings in China. Gross margins improved year-over-year and from the first quarter. Now let me go into more detail by line item. Gross margin of $1.7 billion or 25.6% of sales increased by $208 million or 140 basis points. The benefits of stronger volumes and higher pricing more than offset higher freight and material costs for this quarter. Of course, we have been facing increased costs for an extended period of time. And now our gross margins have returned back to 2019 of pre-COVID levels. Selling, admin and research expenses increased by $16 million or 2%, primarily due to higher research costs supporting future growth, partially offset by lower variable compensation expense. Joint venture income declined by $42 million versus a year ago. Lower demand for trucks and construction equipment in China was the primary driver of the decline in earnings. Other income was a negative $18 million, $87 million worse than a year ago. We experienced $48 million of mark-to-market losses on investments that underpin our unqualified benefit plans in the second quarter, and this compares to gains of $20 million a year ago. This variation in this one category explains most of the change in other income. Net earnings for the quarter were $678 million or $4.77 per diluted share compared to $600 million or $4.10 from a year ago. The earnings per share increased due to higher earnings, lower taxes and a reduced share count resulting from share repurchase activity. The all-in effective tax rate in the second quarter was 17.3%, including $36 million or $0.25 per diluted share of favorable discrete items. Operating cash flow in the quarter was an inflow of $599 million compared to $616 million a year ago. I will now comment on segment performance and our guidance for 2022. For the Engine segment, second quarter revenues increased 11% from a year ago, while EBITDA decreased from 16.1% of sales to 15.2% of sales, as the benefits of stronger volumes and pricing actions in our consolidated earnings were more than offset by lower joint venture income in China. In 2022, we expect the revenues to be up 10%, up 2% from our prior guidance. The increase in sales primarily driven by higher demand for engines and parts in North America. 2022 EBITDA is projected to be approximately 14.5%, in line with our prior guidance. In the Distribution segment, revenues increased 17% from a year ago to $2.3 billion, a record quarter for the segment. EBITDA increased as a percent of sales to 11.2% compared to 10.5% sales a year ago, primarily due to stronger parts, whole goods, and sales and pricing actions. We expect 2022 Distribution revenues to be up 11% year-over-year and EBITDA margins in the range of 10.5% of sales, both in line with our prior guidance. Components segment revenue decreased 2% in the second quarter, primarily driven by weaker demand in China. EBITDA increased from 15.1% of sales to 18.2% of sales, driven by the benefits of pricing actions which offset material cost increases and lower warranty expense. We expect revenues to increase 3% for the year, down from an increase of 6% in our prior guidance, primarily to a lower outlook in China. EBITDA margin is expected to be 16.75% of sales, in line with our prior guidance. In the Power Systems segment, revenues increased 5% and EBITDA decreased from 12.2% to 10.6% of sales, as the benefit of stronger volumes and pricing were more than offset by higher material and logistics expenses. In 2022, we expect revenues to be up 8% and EBITDA is projected to be approximately 11% for Power Systems, unchanged from our prior year guidance. In the New Power segment, revenues were $42 million, up 75% from a year ago due to stronger demand for battery electric systems. Our EBITDA loss was $80 million in the quarter, as we continue to invest in the products infrastructure and capabilities to support future growth and was in line with our expectations. In 2022, we still expect revenues for the New Power business to be approximately $200 million, up 72%. And net EBITDA losses are still expected to be in the range of $290 million for New Power, also unchanged from our prior guidance. As Jen mentioned, we are maintaining our '22 expectations of company revenues to be up 8% and our EBITDA margins of approximately 15.5% of sales. This guidance excludes expenses outside of the normal course of business associated with the separation of the Filtration business, the pending acquisition of Meritor or the indefinite suspension of our operations in Russia. We expect earnings from joint ventures to decline 25% in 2022, excluding the impact of suspension of our business in Russia. And this is down from our prior guide of a decline of 20% due to continued weakness -- or further weakness, in fact, in the China truck market. We are projecting our effective tax rate to be approximately 21.5% for this year, excluding discrete items. Capital expenditures were $147 million in the quarter, up from $125 million a year ago. We still expect that our full year capital investments will be in the range of $850 million to $900 million. We returned $240 million to shareholders through dividends and repurchase of shares in the second quarter, bringing our total cash returns of $758 million for the first half of the year. We still anticipate returning approximately 50% of operating cash flow to shareholders in the form of dividends and share repurchases. While high inflation and rising global interest rates present risks to global economic growth, we did not experience any significant changes in aggregate demand from our customers over the past quarter. Our focus remains on raising financial performance cycle-over-cycle in our core business, while investing in technologies that will deliver future profitable growth, including in new markets, new applications and with new customers. We continue to advance our strategy in the second quarter, delivered record quarterly revenues and earnings per share, and recently announced an 8% increase in our quarterly cash dividend, the 13th straight year of dividend increases. Thank you for your interest today. Now let me turn it back over to Chris. Christopher Clulow: Thank you, Mark. [Operator Instructions]. Operator, we're ready for our first question. Operator: [Operator Instructions]. Our first question is from Jerry Revich with Goldman Sachs. Jerry Revich: Tom and Jen, congratulations. Jennifer Rumsey: Thanks, Jerry. Jerry Revich: So Tom, over those 70 earnings calls, I just want to add some rough math, too. So the earnings power of Cummins is up about sevenfold. So congratulations to you and the team here. Thomas Linebarger: Thank you, Jerry. Jerry Revich: I'm wondering if you could just talk about the supply chain environment. You folks are sending a lot more via airfreight than you do in a normal environment. I'm wondering if you could just flesh that out for us. What proportion of your shipments are now airfreight versus in a normal environment? And how should we think about, whenever demand does slow, what decremental margins might look like given the step down that we see in expedited freight in that environment? Jennifer Rumsey: Great. Thanks, Jerry. Yes, we continue to experience an environment where supply chain is limiting our production in most of our markets. And as you've seen, the team here has worked really hard to navigate that and continue to deliver as much product as we can to our customers who are also experiencing issues. Some of those issues have lessened. We continue however to experience constraints, in particular, in the electronics space, microprocessors and other electronic components. We've seen improvement in our premium freight and also are closely monitoring what's going on with the standard freight rates. So while we have some improvement off the peak, we're still running at high levels as we continue to navigate disruptions caused by a combination of supply constraints and COVID-related disruptions. Jerry Revich: I was just going to ask you if it's possible to quantify how much higher than is the normal? Mark Smith: Well, at one point, last year, we were running probably 4x the normal level of premium freight, and that's come down. It has been that we've seen sequential improvement over the last 3 or 4 quarters, but we're still running 2x to 3x kind of extra costs right now. And then you'd asked about decremental margins, Jerry, in the event there's a slowdown. What I would say to you is we have to embrace these cycles when they come. We have a very experienced team that's navigated through several of them. I'm very proud of our record of raising cycle-over-cycle performance at the peak and trough. I can't give you exact decremental margins, but know that we will adjust plan outcome to operate the wells to continue to as and when the next cycle comes. That's all I can say really at this point. Jerry Revich: Got it. And just lastly, normally, your margins tend to be down in the third quarter versus second quarter seasonally. I'm wondering given the supply chain, the dynamic that we have here, could we actually see margins flat up for you folks sequentially depending on how supply chain performs? Mark Smith: I think the biggest challenge in the second half -- well, it's baked into our guidance, is that we see a drop-off in earnings in China. We typically see about a 25% to 30% lower JV income in the second half of the year, and we're projecting that again. You've heard from some of our important customers what their trajectory looks like on the top line going into the third quarter. Yes, there's still a lot of moving parts, still a lot of challenges we're working through. We've maintained our full year guidance. We're slightly behind the EBITDA percent for the full year through the first half of the year, but we're on track, not expecting extraordinary variation, at least from what we know today. Operator: Our next question is from Tim Thein with Citigroup. Timothy Thein: Yes. Tom and Jen, congrats to you both. Yes. And Tom, I trust you'll be dialing into that 71st call, just so you can hear Chris read through the legal disclaimer. Thomas Linebarger: No question about it. Timothy Thein: Yes. So yes, Tom, maybe one for you, just higher level. Obviously, you've observed a number of cycles during your time. And I'm just curious, you mentioned that you guys weren't seeing anything of note. But obviously, there's a lot of broader concerns regarding the potential for either a recession is here or on our doorstep. And I'm just curious, if you have conversations with customers, what would you be alerting the team for in terms of signposts or indications of -- if that begins to, in fact, come through, where would you be watching? And what kind of, again, signals would you be kind of leading the team for? Thomas Linebarger: Thanks, Tim. And I have been through a lot of these, and this is an unusual one, there's no question about it. But I'm going to flip it back to Jen just because in terms of conversations with customers about where they are, Jen's actually been doing more of those than I have. But I would say that -- I just kind of repeat the point Mark made. It is an unusual period and it has been an unusual cycle. And I think our team has continued to figure out ways to adapt to it, and I think we will here too. But make no mistake, a lot of us in the industry are trying to figure things out that we haven't faced before, labor shortages, part shortages over extended periods and things like that, I think you've heard from Jen. But let me just turn it back to her for kind of your perspective, Jen, of the customers and what they're looking at. Jennifer Rumsey: Yes. Great, great. Thanks, Tom. As Mark and Tom have said, we're in a cyclical business. We have a strong team that understands how to navigate and manage over the cycles and use the cycles to strengthen the business and emerge stronger. And this is not a typical cycle because, coming out of the COVID-19 -- early part of COVID-19 pandemic, we have seen really strong demand that has been constrained by supply chain constraints across the industry. And we have been unable to meet our collective customer demand in these markets outside of China. That have been strong now for 18 months. You see that showing up in very high aftermarket demand as well as customers have been using these products heavily and had higher parts demand as they worked to keep them running. So despite the fact that we do see some decrease in spot rates, some reduction off of really high indicators, when I talk to customers and look at some of these backlogs and freight activity, it's still very strong. And they still would like us to supply more than we're able to. So the conversations are all focused on where are we at with supply constraints and can we ship more to them. We continue to monitor those overall indicators. At this point, end customer demand is strong. Aftermarket demand is strong. Used truck prices continue to be elevated. And also recall, with higher fuel prices, these more fuel-efficient, next-generation products are attractive to customers. And so we'll continue to stay close to it and monitor what happens. But right now, we see supply being the constraint through this year outside of China. Operator: Our next question is with Jamie Cook with Credit Crédit Suisse. Jamie Cook: Congrats, Jennifer. And congrats, Tom, and thank you for all the support throughout the years. I wish you well. And I'm sure you're going to miss all our very insightful questions on earnings calls. I guess, Jennifer, my first question for you, understanding that you and Tom have been working closely together, and you co the Destination Zero strategy. You both obviously worked closely with and have buy-in. But sort of every CEO puts their own sort of stamp on a company. So just sort of -- as you're thinking about leading the company, sort of maybe nuances or differences relative to Tom or how you're thinking about the company just slightly differently? And then I guess just my second question, and I'll -- Jennifer, this is for you or for Mark. It's probably unfair, but I'll ask it anyway. Understanding you can't control a downturn if we have one, but I feel like Cummins' downturn theoretically in 2023 could be different as you think about, one, we have -- we're adding Meritor, you have market share wins. I guess we won't have the Filtration business. And maybe China is actually okay in this downturn because we're still -- the markets are depressed. So any way you want to sort of put buckets around how that could be additive to a normal downturn? Sorry for an unfair first question, Jennifer. Jennifer Rumsey: Thank you, Jamie. Appreciate the question. And as you noted, Tom and I have developed the Destination Zero strategy together. I've been a member of the Cummins leadership team now for more than 7 years as Chief Technical Officer, leading the Components business, Chief Operating Officer, and now CEO. So the strategy, the focus of the company going forward remains the same. The commitment to all of our stakeholders to deliver strong results, to really create strategic advantage to our people will continue. I think the big difference is just that, as we continue to operate in this evolving environment, paying attention to how markets are evolving, technologies are evolving, integration of Meritor, major new company, I'm going to be thinking a lot about strategic execution, and what does that mean for different parts of our business as our strategy evolves and paying attention to a more dynamic environment. And that's one of the reasons why I've kept the President role in addition to CEO is to stay close to the businesses as we focus not only on continuing to refine that strategy, but really driving strategic execution and delivering results. As it relates to next year, we'll, of course, talk later more about next year. You've heard us say we see supply being the limiting factor through this year. Backlog is strong. China is down, and will improve, right? There's a lot of opportunity to improve. And Cummins is very well positioned. Our products are performing very well. The customer demand for that product is strong. We have new partnership opportunities in the core business and in New Power. And we'll continue to invest in products that will position the company for the future and manage through the cycles as they come. Thomas Linebarger: And by the way, I'll miss you, Jamie. Jamie Cook: No. I mean, that's fine. I was just wondering, too, I mean, the incremental market brings more opportunities and also the Meritor, some of these market share wins start to help in 2023? If you want to answer, fine, if not, that's fine. I can get back in queue. Mark Smith: I think you just described most of my work plan from Tom, we'll be working on all of those. Thank you. Operator: Our next question is from Steven Fisher with UBS. Steven Fisher: Not sure if I missed this, but what was your first half aftermarket growth? I know you raised the full year of 15% to 20% from 15%. Just kind of wondering what you're assuming for kind of the second half trajectory within that guidance if some of the market activity is kind of slowing that down at all? Christopher Clulow: Yes. Steve, it's Chris. Yes, we experienced about that same level in the first half, and we expect it to hold throughout the year. I think the demand is still very high, particularly in the heavy-duty market, in North America as well as the global Power Systems markets. Mining, oil and gas have strong demands there for aftermarket parts, rebuilds and whatnot. So we expect that to hold certainly through the remainder of 2022. Mark Smith: Yes. Q2 was a little stronger than Q1. As Tom and Jen mentioned, there have been some supply chain challenges. So these are little bit, and demand remains strong. Steven Fisher: Okay. And then as you're kind of discussing with Tim before, I mean, it seems like we're kind of in this broad macro limbo at the moment. I guess I'm just curious how that is affecting any of your investment plans or strategic actions, if that's changing the timing of anything? Jennifer Rumsey: Yes. Good question. So obviously, we've moved forward with our JBS acquisition and Meritor will complete this week. We're continuing to make these key investments in the future. And we are still in the process on the separation of our Filtration business as we've disclosed previously and monitoring the environment as that continues. Mark Smith: And the other thing I'd add is, we're just -- as you'd imagine, we're not just waiting around for changing economic conditions. An important part of how we've grown the earnings over time is just like a continual focus on trying to drive efficiencies in everything that we do. Doesn't always make the headlines, but almost every aspect of our work, we're looking for efficiency, better output. So we're always looking for those types of ways to improve the underlying performance of the business. Operator: Our next question is from Rob Wertheimer with Melius Research. Robert Wertheimer: Congrats to both of you. My question is really on New Power. There's a lot that's changed in the world in the last 6 months. Your revenue trends are pretty good. And I'm curious if you have any comments on competitive position within electrolyzers, whether you see it solidifying or expanding. You guys have the wherewithal to invest, and presumably, that pays off somehow. And then just whether the outlook into, I guess, '23, '24, I'm not sure how far along your backlog extends is inflecting upwards as the world reevaluate its energy mix? Jennifer Rumsey: Yes, yes. Great question. So we did -- we delivered the highest revenue in the second quarter to date from our New Power business at $42 million and made a lot of progress across all parts of the business. So you saw announcements of new partnerships on fuel cells, both on and off-highway, where we think long term the market will move. Continuing to make progress and having lots of conversations on the electrolyzers and demonstrating the capability of our PEM electrolyzer solutions there. And we believe, as we demonstrate some of those larger installations of PEM electrolyzer, that the market's going to increasingly move towards that solution and that we're well positioned competitively. The market is lumpy at this point. And a lot of our focus is on building up capacity and scale to meet the demand. And so we will -- Amy and I will continue to be talking about what are those key milestones that we see in the market and in our scale-up activity and how that's evolving. We still feel very optimistic. And with this energy challenge that we see in the global world, expect that the focus and interest in green hydrogen will continue to grow. And lastly, with the Meritor acquisition, that's another key component that we think positions us well in the electric powertrain. And we'll be building on the business that we have and very complementary to our existing New Power business and electrified powertrain. So overall, well positioned for the future with New Power. Robert Wertheimer: That's comprehensive answer. Any inside track on whether the Inflation Reduction Act gets passed? And then you would benefit obviously from green hydrogen with that. I don't know if there's any production or any other obvious benefits that you saw in that potential bill, and I will stop there. Jennifer Rumsey: Yes. Great. So we're hopeful that the Inflation Reduction Act will get passed. It has many key provisions that we think are important for advancing lower carbon solutions, and it fits well with our Destination Zero strategy. It's really critical that there's investment to build out infrastructure and to make these technologies more affordable as they scale in advance. So we are -- have been active and advocating for some of the key energy provisions in that act, and we'll continue to do that as our Congress considers it. Operator: Our next question is from Matt Elkott with Cowen. Matthew Elkott: So after the initial COVID shutdowns in China, we saw a pretty record recovery in the remainder of 2020 and into 2021. I understand we're highly unlikely to see anything like that after the current lockdowns. But do you have any sense of how things could play out when or if China moves fully past lockdowns like most of the rest of the world has? And a longer picture question related to China as a follow-up. You've seen some western companies, like some automakers reconsider JVs in China. Do you guys still see your JV model in China as the right strategy? Any updated thoughts on that would be appreciated. Jennifer Rumsey: Yes. What happens with China COVID lockdowns is one of the big questions that we debate a lot. At this point, they continue to have this dynamic lockdown strategy. And we've continued to see some smaller scale lockdowns that have been happening and operating and kind of closed loop, closed circle environments within that from a business perspective. So I don't see when and how they completely evolve out of that. We're prepared to continue to operate in that type of environment. However, we do think that, that market is going to come back. It's a large market. It's an important market for us to be a part of because of its size. And we are committed to continuing to invest in the products and joint ventures that we have there, while also ensuring from a global supply chain perspective that we have resiliency in our supply chain so that we can navigate through COVID, weather disruptions and other constraints. Operator: Our next question is from Noah Kaye with Oppenheimer. Noah Kaye: And let me add to the congratulations here. And I just want to follow up on the IRA. So obviously, there's a lot of potential benefits for Cummins in this legislation. But among them, you could be looking at up to a $3 per kg production tax credit for green hydrogen. And obviously, it has been kind of on again, off again for the last couple of years. I have to imagine that some scenario planning has played out in some of these potential customer discussions. So at this point, is it possible to actually dimension the magnitude of the opportunities domestically that might pencil out with that kind of a PTC? And then how quickly do you think you can move to convert those opportunities to revenue if it does come to pass? Jennifer Rumsey: Yes. No. It's a great question. And within that, Inflation Reduction Act, as you noted, there is incentive for hydrogen production, which is significant, as well as incentives for other clean vehicles and clean fuels. It's important to note that there's also incentive for things like biodiesel and renewable natural gas within that. So a lot of things that will help drive advantage. We have had active conversations in recent years in Europe and growing conversations in the U.S. The Bipartisan Infrastructure bill also put some significant investment in hydrogen infrastructure. And so we believe that this will continue to add to that and are really focused on scaling up our product and production to meet the demand that we think will be there. So it's hard for me to mention specifically to you right now. As I said, we'll continue to talk about what we see as the key milestones in that business, growing revenue and growing our return from the electrolyzer business over time. Noah Kaye: Okay. And maybe one quick follow-up, and there have been some discussions about preparing for a potential downturn and how you can flex down amidst that. But one variable that I'm sure you're considering is just the investment cycle for the next step-up in emissions reduction. So how do we think about that factoring into budgeting for next year, some potential increase, investment spending on the combustion side in preparing for tighter emission standards? Jennifer Rumsey: Yes. So you've seen us increasing our investments, in particular in both New Power and Engine business, as we invest in the technologies and electrolyzers in New Power and also these next-generation fuel-agnostic platforms and engine business. We have the scale advantage globally to do that. Those are investments that we will continue to make. And we're also looking at driving efficiency and improvement in parts of our business that can adjust with the cycle. And so we'll continue to deliver on our financial commitments and strong returns through the ups and downs as we invest in those key areas for our future. Operator: Our next question is from Jeff Kauffman with Vertical Research Partners. Jeffrey Kauffman: And like everybody else, Tom, thank you for your leadership, and Jennifer, best of luck in the future. I wanted to focus a little bit. You discussed supply chain costs and talked a little bit about what was going on with raw material costs. If we looked at the inflationary part of cost of goods sold, how do those costs stack up against each other, in terms of how much of the increase in expense is more on the raw input side versus how much more are we spending on supply chain than we normally would? And also noting that in recent weeks and months, supply chain costs while still high have been easing, raw material costs while still high have been easing. And I'm just kind of curious, is any of that built into the guide at this point, maintaining the margins where they are? Mark Smith: Yes. Jeff, this is Mark. So I would say, this year, if you look at our costs, the material costs have been increasing. That's been the biggest single driver on the costs side. Last year, certainly the first half of the year, it was very heavy on the freight -- premium-free costs. But then we started to see more inflation in materials play out over time. So as we talked about, the premium freight costs have come down a little bit, part of that through better coordination and management of the expenses. Material costs continue to increase at this point in time. We put the -- I would say, within a fairly predictable range quarter-to-quarter so far, yes, 1 or 2 commodity costs have come off the peak, but remain at fairly elevated levels. And of course, whatever changes there are in the market, costs of freight and metal markets, those take time to work through the supply chain. Jeffrey Kauffman: Okay. But Mark, back to the question though. So for the quarter, costs of goods sold was up about 5% on total revenue growth of about 8%. Ex inflationary costs, what are we looking at in terms of that raw material or the costs of goods sold inflation? I'm just trying to understand how much is kind of temporary cost inflation on materials, how much is temporary cost inflation on supply chain costs and kind of what's the underlying rate? Mark Smith: Let me put it like this. Our material cost in the second quarter increased by 1.9% of sales year-over-year, just to -- what is temporary and what's -- we're always working to make changes to products, redesign things, take costs out. But right now, that's a pretty high level over what -- certainly pre-COVID, pre this inflationary environment, that there's a high level of material cost increases. What's temporary and permanent is very hard to say. But about 1.9%, freight costs are fairly flattish year-over-year, but at a very elevated level. Material cost increase -- there are some pressure on some of the categories, but those are the biggest elements. Jeffrey Kauffman: All right. That's helpful. And then in terms of the guidance, I'm assuming no real change in either of those in terms of your outlook or has there been a change built into that outlook of margins maintaining? Mark Smith: No significant change on the costs side. We've lowered our outlook for JV earnings, which is not what you're talking about. But I'm just trying to triangulate back to the overall guidance of lower JV earnings. And we've got slightly stronger aftermarket revenues, particularly in North America, which should balance -- those balance out, but no significant changes on the other categories. Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to turn the call back over to Chris Clulow for closing remarks. Christopher Clulow: Great. Thanks, Maria. That concludes our teleconference for the day. Thank you all for participating and your continued interest. As always, the Investor Relations team will be available for questions after the call. Thanks. Operator: You may disconnect your lines at this time. Thank you for your participation.

Operator: Good day and thank you for standing by. Welcome to the Q1, 2022 Meritor Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Todd Chirillo, Senior Director of Investor Relations. Please go ahead. Todd Chirillo: Thank you, GG. Good morning, everyone, and welcome to Meritor’s First Quarter 2022 Earnings Call. On the call today, we have Chris Villavarayan, CEO and President; and Carl Anderson, Senior Vice President and Chief Financial Officer. The slides accompanying today’s call are available at meritor.com. We’ll refer to the slides in our discussion this morning. The content of this conference call, which we’re recording, is the property of Meritor, Inc. It’s protected by U.S. and international copyright law and may not be rebroadcast without the express written consent of Meritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to Slide 2 for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you’ll find the reconciliation to GAAP in the slides on our website. Now I’ll turn the call over to Chris. Chris Villavarayan: Good morning. Carl and I look forward to walking you through an excellent first quarter. Before I begin, I want to thank the exceptional Meritor team for their hard work and dedication to our customers. Now, let’s turn to slide 3. Overall, we are pleased with our financial performance and are off to a good start for the year. We demonstrated our ability to manage the business well through a challenging set of factors on higher sales driven by stronger demand in most of our end global markets. Adjusted EBITDA margin in the quarter was 11.5% and adjusted earnings per share was $0.80, an increase of more than 35% year-over-year. We’re working closely with our customers and suppliers to offset historically high freight and material costs while managing supply chain constraint and a prolonged labor shortage. We’re navigating these headwinds and are confident in our full year outlook that we’re reaffirming today. In December, we introduced aggressive M2025 targets that include growing $500 million in revenue above market, with one half coming from electrification and expanding margins to 13% while generating $600 million in free cash flow. M2025 represents Meritor fourth M plan, our execution of these plans have transformed the company since the introduction of M2016, we have increased adjusted earnings per share by more than $2 through fiscal 2021 and expect to further increase EPS by almost an additional dollar this fiscal year. We have also expanded adjusted EBITDA margin by 350 basis points. We had a very successful first quarter in terms of finalizing New Business Awards, some of which we announced at Investor Day. Let me briefly recap the significance of these. We have an exclusive agreement with Thomas Built Bus for Meritor’s electric powertrain with SOP plan for 2024. With the electric school bus market expected to be one of the fastest adopting segments in large part due to the infrastructure bill, this agreement represents a meaningful near term opportunity to accelerate our electrification journey and expand our long term relationship with Daimler Trucks, North America. We extended our multiyear agreement with PACCAR to supply electric powertrain and full electric solutions for Kenworth and Peterbilt tractors and Refuse trucks. And we added three new prototype collaborations in the quarter with two different customers, two hydrogen fuel cell applications for Hexagon and a road sweeper platform for Electra. This makes the fifth quarter in a row that we have announced new electrification wins. In our core business, we’re excited to significantly increase our on-highway presence in China. With this five year agreement, we will supply Daimler with rear axles for the Actros. We also have a new business win with one of our largest trailer customers. This is our first five year agreement with Wabash and is valued at more than $150 million. You can see on slide 4 that Meritor is differentiating itself in the industry. We believe our growing number of electrification awards is the true measure of the value our customers place on our integration capabilities and electric powertrain. In fact, our electrification revenue forecast for fiscal 2022 has increased by more than 30% since December. Slide 5 brings into focus all our electrification programs announced to-date. I want to make three important points with this slide. First, half of our production programs are in the medium-duty with accelerated adoption rate expected in this segment, we anticipate that volumes on these programs will grow faster than on the heavy side, which is all growth for us. Second, we’re either exclusive or standard position on all these programs. And finally, we have eight production contracts, three with large OEMs and the remainder with promising startups. We look forward to helping more customers drive to a cleaner world. On slide 6, I want to emphasize the importance of the work we’re doing at our innovation complex in Escondido, California. With the technical expertise inherent in this operation we can offer a complete turnkey vehicle electric vehicle solution. In addition to the electric powertrain, Meritor can provide the PCAS or power controls and accessory subsystem. Our acquisition of TransPower gave us a wealth of experience in vehicle controls that we have strengthened since taking ownership in 2020. We’re proud to be production ready for our electric powertrain and the full electric system. We’re confident in our capabilities and in the important role Meritor will play as commercial vehicles transform over the next decade. This is an incredibly exciting time for us. Now, I’ll turn it over to Carl. Carl Anderson: Thanks, Chris and good morning. On today’s call, I’ll review our first quarter financial results and outlook for fiscal year 2022. Overall, we delivered excellent financial performance to begin the final year of our M2022 plan. Adjusted EBITDA margin was 11.5% and adjusted earnings per share was $0.80. Now let’s review the details of our financial results on slide 7. Overall, revenue came in at $984 million, up 11% from the prior year. The increase was driven by higher truck production in most markets as orders remain elevated around the globe. Net income from continuing operations was $54 million compared to $32 million last year. Higher net income was driven by increased sales volumes and lower interest expense, partially offset by net fuel costs. We also benefited from a $6 million settlement with an insurance carrier related to our asbestos liability this quarter. On a comparative basis, you will recall last year we recognize a $6 million onetime gain from our joint venture in Brazil, relating to a value added tax credit. Adjusted EBITDA was $113 million, an increase of $11 million from last year. The growth in adjusted EBITDA was driven primarily by higher sales volumes partially offset by net steel costs. Adjusted diluted earnings per share was $0.80, up $0.21 from last year. And finally, free cash flow for the quarter was the use of $39 million compared to $34 million of cash generated last year. The decrease was in line with our expectations as we built higher inventory levels to support an anticipated strong production environment throughout the year. Additionally, incentive compensation payments were higher this year. Now I will discuss our segment results for the first quarter compared to the same period last year. Sales in commercial truck were $785 million, up nearly 14% year-over-year. The increase was driven by higher truck production in most global market. Segment adjusted EBITDA for commercial truck was $69 million, up $6 million from last year. Segment adjusted EBITDA margin was 8.8% a slight decrease of 30 basis points from a year ago. Higher sales partially offset by net fuel costs drove an increase to adjusted EBITDA. However, adjusted EBITDA margin was lower as net sale costs impacted sales conversion. Aftermarket industrial sales were $241 million in the first quarter of fiscal year 2022, an increase of $7 million compared to the prior year. Pricing actions executed over the last year in the segment was the primary driver of the improvement in revenue. Segment adjusted EBITDA increased $3 million to $38 million, and EBITDA margin was up 80 basis points to 15.8%. The expansion in segment adjusted EBITDA margin was driven primarily from the footprint optimization initiatives implemented after the first quarter last year. Now let’s review our global production outlook on slide 8. As we saw last quarter demand remained strong across our markets. In the North American Class 8 market the backlog is estimated at approximately 260,000 trucks representing nearly a full year of industry production. While we are closely monitoring constraints in the global supply chain, we are beginning to see some signs of stabilization. We are expecting supply chains to continue to improve as we progress throughout the year. As a result, we are not seeing a significant change from our November view. Therefore, we are maintaining our global production forecast for all markets. Let’s turn to slide 9 for an update to our fiscal year 2022 outlook. Based on first quarter results and our expectations for the rest of the year we are reaffirming our fiscal year 2022 guidance across all of our metrics. We expect revenue to be in a range of $4.1 billion to $4.3 billion based on our unchanged global market assumptions. Additionally, our expectations for adjusted EBITDA margin remains between 11.5% to 12.5%. We continue to plan for pricing actions to help mitigate steel, freight and labor cost pressures. We expect these recoveries to be more fully realized as we progress through the year. Adjusted diluted earnings per share from continuing operations remain in a range of $3.25 to $3.75. And finally, our free cash flow guidance is also unchanged with a projected range of $175 million to $200 million. Our first quarter results provide a great foundation for a successful final year of M2022. We remain focused on executing this plan while simultaneously gearing up for M2025. As we approach the start of this new plan, we are forging a path with the coming electrification of the commercial vehicle industry. The road ahead is blue. Now we will take your questions. Operator: [Operator Instructions] Our first question comes from the line of Sherif El-Sabbahy from Bank of America. Your line is now open. Sherif El-Sabbahy: So first off, congratulations, a great quarter. On the commercial truck margins, the first quarter saw some headwinds from steel. Looking at similar incremental data suggests deals around the $10 million to $11 million headwind to EBITDA. Is that correct? And then how would you see the cadence of those headwinds playing out quarter to quarter throughout the year? CarlAnderson: Yes, thanks Sherif. Yes, for the entire quarter steel was actually about a $24 million net headwind for us with the vast majority of that close to $20 million really affecting the commercial truck segment. And as we look forward, we think steel will continue to be a headwind for the rest of this year. But the next big step of that probably will be in the second quarter. And then as we look forward for the second half, we do believe, based off the trend line we’re seeing in steel prices that we’ll start seeing that the impact really starts to decline as we get in the second half. Sherif El-Sabbahy: Makes sense. And then last quarter, you mentioned it was a very difficult quarter with the sporadic shutdowns from semis and limited visibility. And you expected that to normalize in the first quarter. So have you seen sort of a normalization of those lingering shortages and do you have better visibility based on OEM setting their line rates? Carl Anderson: Yes, Sharif, I’ll take that one. For sure, I mean, based on I think where we’re seeing demand, the supply chain has improved from Q4 to Q1, but to your point that’s not resolved. And I would say, certainly, as we see from Q1 to Q2 we do see more stabilization. And it’s probably too early to declare a victory. And you do see over time this continuing to improve. But at this point, we certainly do see an improvement, both from a supply chain standpoint, and let’s call it more from our customers. Customers getting far more comfortable with their ability to get chips or understand their chip supply and also forecast better. As you can also see with PACCAR’s announcement, and taking the number of offline trucks, they’re obviously starting to get more chips in the system. So we do see that improving but again, probably too early to declare victory. Sherif El-Sabbahy: And just one final one, with the PACCAR partnership expansion you announced last evening. How long is that multi, I know, it’s a multiyear. Are you disclosing how long that relationship lasts? And then, with regards to the integration and software aspect of that relationship how sticky do you see that being longer term as EV adoption expands and the partnership evolves? Chris Villavarayan: Well, Sherif. Thanks. That’s a great question that I’d love to talk to. So in terms of the relationship that we announced, it’s through 2025. But just to put it in perspective across the two platforms on the day cab, and the waste trucks where we’re releasing six platforms and to just put it in perspective, that’s about somewhere between 1,500 to 1800 components across the power electronics. So the PCAS, the battery management system, as well as the ePowertrain, so in total between the two teams, we brought 10,000 parts to production in a period of 18 months to 24 months, and it’s PACCAR saw how complex that process was and obviously was an integral part of working with that. And that integration ties software between obviously the PCAS, the battery system, the powertrain, but also their truck, and all the validation that’s gone through that, and we put this into production in December. So certainly, they’ve seen the value that we’ve brought to the marketplace with them, and provided as an extension, and it’s truly a validation of the value of the Meritor proposition. So we’re very proud of it. Sherif El-Sabbahy: Thanks, I’ll pass it along. Operator: [Operator Instructions] Our next question comes from a line of Joseph Spak from RBC Capital Markets. Your line is now open. Joseph Spak: Thanks. I guess my first question is, is really sort of bigger picture here. If we go back to your capital markets say, if I made a point of talking about additional system design on electrification including more software features, and I think you’re getting highlighted that today on the full design system, on the full system design side. I guess what I’m curious about is how much you’re going to need to spend to hire the right people and how, and your ability to attract those individuals because clearly there is, I think there’s a limited set of people with the skill set, and you’re competing against, in some cases, your customers in some cases other end markets like electrification, etc, and in some cases, just for even other industries. So maybe you could just talk a little bit about that and sort of how you see the cost related to that over the coming years and also your ability to get the right people you need to, to execute on that plan? Chris Villavarayan: Well, I think probably a good perspective to start on this Joe, is, is probably off our slide 5, and if look at the fact that we have eight production contracts, half of them coming from the medium duty space and half of them coming from the heavy space. It probably is a good starting point that the customer certainly believe that we have the right building blocks in place. So then going to that slide that the following slide on slide 6 that walks through what did we do across both those spaces. So let me take a minute and walk you through on the full system. So on the full system, as we did in the capital market space we talked a meeting, we talked across the three segments that were approaching this. So when we think about heavy, which is core to Meritor, we invested in TransPower. We acquired it and we used it as the building blocks to not only give us the access to test our product, but also work with customers such as PACCAR to drive that system and bring it to production. And for us to have been able to done that, to do that the number of folks that we have already put in place in Escondido as well as in Detroit seems to have certainly supported that. And it’s certainly working for us. So on that side, I believe that we have the right building block to go approach that. On the transit space and the medium duty space, if you notice, we made announcements with BAE to help us on the transit space. And we made announcements with C-Electric to help us with the full system as we focused more on the powertrain. So that’s how we focused on how we want to approach the full system capability as well as working with our customers some of which obviously have that system. And on the e-powertrain, we certainly believe again, that we have the right building blocks more because of the wins across all of them. We’ve announced 14 wins on this side on our motors and inverters. We work with Danfoss, which we believe is a strong partner who obviously has scales on motors. And then we are putting inverter capability internally as well as working with external parties. And again, as this evolves, we will continue to look at M&A. But at this point, based on the validation that we’re getting from the customers, we believe we have the right building blocks. Joseph Spak: But I guess just maybe in building those building blocks or in retaining some of those sort of the talent for those building blocks like, is that proving to be costly? Or how do you think about that sort of on a go forward basis, because they get especially starting to try to get more into some of the software it seems like that there could be sort of an incremental cost to your business. And I’m not saying there’s not a return on that. But like, it seems like the cost has to come before the return? Chris Villavarayan: And maybe I’ll split that up into parts. Joe. I’ll answer the question on in terms of finding the talent and retaining the talent, and maybe Carl can pick up what’s the cost of it, but in terms of certainly finding the talent and returning the talent part of it is being in Detroit, we certainly have been successful in finding that talent. Our approach with how we acquire TransPower certainly gave us a baseline of folks. And so we were able to build off that. So to this point, we don’t seem to have struggled with finding people. In fact, we continue to add and grow in this area. And talking to my CTO, he certainly doesn’t seem to be having struggles just this yet, but in terms of costs. Carl Anderson: Yes, Joe as mentioned in the strategy day if I look forward from an R&D perspective, we are looking at increasing that quite substantially probably close to 30%, from what our current run rate has been. But I think the other planning assumption and how we’re running the companies, we are looking at pivoting some of our expense and costs we are that we support the traditional business into what we’re doing on electrification. So I think it’s all embedded in our planning assumptions as we look to drive the M2025. So that you’re absolutely right, you’ll see that cost increase as relates to all the efforts we’re doing there, but we’re also doing a lot where we’ll be reducing some of the costs on our traditional products as well. Joseph Spak: Thanks Carl and then just more near term, I guess. Can you sort of update us on steel costs and recoveries for the balance of the year? We’ve obviously seen at least spots deals sort of come off the highs here. But I know there can be sort of lags in both directions in terms of sort of outflows for your business. So how are you sort of thinking about steel cost and recoveries for the balance of the year? I know, you didn’t sort of change your guidance, but it seems like probably spot still has sort of maybe moved versus prior. Carl Anderson: It has. So I think from a forecast perspective we were planning originally to have steel decline throughout the year when we last spoke in November. I would say that where I see spot prices today, they are coming in a little bit lower than what we originally were planning for. But from a lag perspective, obviously, steel is still a significant headwind for us this quarter as I referenced earlier. We expect that also to happen in the second quarter, and then you’ll start seeing that kind of normalize, as we kind of get into the second half of our fiscal year. Joseph Spak: To be like more neutral in the back half or kind of like a year-over-year positive by the back half? Carl Anderson: It could be, it could turn into a year-over-year positive depending on where the spot prices kind of come to, and it does get. There’s that lag effect, as you referenced before, depending on most of our contracts somewhere it’s three to six months. So it depends. But yes, that would be our expectation at this point. Operator: Thank you. Our next question comes from the line of Bruce Chan from Stifel. Your line is now open. Bruce Chan: Good morning and congrats on the results. Don’t really want to feel wet blanket here, but wondering if you can maybe just give us some brief commentary on order cancellations. I’m sure that’s not really in the picture today. But maybe you can just remind us of what kinds of deposits or contract penalties if any there are for cancellation. And how do you couch the risk of cancellations to earnings and margins when you think about the sensitivities that you’ve built into that M2025 plan? Chris Villavarayan: So I think obviously maybe you’re referring back to about November or December when it’s, we saw a little bit of a spike, let’s call it to 6% on cancellations on Class 8. But honestly when I look at it, Bruce, the demand is incredibly strong out there. I mean we got 260,000 trucks in the backlog, which is almost a year and we sit here and we look at this current market, and you wonder about the challenges, but if I go back to 2018, which was preparing for the second highest market we’ve ever seen in 2019 you still had regions that were going the wrong way. So we had India going the wrong way. We saw South America kind of still coming out of the recession. But at this point, when you look at 2021, you got India bouncing back from their weakest. If I go back to South America, they’re running at 150,000 trucks up from 109 in 2018/2019 timeframe. In North America if you look at between ACT and FDR, were somewhere between the 285 to 290 the midpoint being 290, our forecast is 280. And you got yet another almost 12 months in backlog. So we see enormous demand and I would say there’s the silver lining is once we figured out how to resolve some of the supply chain constraints I do see more of a demand story. I think some of the elements of the cancellations was frankly OEs refloating going forward, as well as fleets just adjusting their order board, because they just can’t get anything in the next three to six months. Bruce Chan: Now that’s very helpful. And obviously, the portfolio as we get later into the plan is looking a little bit different. It’s a little bit more diversified. So maybe towards that end and I’m not sure if I missed this early in your commentary. But maybe you can give some commentary on the EV revenue backlog. I think that’s something that you also mentioned during the Capital Markets Day. Is that trending any differently as we sit here in February? I know, it’s only been a few months. Chris Villavarayan: Well, I’ll start off, I think we had talked about $500 million or a $0.5 billion in backlog, right through to let’s call it the capital markets day. I would say that, obviously, from what we see in forecasts that it’s now we’re significantly heading north of that. But what we did was we switched from talking about backlogs to now driving defined revenue within the years so that just to give a better perspective of how Meritor approaches things. And so that’s the one where in my prepared remarks, I talked about revenue that we’ve planned for 22 actually being up 30%. And our target for 2025 is $280 million, which we’re as we see where the backlog is sitting, we’re pretty confident we’re certainly seeing a path to hit that plus some as you know, we approach this pretty conservatively as Meritor. Operator: Thank you. [Operator Instructions] Our next question comes from the line of Brian Johnson from Barclays. Your line is now open. Brian Johnson: Yes, thank you. I want to talk a little bit more about the electrification going blue angle. The first question is, can you give us any sense of the win rates on the 14Xe Axel? Second would be where different OEMs are in sourcing, obviously, the German truck companies and Daimler in particular, tend to do more both engine and axle work in house. That’s question number two? And then question number three is a pushback we get from investors is, yes, you’re making progress, but what about Cummins, Eaton and Allison. They are well entrenched with the same OEMs that you serve. Are they going to wake up one day and flex their muscle in this segment and does that worry you is Meritor management? Chris Villavarayan: So good morning, Brian, love to take that question. So I’m going to break it into three sections. I think the first part really, in terms of the 14Xe and the success rate on the 14Xe. So again, going back to that slide 5, all of that is with the 14Xe with the exception of the MAN announced, the Volkswagen announcement that we have, that’s working off what we call an echo axle that’s designed to work with a remote mounted system, what with the future, being on a medium duty 12Xe. But everything that we have announced on that page is or let’s call it the 14 that we’re working on are all working off the 14Xe and then we’re super proud of that, because it really shows that I think whether folks are building ground up which are let’s call it the new entrants, such as Lion or Volta that have an option of designing whatever technology they want, or the folks that are, let’s call it the, the traditional OEMs, whether it’s Daimler or whether it’s PACCAR or whether it’s Autocar they’ve picked the 14Xe. So that’s, I think, the first comment. The second question in terms of vertical integration, I believe that there’s so much opportunity here and that there’s naturally going to be more competition. We’re going to see more suppliers, more OEMs entering this space. But frankly, we face that today. I mean, if you think about Daimler in North America, they still buy 50% of their class 8 axles from us, even though they’re vertically integrated. But I see the opportunity for us to grow in this space, primarily because of three reasons. The first one is, if you notice, half the wins are in the medium duty space. We only have 15% share there. So this is pure growth from that segments as we every entry that we make there. The content is three to four times more content. So with that, I mean, if you think about our axle’s volume, and if you think about this transitioning, we’re getting so much more in revenue and content as we transition here. And finally, in concept of vertical integration, I think the OEs whether it’s Daimler, as you defined it, let’s call it the European OEs they certainly see value here and with the announcement that we made, both at the strategy day or today, with Daimler they’re working with us on the Thomasville school bus, which is an exclusive agreement. And it’s something that they certainly have the capability on their own and they certainly picked us. So we’re pretty confident that customers over time will see value. And in any case, across those three reasons, we see a path to continue to grow. Brian Johnson: And any indication that the other, we know data strategy pretty well, but the other powertrain players in the North American truck space, whether you even see them in these RFP situations? Chris Villavarayan: We do. As I mentioned, I think there are there are more competitors, but frankly, I think I look at it from what’s our strengths that we bring to the marketplace. And it is really the fact that just put it in perspective Brian, we have around the world, we’re the number one commercial axle provider in North America. If you think about the fact that we have a scale of 70%, 7 out of 10 that run on our product, which if you put it in perspective is 2,000, about 1,500 to 2,000 axles. So the e-power trains built off that scale. And it’s frankly, we’ve been designing efficiency into axles for over a century. So we believe we have that capability will help us. Now in terms of some of the other competitors you mentioned, I believe that technology is moving into our space. So whether it’s the engine or their transmission that technology is moving into the axle and who better understands that for the last 100 years, but us. So I think that’s why we believe we have the strength here. And we certainly see that validated with in terms of the customers. The customers are being methodical. They are testing which we obviously expect them to do. They’re testing many products. Obviously there is value in some of the things that our competitors are doing. But we believe the market is so big and there’s enormous opportunity here that the basket is great for all of us. Brian Johnson: Thank you and look forward to discussing this further in Florida in a couple of weeks. Chris Villavarayan: Absolutely, look forward to it too. Operator: Thank you. Our next question comes from the line of Ryan Brinkman from JPMorgan. Your line is now open. Unidentified Analyst: Well, hi, good morning. This is [Indiscernible] on for Ryan. I just had one question on incremental margins. You talked about being able to offset some of the commodities and trade pressures through price. Just curious, in terms of new wage inflation, it was managed pretty well in the first quarter. But on a go forward basis given where we are with wage inflation, did you see any change in view to your incremental margins on a go forward basis? How do you manage that or flex that in the future? That’s the only question. Thanks. Chris Villavarayan: Yes, we are definitely seeing wage inflation. Primarily, it’s a U.S. story for us. It’s obviously something that’s embedded in our current forecast. And so obviously we’re finding other ways to offset that as well as we think about what it means for the rest of the year. So, no change in margin, obviously, we kept everything unchanged from our guide that we had back in November. So I think it’s part of its internal continuing to drive internal efficiency, as well as discussions that we’re having with our customers as it relates to pricing. Unidentified Analyst: So like going forward and beyond the current year if inflation does persist, do you feel like you can continue to manage that through other areas of maybe cost reductions or your pricing? Chris Villavarayan: Yes. That is the plan. I think in addition to kind of our normal approach and strategy I think you’re going to see us obviously, look to automate even further, and many in most of our facilities as well as to provide other offsets for us. Unidentified Analyst: Great, thanks for the color and good luck. Operator: Thank you. At this time I’m showing no further questions. I would like to turn the call back over to Todd Chirillo for closing remarks. Todd Chirillo: Thank you for joining our call today. If you have any questions, please feel free to reach out to me directly. Thank you and have a great day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Meritor Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker, Todd Chirillo, Senior Director of Investor Relations. Please go ahead. Todd Chirillo: Thank you, Shannon. Good morning, everyone, and welcome to Meritor's fourth quarter and full fiscal year 2021 earnings call. On the call today, we have Chris Villavarayan, CEO and President; and Carl Anderson, Senior Vice President and Chief Financial Officer. The slides accompanying today's call are available at meritor.com. We'll refer to the slides in our discussion this morning. The content of this conference call, which we're recording, is the property of Meritor, Inc. It's protected by U.S. and international copyright law and may not be rebroadcast without the express written consent of Meritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to Slide 2 for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you'll find the reconciliation to GAAP in the slides on our website. Now I'll turn the call over to Chris. Chris Villavarayan: Good morning. Thank you for joining the call today to discuss Meritor's fourth quarter and full year 2021 results. Once again, we delivered solid financial performance. We achieved our full year outlook for adjusted EBITDA margin and exceeded adjusted diluted EPS guidance by $0.23, while simultaneously expanding our reach into electrification. We accomplished this during significant supply chain disruption and labor issues in the United States. I want to thank the Meritor team and supply partners for working closely with our customers to optimize production and delivery. As shown on Slide 3, we had good conversion on higher revenue as global demand snapped back. Extraordinarily high input costs obviously impacted our margin for the quarter and the year, but all things considered, we're extremely pleased with the result. Let's turn to Slide 4. While the circumstances were demanding, we remained intently focused on safety, quality and delivery. We ended the year with strong metrics that give us a path to achieve our M2022 goals. With 50% of our facilities having zero recordable incidents in the year, I commend these teams for the work they did to maintain a safe working culture in a challenging environment. Our excellent quality for the year resulted in customer PPM of 23. Four of our facilities and three of our joint venture operations received the Daimler Masters of Quality Award, which recognizes outstanding suppliers with scores for quality, delivery, technology and cost performance. We're proud to say that including this year, we have earned 55 Masters of Quality Awards from Daimler over the years. We believe this level of quality differentiates us in the industry, as does our delivery rate of 96% this year. While not as high as a typical year where we consistently run 99%, we view this as an accomplishment considering the prolonged supply and labor disruption the industry is experiencing. As the commercial vehicle industry advances towards electric vehicles, we view every prototype agreement, collaboration and partnership as an important opportunity. Each one is a validation of our technology solution that could lead to a production contract as customers finalize their market strategies and architecture choices. Every quarter this year, we announced new agreements to expand our customer base and for electrification. This quarter is no exception. Please turn to Slide 5. First, Axos is electric mobility company that designs and manufactures medium- and heavy-duty commercial trucks that travel on last mile back-to-base routes of less than 200 miles per day. Under a prototype agreement, Axos will evaluate and test Meritor's ePowertrain with the intention of taking it to production in future platforms. We also have a new collaboration with Electra commercial vehicles. Meritor will work with Electra to bring electrified commercial vehicles to Europe city centers, integrating Meritor's electric powertrain into an IVECO-based road sweeper application will allow Electra to replace its remote drive conversion solution and test a more efficient and compact electric powertrain. With Meritor's technical architecture, Electra can maximize the space for batteries, which will allow the vehicles to sweep more road surface in a single shift. Finally, we're proud to be a part of the U.S. Department of Energy Super Truck 3 program in collaboration with PACCAR. The goal of this program is to develop zero-emission medium-and heavy-duty trucks. Let's go to Slide 6 for a look at the significant number of diverse electrification agreements we have announced in fiscal 2021. From production awards to prototypes, medium duty to heavy, we're growing through new and existing customer relationships. In 2020, we announced the PACCAR and Volkswagen electrification production program. This fiscal year, as compared to fiscal 2020, we've more than tripled the value of new EV wins and further diversified our customer base. We're also growing our opportunities in the medium-duty application space. Here, we historically have not had a large share. We have now booked electrification business of almost $0.5 billion. On Slide 7, we wanted to recap the important activity in our core business during the year. We extended contracts with Navistar and IVECO and secured new business with industrial and truck customers in India and the United States. We're on track to exceed our M2022 new business win target by approximately $100 million. Keep in mind, we expect the sustained growth of our core business to fund the growth of our electrification business as the customer base and product portfolio continues to grow. I will now turn it over to Carl for the financial details. Carl Anderson: Thanks, Chris, and good morning. On today's call, I will review our fourth quarter and full year financial results and provide an outlook for fiscal year 2022. Despite significant headwinds in the supply chain and operating environment, we delivered solid financial performance in our fiscal year. We converted on incremental revenue at 18%, expanded adjusted EBITDA margin by 180 basis points to 10.7%, increased adjusted earnings per share by 176% to $2.68 and generated $107 million of free cash flow. Now let's turn to Slide 8. First, I will review our segment results for the fourth quarter compared to the same period last year. Sales in Commercial Truck were $740 million, up over 30% year-over-year. The increase in sales was driven by higher global truck production in all markets. A year ago at this time, we were just starting to recover from pandemic-related shutdowns. Segment adjusted EBITDA for Commercial Truck was $54 million, up $30 million from last year. Segment adjusted EBITDA margin rose to 7.3%, an increase of 300 basis points from a year ago. The increase in segment adjusted EBITDA and margin was driven primarily by conversion on the higher revenue. This was partially offset by higher freight and steel costs. Aftermarket & Industrial sales were $250 million in the fourth quarter of fiscal year 2021, an increase of 11% compared to the prior year. The majority of this was driven by higher order activity in our North America aftermarket business. Segment adjusted EBITDA was flat year-over-year. However, margins were impacted by higher freight costs, resulting in a 140 basis point decrease. For the full year, sales rose to over $3.8 billion, up 26% from last year due to strong global demand and higher truck production in all of our markets. Production in India more than doubled. South America was up 50%, and Class 8 production in North America increased by 20%. Net income from continuing operations was $200 million compared to $244 million in the prior year. You will recall last year, we recognized more than $200 million of income, net of tax, associated with the termination of the company's distribution arrangement with WABCO. This was partially offset by the recognition of value-added tax credits in our wholly-owned Brazilian entity of $15 million net of tax during the second quarter of fiscal year 2021. Additionally, we recognized $10 million in net tax benefits from certain tax initiatives that were implemented in the fourth quarter of this year. Adjusted EBITDA was $411 million in fiscal year 2021, resulting in an adjusted EBITDA margin of 10.7%, an increase of 180 basis points. The increase in adjusted EBITDA and margin year-over-year was driven primarily by conversion on higher sales, partially offset by increased freight, steel and electrification costs. In total, higher steel and freight costs were an $84 million headwind in 2021. During the year, ocean container costs nearly quadrupled, hot-rolled steel increased over 250% and scrap costs double. Had we not faced these increased costs in steel and freight, our adjusted EBITDA margin in 2021 would have been significantly higher, demonstrating how well the underlying business is performing. Additionally, we also incurred $21 million in higher electrification expense as we continue to invest for the future. Adjusted diluted earnings per share was $2.68, an increase of $1.71 from the prior year. This does exclude the $15 million in tax credits from Brazil and the $10 million of tax initiatives I mentioned earlier. And finally, free cash flow was $107 million compared to $180 million last year. Keep in mind, our 2020 free cash flow included the $265 million benefit in cash received from the termination of the distribution arrangement we had with WABCO. In 2021, we also had an approximately $70 million increase in our working capital requirements as we secured supply for our customer needs and prepare for another increase in volumes in 2022. Now let's review our global production outlook on Slide 9. We continue to see strong demand across our global markets. However, global supply chain constraints continue to impact production for our customers and the industry which we expect to continue into next year. In North America, we expect Class 8 production to be in the range of 270,000 to 290,000 units, an increase of almost 7% at the midpoint from 2021. While order activity has begun to moderate, there have been over 320,000 Class 8 trucks ordered since January. Additionally, the backlog in September was approximately 280,000 units, which is approaching the previous all-time high set in October 2018. Overall, we expect production to be limited only by constraints in the supply chain. In Europe, our production outlook is in the range of 410,000 to 430,000 units as we continue to see stable product levels on the continent. In Brazil, we expect strong demand to continue as 2021 was the highest Class 8 truck production in this region since 2014. We expect production next year in the range of 145,000 to 155,000 units. And in India, we project a slight increase from the prior year as production in the region continues to rebound. Let's turn to Slide 10 for an update to our fiscal year 2022 outlook. We are projecting our full year sales to be in the range of $4.1 billion to $4.3 billion. In addition to revenue growth based on the production forecast I discussed, we expect approximately $100 million in incremental sales related to new business wins as part of M2022 plan. We also continue to recoup steel costs from our pass-through recovery mechanisms, which we expect will increase revenue in the range of $100 million to $150 million compared to last year. Moving to our margin outlook. We expect our adjusted EBITDA margin to be in the range of 11.5% to 12.5%. Our guidance range is wider than normal due to the continued uncertainty in the overall operating environment. We continue to see significant headwinds from steel and freight and anticipate these costs to be an incremental headwind of $70 million to $110 million as compared to 2021. We are executing on recovery and pricing actions to help offset some of the cost pressures we are seeing. In total, we currently are planning for $50 million to $80 million of actions, which will be more fully realized starting in our second quarter. In addition, we expect several tailwinds in fiscal year 2022. First, we will continue to drive operational performance in the business, and we will complete our previously announced footprint consolidation initiative in the first quarter, providing a $12 million to $15 million year-over-year improvement. Moving to adjusted diluted earnings per share, our outlook for 2022 is approximately $3.25 to $3.75. Keep in mind, this outlook is based on our revised reporting of adjusted income from continuing operations and adjusted diluted earnings per share that we changed in the second quarter of 2021, which excludes the benefit of noncash tax adjustments we had previously included when we announced the M2022 plan back in November 2018. And finally, we now expect our free cash flow to be in the range of $175 million to $200 million as working capital stabilizes and we convert on incremental sales. Overall, the team continues to remain focused on delivering superior financial performance in the final year of our M2022 plan. Now I will turn the call back over to Chris for some closing remarks. Chris Villavarayan: As Carl stated, our guidance ranges for this fiscal year are wider than usual due to the volatility we have grown accustomed to in the past few quarters. However, we are focused on delivering excellent financial results. Slide 11 provides M2022 highlights. We're particularly excited about the growth we see and plan to achieve in our core business and advanced technology. Meritor recognizes the future is electric. Our success in 2021 and our legacy in the commercial vehicle and brake business will position us well to capitalize on the growing adoption of electric vehicles around the world. As we look at the next decade, we expect the rate of adoption to dramatically increase heading towards 2030. And as the market shifts to electric powertrains, we believe Meritor's content per vehicle will grow significantly. Please turn to Slide 12. We hope you will join us for Meritor's Virtual Strategy Day on December 7. At that time, we will dimension our growth expectations as the industry transforms to electrification and share exciting new business wins with you. Following that event, we will have a live Q&A. So please mark that on your calendars. We will now take your questions. Operator: [Operator Instructions] Our first question comes from Brian Johnson with Barclays. Your line is open. Jason Stuhldreher: Team, this is Jason Stuhldreher on for Brian. Congrats on finishing fiscal year '21. I was hoping maybe just on the outlook first. The incremental margins that the outlook seems to imply, if we kind of exclude the recoveries that you're getting and then the additional steel and freight cost, it looks to be in sort of the low 30-ish percent range, which is higher than we've seen in the past. And you kind of mentioned some one-off factors, but hoping you could sort of kind of dimensionalize what your kind of expected standalone incremental margins would be? And then what the benefits of sort of finishing the footprint consolidation and other factors for next year? Carl Anderson: Sure. It's Carl. I can address that question. Yes, as we look at the incrementals going into 2022, a couple of things to keep in mind. I would say kind of just on base revenue, our expectation now with all of the actions we've executed over the last several years is that we will be north of 20% conversion on that incremental revenue. In addition to the footprint consolidation of $12 million to $15 million tailwind, we also expect to drive significant continued operational performance in the business as well. So that would be an additional up to $30 million plus of operational improvement, and we are also planning for less incentive compensation expense in 2022. So that all will box you to the higher margin in an absolute sense. Jason Stuhldreher: Understood. And then maybe just on the free cash flow conversion, I mean the numbers that you're guiding to are pretty strong for 2022 kind of -- in that 75% range, maybe even a little higher. And I guess we're going to get an update on what sort of cash you guys can generate in your next -- in the next set of planning period. But as we think about some of the restructuring cash uses kind of rolling off and maybe sort of a normalization of working capital, is it kind of fair to hope for maybe north of 75% kind of going forward? Carl Anderson: Yes. I think obviously, we're driving to achieve the 75% for this year in 2022. And we will obviously provide an update in a couple of weeks at our Strategy Day in a little bit more detail. But the expectation, just given the improved overall balance sheet and what we expect from working capital, I think it would be a fair assumption we should be driving that number north of 75% as we go forward. Jason Stuhldreher: Understood. Okay. Then lots to talk about on the electrification front, but I'll save that for next month. So thanks, team. Operator: Our next question comes from Sherif El-Sabbahy with Bank of America. Your line is open. Sherif El-Sabbahy: So I just wanted to ask about the 140 basis point impact on aftermarket and industrial. It seems like freight is having an outsized impact on that segment. Could you provide a bit more color? And then when would you expect that freight impact to maybe roll off? Carl Anderson: Yes, as we're seeing -- as we look at kind of just global freight index since -- just in the fourth quarter alone. So this is -- if I go back to when we last talked to you back in July and where we are now, we have seen freight costs increase 50% since that time period. So I think that continues to be a near-term short-term headwind in the business. But as we kind of go forward, there are actions that we addressed in the call, especially with the aftermarket business around pricing that we expect to go into effect in the -- our second quarter. So you should start seeing that normalize a little bit further as we get out of this first quarter. Sherif El-Sabbahy: Understood. And then with regards to the Commercial Truck segment, has it seen a similar level? Or is there pass-throughs or something of that nature there that would be offsetting a bit more that isn't present in aftermarket? Carl Anderson: No, it is affecting both segments, we are seeing that. Obviously, we have pass-through mechanisms on our steel, we do not have that in freight. So that is something that we have to -- have further discussions with our customers on for pricing. Operator: Our next question comes from Joseph Spak with RBC Capital. Your line is open. Joseph Spak: Carl, if I look at some of the factors for the margin walk in '22 and revenue conversion and operating performance. If I just sort of use sort of normal historical incremental margins on the revenue you're showing, it would seem like maybe half of that 1.4 to 2.2 is from volume and the other half would be more operational performance. And I know you sort of called out the $12 million to $15 million from actions taken, but what are some of the other areas there where you can sort of drive further operational performance in '22? Carl Anderson: Joe, yes, I think there a couple of other areas in addition to footprint, as I mentioned earlier, would be we are expecting lower incentive compensation. So that was a -- so call that in around that $10 million type of range year-over-year. And then additionally, our expectation is we will continue to drive significant material performance into the business on a year-over-year basis. So I think those are kind of the key drivers for us to -- for that bridge. Joseph Spak: Okay. I guess staying there, and you sort of just touched on this a little bit like the recovery in pricing actions. So it sounds to me like that's a mix of contractual stuff and sort of negotiation, can you just help us sort of understand the split there in terms of sort of what is more just contractual that sort of owed to you? And how much is you guys rolling up your sleeves at the table and sort of trying to get some pricing back and what the reaction to those conversations have been so far? Chris Villavarayan: So I'll take that one. And just if you break it up, steel is mostly contractual. So we have that on average somewhere between 75% to 80% as passed through. There's obviously the lag associated with when we have that recovery. Most of the conversations are most -- are on the freight side, as Carl mentioned, that is something that is not covered. And so those negotiations, as you could imagine, are obviously difficult, but our customers understand it, especially when you think about numbers where freight has gone up 400% to 500% depending on which region and the type of freight. So we've had those -- we've started those conversations early. We've continued to have those conversations, though difficult. What I would say, Joe, is at the end of the day, our customers need us healthy. So we've been able to work with them. And as we see going into '22, those costs continue to rise. So we will have to continue to have those conversations. Joseph Spak: And historically, it's been easier to take pricing on the aftermarket side, right, than on the correct? Chris Villavarayan: Yes, correct. We twice the year and we've usually... Joseph Spak: Yes. Okay. Last one for me. Like on the EV stuff, great to hear $500 million in wins, which is, I think, what you were already, which is what you're targeting. Is there a way to let us know the split between, let's call them, legacy truck makers and some of these newer names? And also like what's the time frame for that $500 million to be recognized over? Chris Villavarayan: So let me take that one. We don't usually provide the granularity by customer, Joe. What we're doing is essentially taking the full basket or the full revenue that we have from all our customers and risk adjusting, and that's what you see. However, in terms of, let's call it, timing, that's something that we will provide when you call in on December 7. Operator: Our next question comes from Bruce Chan with Stifel. Matthew Milask: This is Matt on for Bruce. Congratulations on the solid fiscal '21. With regards to the fiscal '22 outlook, could you provide some more color around the key assumptions on labor cost inflation perhaps how good you guys feel about your line of sight into how the salary, wages and benefit line might ultimately impact margins next year? And maybe as a follow-up to that, if you could comment on the hiring and staffing challenges that you're experiencing now in the market, if you have any thoughts on what the impact might be on production, labor and so forth from The Biden Administration's vaccine regulations? Carl Anderson: Thanks, Matt. I'll take the first question and turn it over to Chris for the second. As it relates to the inflation for the workforce that we're seeing, it is embedded in our guidance right now. I think it is definitely obviously increasing depending on where we're operating and what we're in, but I would say it's fully reflected in what our guidance is from an assumption perspective. So I'll turn it over to Chris. Chris Villavarayan: And so on the second half, Matt, if you think about it, I would say Q4 for us was probably one of our most challenging quarters thinking about labor coming with the -- obviously, the impact of the Delta variant as well as the inability to really get a good view of the line rates because of the impacts of the semiconductor shortages. So we were seeing quite a bit of sporadic shutdowns through Q4. We do see that normalizing in Q1. So our OEs have adjusted line rates based more from the visibility they have ahead of them, and that's provided us the ability to then appropriately staff. One of the other things we have done and it's a true testament of the Meritor the employees of Meritor is we were able to respond, in many cases, by moving some of our salaried folks to respond into the plants. And as we think through some of our strategies at least stabilizing through the next quarter, those are some of the, let's call it, the elements that we continue to deploy. Matthew Milask: And lastly, if I could sneak one more in. Could you provide any updates on the Blue Horizon platform? Perhaps some color around the planned product portfolio, production time line, maybe the order book with existing customers or any new customer activity would be great. Chris Villavarayan: Yes, I'd love to. So perfect. So I think Blue Horizon -- under Blue Horizon, we captured both our ePowertrain as well as, let's call it, the full system with the full system, which is where we provide the PACCAR, the battery system as well as the ePowertrain, which we're launching with PACCAR, we're all aligned to go into production at the end of this year. So we're in great shape there. And then with the which is -- 14Xe, which is the ePowertrain, we announced obviously the two prototype announcements today. So that stream continues to build, and we look forward to talking more about it on our Strategy Day on the 7. Operator: Our next question comes from Ryan Brinkman with JPMorgan. Your line is open. Ryan Brinkman: Given that you're mostly protected in customer agreements with regard to steel cost recoveries with the biggest consideration there, I think being mostly timing differences and the optics on margin, et cetera. I thought to ask some more questions on these non-commodity supply chain costs. A number of light vehicle suppliers this quarter have called out these costs, including ocean shipping, freight, electricity, natural gas, diesel, even labor, suggesting that they are unusual and that they would seek to at least partially recover them via commercial negotiations with their customers. I heard you guys mention ocean shipping and freight a number of times. To what extent should we think about these costs as needing to be offset more through productivity and other cost savings? Is that how you've tended to handle lower rates of inflation of these costs in the past versus to what extent do you expect to pass on higher non-commodity supply chain cost to customers? If you do intend to pass along those costs, what would that process or timing of that process look like? And does it make sense to potentially formalize into future agreements, I mean not labor, but certainly maybe ocean shipping, for example, in the way that commodities began to be formalized in the contracts in the 2000s? Chris Villavarayan: Well, it's a great question, Ryan. I think when you think about the size and scale it isn't something that we can truly absorb when we think about the business. I mean you come to a point where it becomes detrimental over time. So for us, the -- conceptually, when you look at the other elements and you've identified them well, whether it's power and portions of labor, we certainly will be looking to pass some of these on to our customers. We've started with freight because that was the most significant discussion we've had, but we certainly have had other baskets we've started discussing with our customers. As we look at the last year and just preparing for the next year, you know that a significant portion of this needs to be moved out of the business. We started early coming into the pandemic by reacting -- by adjusting our headcount as well as looking at all nondiscretionary costs. So we've done quite a bit of, let's call it, internal work. But when it comes to a point where you have increases of 200% to 500%, we certainly will be looking to have conversations with our customers. Ryan Brinkman: And then my last question is on the labor front. You did get a question there already, so I'll try to ask it from a bit of a different angle. In the past, mostly in the industry downturns, I think you have highlighted the relatively higher percent of your workers that are temporary or were temporary at the time with the implication being that maybe there could be more easily or cost effectively let go when not needed, which is seemingly the opposite of the situation today, right? So I'm just curious what your mix of permanent versus temporary workers looks like today. If you're thinking any differently about permanent versus temporary with the benefit of temporary maybe being as much as sort of greater in downturns than upturns. And generally, what your retention looks like at the moment, you did get the question of how labor costs might track going forward. But just how about ensuring that you have sufficient continuity of experienced employees to meet quality and productivity goals, et cetera. Chris Villavarayan: So when it comes to -- so I'll break the question into two parts. When it comes to our full-time employees, I would say that retention has been still quite good. And it's -- part of it, Ryan, is the, let's call it, the legacy of Meritor's 110 years of Rockwell heritage. And on average, when I look through our facilities, we have employees somewhere in that 14 to 17 years that are full time. So we've been -- we've done a great job in retaining those employees, and those employees based on the brand and the fact that they've worked with the same team and the same company have provided that level of loyalty, and we've seen very little issues on the retention side there. Specific to the temp side, the temp ratio is lower than what we have had previously. And that is, as you could imagine, the same pressures that we're experiencing in -- that the industry is experiencing. So we are -- the way we've been attempting to fix that is by, obviously, bringing down our temp ratio, and that's how we've addressed that. Overall, our full time, let's call it, retention is up running north of 96%. Ryan Brinkman: And if just sneak a couple more in on capacity, where do you stand on capacity with all these new electrification awards? I don't know how intensive they are in terms of number of employees or square footage or whatnot, but it does seem like some of these awards might be incremental to existing business. Do you have sufficient capacity to the electrification wins that you've been securing or might you need to add capacity when was the last time that you've done something like that? Carl Anderson: So we've actually broken up -- I'll break that into two elements. So the full powertrain where we build the PACCAR, the battery system and the axle, there, we have -- that is through our acquisition in TransPower. We have two buildings, and we're constantly looking at expanding our capacity there as we see that business growing. When it comes to our ePowertrain just the axle -- the integrated axle, here, what we are doing -- we have been able to integrate it into our manufacturing sites in North Carolina between Asheville and Forest City. So here, we feel that we have enough capacity to be able to respond to the market as we see it over the next few years. Ryan Brinkman: And then just finally, there's so much excitement right now about last-mile delivery vans, the leverage to e-commerce, think about bright drop and some of their competitors. To what extent are Ford transit or sprinter van considered to be in the Class 5 through 7 or how positioned are you or aren't you to compete in the light commercial vehicle space? What's your interest in that portion of commercial vehicles? Carl Anderson: Well, that's a great question. I'd love to answer that one. So when you take out -- so when you think about it, we have historically been on the heavy side. And so we started off with the 14Xe. And so if you think about Lion highly on Autocar, PACCAR, that's been the 14Xe. But the best part about our, let's call it, [indiscernible] into electrification is the wins on the medium-duty side. And so as you guys know, historically, we have had about 15% share here, and we've been winning here. So as we think about Class 7, Class 6, this is Volta, which is Hexagon, and that's where we see significant growth. And it's just been a true testament to the product that we've brought to the market right now. So we have the 14Xe that comes to Class 7 or the bottom end -- the top end of medium duty or the bottom end of heavy. And so that's what both Volta and Hexagon are using. And beyond that, we have the 12Xe that we plan to bring to the market in '23 as well as our agreement with Electric, which helps us get us into, let's call it, the top end of Class 5, Class 6 and 7. So it's not that we decided on, let's call it, a sequential strategy. We came up with parallel strategies on the medium side, and it's great to see that we're winning. Operator: [Operator Instructions] Our next question comes from Itay Michaeli with Citi. Your line is open. Itay Michaeli: Just two follow-up financial questions for me. First, can you just touch upon what you're assuming for R&D in fiscal 2022? And then second, going back to the recovery and pricing actions, particularly for the noncontractual freight portion, how do you go about kind of modeling that? Is there sort of a percent success rate or recovery that you're assuming, just given that there might be a bit of a, I guess, an uncertain nature in terms of how those discussions may go? Chris Villavarayan: Sure. Yes, I think on R&D, we are currently assuming about 2% R&D as a percent of sales is kind of what's in the modeling and the forecast embedded in our guidance. And then as it relates to just those discussions, whether it's freight, steel, in some cases as well because we don't always recover 100%, I think it's just -- we do build certain assumptions in there. But I would say what's happening is the pricing continues to change, and we're still seeing that kind of run up. And so those discussions are just extremely critical for us. And so at this point, we will be driving to achieve everything from all customers as it relates to the pricing actions that we need to deliver on as we go forward. And we've had some success to date. But in this rising inflationary environment, especially on some of these costs, they continue to run. So there's more work and discussions we need to have. Itay Michaeli: Maybe a quick follow-up, Carl. I think you mentioned working capital obviously a drag with all that's been going on in the supply chain. Are you assuming a full recovery in fiscal '22? Or will there still be some additional recoveries beyond '22 just for all the recent volatility? Carl Anderson: Yes. As we look at it, we -- as I mentioned, we had about a $70 million headwind in '21 compared to 2020 expectations. I don't know if we'll claw all the way back, but I would say we should definitely see a $50 million-plus improvement in working capital on a year-over-year basis. Operator: Thank you. And I'm currently showing no further questions at this time. I'd like to turn the call back over to Todd Chirillo for closing remarks. Todd Chirillo: Thank you for joining our call today. If you have any questions, please feel free to reach out to me directly. Thank you, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Greetings, ladies and gentlemen, and welcome to the Cummins Inc. Third Quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jack Kienzler, Executive Director of Investor Relations. Thank you, sir. Please go ahead. Jack Kienzler: Thank you and good morning, everyone. Welcome to our teleconference today to discuss Cummins results for the Third Quarter of 2021. Participating with me today are our Chairman and Chief Executive Officer, Tom Linebarger. Our President and Chief Executive Officer, Jen Rumsey, and Chief Financial Officer, Mark Smith. We will all be available for your questions at the end of the conference. Before we start, please note that some of the information that you will hear or be given today will consist of forward-looking statements within the meaning of the Securities Exchange Act of 1934. Such statements express our forecasts, expectations, hopes, beliefs, and intentions on strategies regarding the future. Our actual future results could differ materially from those projected in such forward-looking statements because of a number of risks and uncertainties. More information regarding such risks and uncertainties is available in the forward-looking disclosure statement in this slide. Deck and our filings with the Securities and Exchange Commission, particularly the Risk Factors section of our most recently filed Annual Report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q. Due during the course of this call, we will be discussing certain non-GAAP financial measures and we refer you to our website for the reconciliation of those measures to GAAP financial measures. Our press release with a copy of the financial statements and a copy of today's webcast presentation are available on our website at www. cummins.com, under the heading of Investors and Media. But with that out of the way, we will begin with our Chairman and CEO, Tom Linebarger. Tom Linebarger: Thank you, Jack and good morning. Welcome everybody. I'll start with a summary of our Third Quarter financial results and our market trends by region and finish with a discussion of our outlook for the rest of 2021. Mark will then take you through more details of both our third quarter financial performance and our forecast for this year. Demand remains strong in the third quarter as the global economy continued to improve, driving strong sales growth across most businesses and regions outside of China. In China, industry-wide sales of trucks and construction equipment is slowed sharply, but in line with our expectations. We remain encouraged by the economic trends in our markets, which point to strong end-user demand extending into 2022. We also continue to see orders for our products outpaced our competition as a result of their strong performance in the field. Unfortunately, supply chain constraints continue to significantly impact our ability to produce and ship products, driving up costs and limiting sales growth in the short run. These supply chain constraints are impacting our OEM customers in much the same way. Before getting further into our results, I want to take a moment to highlight a couple of strategic milestones in the evolution of our next-generation products and technologies. In October, we announced that we will bring a 15-liter natural gas engine for heavy-duty trucks to the North American market. This engine was launched earlier this year in China and has been well-received in the market, demonstrating excellent performance and reliability this far. The 15-liter natural gas engine is an important part of our path to zero emission strategy, by offering a significant reduction in both criteria pollutants and greenhouse gases in a product that's available today and utilizes existing infrastructure. Equally exciting is that this engine is designed to accept a range of gases and renewable fuels, including hydrogen in the future. In fact, all of Cummins' engine platforms are being designed with the same fuel flexibility. At the same time, we are working with Chevron and others in the energy industry to increase the availability of renewable natural gas and other renewable fuels to ensure infrastructure is in place to meet our customers needs. We also signed a letter of intent to establish a joint venture between Rush Enterprises and Cummins, which will produce Cummins branded natural gas fuel delivery systems for the commercial vehicle market in North America, combining the strengths of momentum fuel technology's compressed natural gas fuel delivery systems and Cummins powertrain expertise along with the engineering and support infrastructure of both companies. These are important steps in expanding our portfolio of Power Solutions options to help customers meet their business goals and operation objectives, while also meeting increasingly stringent emission standards and achieving our customers sustainability goals. Now, I will comment on the overall Company performance for the third quarter of 2021 and cover some of our key markets. Revenues for the third quarter of 2021 were $6 billion, an increase of 17% compared to the third quarter of 2020. EBITDA was $862 million or 14.4% compared to $876 million or 17.1% a year ago. Higher freight and logistics expenses, rising material costs and other manufacturing inefficiencies associated with the ongoing supply chain challenges in our industry. More than offset the benefits of global volume in increases compared to the third quarter of last year. As a reminder, EBITDA in the third quarter of last year was helped by temporary salary reductions, which lowered our cost by approximately $90 million. Our third quarter revenues in North America grew 13% to $3.4 billion, driven by higher engine and component shipments across the heavy and medium-duty on highway markets. Industry production of heavy-duty trucks in the third quarter was 55,000 units, increase of 10% from 2020 levels. Cummins sold 22,000 heavy-duty engines in the same period, up 30% from 2020 levels. Industry production of medium-duty trucks was 26,000 units in the third quarter, a decrease of 5% from 2020 levels, while our Cummins unit sales were 23,000, an increase of 25% in 2020. We shipped 43,000 engines to Stellantis for use in the RAM pickups in the third quarter of this year, a decrease of 2% from 2020 levels, but still a very strong quarter. Revenues for power generation grew by 2% due to higher demand in recreational vehicle, standby power, and datacenter markets. Our international revenues increased by 22% in the third quarter of 2021 compared to a year ago. Third quarter revenues in China, including joint ventures, were $1.5 billion, a decrease of 11% due to lower demand in the medium and heavy-duty truck markets. Industry demand for medium and heavy-duty trucks in China was 217,000 units, a decrease of 53% as the industry works through the national standard 5 truck inventory on hand and lower demand for newer higher-cost national standard 6 unit. Our unit sales in units, including joint ventures, were 40,000, a decrease of 49% versus the third quarter last year. Our light-duty engine sales were 33,000, a decrease of 40% driven by supply chain constraints and weaker market demand. Industry demand for excavators in China in the third quarter were 56,000 units, a decrease of 15% from 2020 levels. Our units in Cummins sold were 88,600 units, a decrease of 20%. Power generation sales in China increased 52% in the third quarter compared to a year ago, based on strong demand in data centers and other backup power applications. We continue to hold a market-leading position in the data center segment in China, driven by strong end-user relationships and our compelling product offerings. Third quarter revenues in India, including joint ventures were $520 million, an increase of 76% from the third quarter of 2020. Industry truck production increased by a 120%, while our shipments increased 135% as our joint venture partner continued to gain share. Demand for power generation and construction equipment also rebounded strongly in the third quarter compared to a very low base a year ago. In our Power Systems market, industrial engine revenue increased 33% in the third quarter compared to the same period last year driven by mining in oil and gas. In Brazil, our revenues increased 26% driven by increased demand across all end markets. Now let me quickly cover our outlook for the remainder of 2021. Based on our current forecast, we expect our revenue to be at the lower end of our guidance are up approximately 20% versus 2020. EBITDA is now expected to be approximately 15%, below our previous guidance of 15.5% to 16% of sales. Our expected EBITDA margins are lower because of the persistence of the supply chain constraints and disruptions, which are now exacerbated by escalating material and freight prices. We've lowered our forecast for industry production of heavy-duty trucks in North America to 228,000 units, up 25% compared to 2020, but below our prior guidance of 264,000 units. This is again due to the supply chain constraints impacting our customers rather than a lack of end-user demand. In the medium-duty trucks market, we are decreasing our forecast for industry production to a 118,000 units, up 15% year-over-year, but below our prior guidance of 134,000 units. We expect our engine shipments for pickup trucks in North America to be up 25% compared to 2020, an increase of 7.5% from our expectations three months ago. In China, we continue to expect domestic on-highway demand to decline from record levels a year ago. Our 2021 outlook for medium and heavy-duty truck market demand is 1.65 million units, and our 2021 outlook for light-duty trucks market is 2 million units; both unchanged from our previous guidance. We continue to expect industry sales of excavators to be flat with the record levels achieved in 2020 and unchanged from our previous guidance. In India, we anticipate industry demand for trucks to be up 75%,compared to levels experienced in 2020. And our other businesses are showing promising growth due to continued infrastructure investment, this is also unchanged from previous guidance. We now expect demand for mining engines, to increase 60% in 2021. Up from our expectation of 45% 3 months ago based on continued strength in commodity prices. We continue to expect global power generation revenue to increase 15%, primarily driven by the data-center and recreational vehicle markets. Summing up the quarter, strong demand across many of our markets drove continued sales growth in the third quarter. Despite the strong demand, supply chain constraints continue to significantly impact both our operations and those of our customers, resulting in higher material and logistics costs, as well as capping revenue growth. We are working collaboratively with our customers and suppliers to navigate these challenges and position the Company for better performance in 2022. Customers are recognizing the strong performance of our products, resulting in our sales growing faster than industry demand in a number of important markets. We continue to invest in bringing new technology to our customers, outgrowing our end markets, and providing strong cash returns to our shareholders. The Company expects to return over 75% of our operating cash flow to shareholders in 2021 in the form of dividends and share repurchases. Thank you for your time today and now let me turn it over to Mark. Mark Smith: Thank you, Tom and good morning everyone. There are four key takeaways from our third quarter results. End customer demand remains strong in the third quarter, driving sales growth -- strong sales growth across most end markets and businesses outside of China, where truck and construction demand has weakened in line with our expectations. Global supply chains remain constrained, impacting our industry's ability to meet strong customer demand, and resulting in higher freight, labor, and logistics expenses and rising material costs. As a result of the continued supply challenges and associated costs, we are lowering our full-year sales and profitability outlook even though underlying demand remains very strong. Finally, we'll return $345 million to shareholders through cash dividends, and share repurchases in the quarter, and a total of $1.83 billion for the first 9 months of the year consistent with our plan to return 75% of operating cash flow to shareholders this year. Now let me go into more details on the third quarter. Revenues were $6 billion, an increase of 17% from a year ago. Sales in North America grew 13% and international revenues rose 22%. EBITDA was $862 million dollars or 14.4% of sales for the quarter, compared to $876 million or 17.1% of sales a year ago. As a reminder, EBITDA in Q3 last year would lose by $90 million of temporary salary reductions, and the $44 million VAT recovery in Brazil. Along with the strong demand, the key feature of our performance in Q3 was that our gross margin continues to be challenged by the supply chain constraints and elevated costs. gross margin of $1.4 billion or 23.7% of sales increased by $65 million but declined as a percent of sales by 270 basis points. Global supply chain constraints continue to impact the industry's ability to meet elevated and the cost demand and have resulted in higher costs. We incurred approximately $90 million of additional freight, labor and logistics costs in the third quarter. in addition to rising material costs, partially offset by increased pricing in the aftermarket. SG&A expenses increased by $38 million or 7%, and research expenses increased by $42 million or 19% from a year ago, primarily due to higher compensation expenses. As a reminder, due to the significant uncertainty the onset of the COVID-19 pandemic, we implemented temporary salary reductions in April 2020, through the end of September last year. These salary reductions resulted in approximately $90 million of pre -tax savings for the Company last year and impacted gross margin and our operating expenses and impacted the comparisons of the results of all of our operating segments. Joint venture income was $94 million in the third quarter, down slightly from $98 million a year ago due primarily to weaker demand for both trucks and construction equipment in China. Other income of $32 million increased by $11 million year-over-year. Net earnings for the quarter were $534 million or $3.69 per diluted share compared to $501 million or $3.36 per share from a year ago, primarily due to a lower tax rate and a reduced share count. The effective tax rate in the quarter was 19.9%. Our income tax expense included favorable discrete items of $11 million or $0.08 per diluted share. Operating cash flow in the quarter was an inflow of $569 million dollars compared to $1.2 billion dollars a year ago. An increase in working capital led to the lower operating cash flow for this quarter. Now, let me comment on segment performance and our latest guidance for the full-year 2021. For the engine segment, third quarter revenues increased 22% from a year ago, driven by increased demand for trucks in the U.S. and construction equipment in the U.S. and Europe. EBITDA decreased from 18.1% to 15.2%, primarily driven by higher supply chain costs, lower joint venture income, and higher compensation expense, partially offset by the benefits of stronger volumes and lower warranty expense. But the full year, we've reduced our revenue guidance to be 24% at the midpoint, down 1% for the full year. We now expect EBITDA margins to be between 14.2% and 14.7% a little below our prior year guidance of 14.5% to 15% primarily due to the weaker sales on ongoing supply chain challenges. In the distribution segment, revenues increased 14% from a year ago. EBITDA increased in dollars but decreased as a percent of sales from 10.6% to 9.8% primarily due to some of the supply chain challenges but again the higher compensation costs. We have maintained our 2021 outlook for distribution segment revenues to be up 8% and increased EBITDA margins to 9.3% of sales at the midpoint of our guidance. Component segment, revenues increased 16% in the third quarter, driven primarily by stronger demand for trucks in North America. EBITDA decreased from 16.9% to 14.1% primarily due to higher supply chain costs and higher warranty expenses compared to very, very low cost of quality in the year-ago quarter. For the full year, we now expect components revenue to increase 28%, lower than our prior guidance of up 32%, primarily driven by a weaker outlook in North America and slightly lower outlook for China truck. We have also lowered our forecast EBITDA margins for the segment to be at 15.5% of sales at the midpoint, down from our prior guidance of 17%, as this segment is being more hardly -- has been hit harder by the supply chain challenges and the slowdown in truck production in North America and China. In the Power Systems segment, revenues increased 19% in the third quarter, driven by stronger demand for power generation and mining equipment. EBITDA increased by $33 million, and expanded by 10.3 to 11.5% of sales, primarily due to the benefits of higher volumes and lower product coverage expense. Partially offset by elevated supply chain costs. For the full year we're increasing our power systems revenue guidance to be up 22% from our prior guide of 18% growth driven primarily by a stronger outlook in the mining segment. We're also increasing our EBITDA margin forecast to be 11.5% of sales at the midpoint from our prior guidance of 11.25. In the new power segment, revenue increased $23 million, up 28% due to stronger sales of battery electric system. EBITDA losses for the quarter were $58 million as we continue to invest in new products and scale up ahead of widespread adoption of the new technologies that we're developing. For the full year, we now project new power revenues of $120 million at the midpoint, and EBITDA losses to be in the range of $200 million. We expect total Company revenues now to grow approximately 20% at the low-end of our prior guidance. We're also lowering our EBITDA margin guidance to be approximately 15% for the full year, down from our prior guidance of 15.5% to 16%. A slower pace of improvement in North American truck production and continued elevated costs associated with the global supply chain challenges were the primary drivers of the lower outlook. We expect joint venture earnings to be up 10% for this year in line with our prior [Indiscernible]. We're forecasting our full-year effective tax rate to be 21.5%, excluding discrete items. Capital expenditures were a $150 million in the quarter, up from a $116 million a year ago, when we continue to expect full-year capital spend of between $725-$775 million. To summarize, we faced incredibly strong demand in many of our core markets but continue to face global supply chain challenges which have impacted our cost base, and more so than we'd expected in the second half of the year. However, this end customer demand remains strong, outpacing supply in many important markets and setting us up for a strong 2022, assuming the global economy remains strong. I want to thank all of our employees for their tireless work this year to ensure that we've meet the needs of our customers while continuing to deliver solid financial results. We continue to prioritize improving our performance cycle-over-cycle, investing in technologies that will power profitable growth and returning excess capital to shareholders. Thank you for your interest today. And now let me turn it back over to Jack. Jack Kienzler: Thank you, Mark. Out of consideration to others on the call, I would ask that you limit yourself to one question and a related follow-up. And if you have any additional questions, please rejoin the queue. Operator, we are now ready for our first question. Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question, [Operator Instructions]. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, [Operator Instructions]. And as just previously stated, please make sure you're limiting yourself to one question and one follow-up. Our next question is come -- sorry, our first question is coming from Stephen Volkmann of Jefferies. Please go ahead. Stephen Volkmann: Hi, good morning. Thanks for taking the questions. Maybe I'll just dive in on some of these supply chain issues. Is it possible to just bucket the impact that you guys have seen? I'm thinking about price costs being a headwind, I'm thinking about logistics costs I think you gave us a number for that Mark. I'm guessing there's probably some productivity headwinds. I'm just trying to see if we can better understand exactly what you're seeing relative to these supplier interruptions. Mark Smith: Happy to do that and good morning, Steve. So yes, we are almost 2% worse between the price we've recovered in -- well, not recovered. The price increases that we've made principally in the aftermarket this year, which has added about 70 basis points to our results. And we've lost yeah, more than 2.5 points between the premium freight, rising material costs, and inefficiencies in our operations. And that's a little bit -- that's higher obviously than when anticipated 3 months ago. We did see a reduction in premium freight from the second quarter to the third quarter, but we started to see more increase on the material cost side. Stephen Volkmann: And Mark, is it too early? I mean, I'm assuming for 2022 year goal will be to get right with that. Or maybe even a little bit better. I don't know, any commentary you can make as we go out into '22? Mark Smith: I will just say this continues to be a high area of focus both on our operation side and also working through this with suppliers and customers and implementing price increases. Tom Linebarger: Hey Steve, this is Tom, the one thing that everybody is still worried about in our industry is semiconductors. It's not that things haven't improved some because they have, but it's marginal improvement. It's still a really tight supply chain, so there's a lot of issues across the supply chain, labor shortages, freight, etc. But semiconductors look like they're -- they have a longer-term capacity issue and I'd also say the freight side of things just seems like it's not quite getting better yet when you look at where containers are and what ports look like. So there's no question that, as Mark said, internally, we are working as much as we can to address our cost side inefficiencies. He talked about going out and negotiating price increases, and as you know on the material cost side, those come automatically, but we'll have to negotiate for the rest. It's just that some of these things look like they are likely to be somewhat persistent. That doesn't mean we're not hoping to improve them all. I just want to be realistic about those. There'll be some element that looks like it goes into next year too. Stephen Volkmann: Understood. Thank you, I guess high freight costs are probably good long-term for you guys, but we'll have to wait and see how that plays out. Thanks. Operator: Yeah. Mark Smith: Thank you. Operator: Thank you. Our next question is coming from Jamie Cook of Credit Suisse. Please go ahead. Jamie Cook: Hi, good morning. I guess Tom, I just wanted to get more color from you on how you're thinking about China as we head into 2022, that's an important market for you. And what, in terms of like the power shortages and outages over there, how that's impacting your business goals from a negative perspective and potentially a positive perspective over time. I -- so I guess I'll start there. Tom Linebarger: Yeah. Let me let Jen talk a little bit about how the China market is now and how we're seeing it, and I can jump back in and see us talk about sort of longer-term things. Jamie Cook: Okay. Jennifer Rumsey: Hi, Jamie. As you heard from Mark, and we've been forecasting, we've seen a drop-off at the middle of the year in the China market -- on-highway market in particular, with the changeover between NS V and NS VI emission standards. So we saw inventory building up in the first half of the year and we're now seeing that coming down and getting sold in regions that are still allowing NS V product sales. And so that combined with a higher cost of the new emissions product has, as we expected, driven a drop in on-highway demand, which we expect to come back to some degree. 2020 was a record year for China though, so our expectation is that market's going to come back to be more in line with what we saw in '19 for on-highway. We are benefiting in China from additional content in the components business with new emissions requirements and also the launch of the endurance transmission now in China. So we see that benefit and we think our NS-VI products are going to performed well in the market as well and give us some upside potential. But the market overall is down. The construction market has also come down some and we are continuing to see some strength in the power gen market there. We are watching the impact of those power shortage issues in China very closely with our suppliers, it's not created a major disruption for us to this point, but it is something we continue to watch closely. Tom Linebarger: Yeah. I would just pick up from where Jen left off, the power shortages as she said. Some impacts on production, but not a huge cost impact. But as you suggested, Jamie, we do think it helps us in the market. And as I mentioned in my remarks, our power-gen business is positioned well in China and now I look at China and I see us positioned across all of our markets. The truck side, as Jen said, we've now got -- our automatic transmissions are taking off, our content across the engines is growing. There's more consolidation in the market. So as things start to come back, I think we're better positioned we've ever been. Add to it, that we're now doing electrolyzers with a partner in China. We've got fuel-cell launches in China. So on the new power side, while things are moving slower in China than maybe and people anticipated several years ago, that's just allowed us to position ourselves to be in those markets more strongly as they take off. So again, today -- looking where I am today, I'd say our position in China has really never been stronger. So, yeah. Do I wish the market was stronger this year? Sure. But I think as it turns back down, we're able to consolidate more and strengthen our position. Jennifer Rumsey: And we have the new N15 natural gas product launched in China as well now, and that I think positions us better for what's a fairly sizable natural gas market in China as well. Jamie Cook: Okay. Thank you. And then just as a follow-up, can you just talk to how far your order book extent today and to what degree there's risks that the order book has unfavorable pricing in it, and are you concerned about double ordering at all? Thanks. Jennifer Rumsey: Yeah. I mean, at this point, the demand out there is very strong. We're seeing growing back orders in some of our businesses. And I've been out in recent couple of months talking with both OEMS and customers and there is strong demand out there that for sure is real at this point, customers are not getting all the trucks that they would like to get this year and do not believe even looking into next year, they think that there's going to be some limitations. I think that orders are strong and as Tom said, we've got some contractual pricing on metals that we'll get, as we go into next year. We've been taking pricing actions where we go direct to the market and aftermarket on PowerGen, and we're continuing to work with our OEM customers, on first-fit to negotiate pricing just in light of that cost environment we see right now. Jamie Cook: Thank you very much. Tom Linebarger: Thanks Jamie. Operator: Thank you. Our next question is coming from Ann Duignan of JP Morgan. Please go ahead. Ann Duignan: Hi. Good morning. Thank you, Just to follow up on the supply chain, a quick follow-up, please. Would you expect, the announcement that we're eliminating the European tariffs on steel and aluminum to have any impact on U.S. steel prices in 2022? Tom Linebarger: Hi Ann I'm Tom, it's good to hear you. I really don't know because again, there are, as you know, export, I mean, sorry, import caps on that too. So how much that's going to really impact prices is unclear to me. And demand, of course, for metals is pretty high now. So the markets are pretty well-supported. In fact, our mining, you saw our mining numbers are up and that's primarily driven by metal prices. So just in the U.S., it feels to me like it's going to have moderate long-term impact. Short-term, it may provide a little bit of relief, but I would have said that given the import caps, it's probably not a big move medium or long term. Ann Duignan: Okay. Thank you. I appreciate the color on that and my real question though is more fundamental. I mean, you're talking about the 15-liter engine being able to use fuels like hydrogen as their major fuel. If it's so easy to convert a 15-liter internal combustion engine to burning hydrogen, why are we investing in fuel-cells at all? If we can do it with just a new fuel injection system or some minor re-engineering of an internal combustion engine, why go down the path of the hydrogen investments or in particular fuel cells at all? Tom Linebarger: Well, as you know, the hydrogen investments would be the same. Still we would need to generate hydrogen and, of course, we need green hydrogen in order to actually reduce the CO2 impact of the fuel. And really, hydrogen combustion is a good answer. It's just not as efficient as a fuel cell. So if you're running our long-haul heavy-duty trucks where fuel is your number one cost or power energy is, then that efficiency increase from a fuel cell is going to be worth it to you. If you have a relatively short range or you have a vocational truck, our view is maybe a hydrogen engine might work for you, especially if the conversion to fuel cell is too expensive and you're not having that many units. So our view is there's a place for both, but if you want to think what's going to really drive the transportation economy 20 years -- 15 years from now, you're going to need the efficiency that a fuel cell, especially with an electric system, is going to provide. So our feeling still as fuel sales win, for the majority of the trucking industry, but we -- hydrogen engines are a real addition to the portfolio of products that are -- can be available across our markets. Jennifer Rumsey: And there's a time factor too, as you can imagine. As fuel cells advanced and costs come down, and maybe there are period of time where hydrogen engines are having an economic advantage, but as Tom said over time costs come down, that efficiency benefit for customers that are really driven strictly by total costs on ownership. May -- we think will drive a shift toward fuel cell and applications like Line Haul. Ann Duignan: Okay, I'll take mine more engineering relented questions offline and then Jennifer Rumsey: You have a lot of them. I'm going to be Jamie to be Tom Linebarger: Ann [Indiscernible] Jennifer Rumsey: Ann, I'm going to be happy to have a longer conversation -- Ann Duignan: I'm over-simplifying just simple fuel injection system re-engineering. Jennifer Rumsey: Exactly, I think taken 30 Second on it, we're designing this platform that the physical hardware for flexibility is exactly as you said, this fuel system and some other components differences and then the tuning. Of course, the calibration and control of the engine is different based on the fuel, but we're able to leverage some of that manufacturing and engineering investment in a common platform. Ann Duignan: Okay. Thank you. I'll get back in the queue. Appreciate that. Tom Linebarger: Thank you, Ann. Operator: Thank you. Our next question is coming from Tim Tse of Citigroup. Please go ahead. Tim Tse: Thank you. Good morning. The question really is just hoping you could give some help in terms of how we should think about the relationship between heavy and medium-duty engine sales for Cummins versus Industry truck production, both in the fourth quarter and then as we get into '22. I'm just thinking about how you out pacing the industry as your OEM customers deal with all these red-tag trucks. How should we think about that, again, relationship? Obviously, a global impact or maybe just thinking about the heavy-duty segment here in the near term. Jennifer Rumsey: Yes, there's a couple of dynamics. So of course, we've added some additional OEM customers. So when you think about our sales through OEMS and medium-duty and heavy-duty. And you saw -- you heard some of the numbers around how much of the total market we're seeing with Cummins engine. So we feel really well-positioned, our products are performing well, there's a lot of end-user pull and we've seen good position in the market. The dynamic that is happening in the fourth quarter, in most cases, we have been able to work through the supply constraints and continue to supply to our OEM customers and have not, in most cases, been the reason they've not been able to build trucks. So as they take down some of their build rate, stabilize their production and complete these trucks that they build short of some components. We have seen some reduction in demand on the engine itself as they're working to really stabilize and get to more efficient build rates to make sure they are building with what supply and inventory they have and level that out. So that is impacting that in the fourth quarter and in part why we adjusted our revenue guidance. Mark Smith: What I would add Tim is what we see is our products are performing incredibly well. We see it in our financials with very positive results on cost of quality and overall strong sense of enthusiasm for the products that we're putting in the market. Invariably, you're going to get some volatility quarter-to-quarter, as we always do, but we feel really good about the position of our products in the market. I think that's the message when you step back and when we're done with this year and and we look at the message you want you to leave with, and, of course, we're optimistic about picking up more business over time. Tim Tse: Got it. And then Mark just on the margin impact in components. Obviously, a lot of metals and platinum and palladium and etc. used there, and I know there's always a time lag. Is there a way to think about the margin impact this year that's effectively a timing gap that you get the presume the -- presuming things stabilize, which maybe is a wrong assumption, but is there a way to think about what is more of a short-term impact that gets reversed next year or is it too hard to piece that part? Mark Smith: If I just step back because there's a lot of noise year-over-year because some of the actions we took last year, the boosted results for us to step back from the noise of the numbers. I'll come back to that in a moment. Really, we're wrestling with three issues in that business that are somewhat different than we'd anticipated 3 or 6 months ago. Number one, for the production in North America has not picked up in the second half of the year, if anything, it's drifted down a little bit. And we were counting on that in our guidance. So we think underlying demand supports are robust environment for next year, and that should take care of itself. Number 2, whilst we anticipated a sharp drop in the second half of the year in China and that's playing out largely as we've expected. This business is doing a major product transition for NS-5 to NS-6. And in variable when we start with the launch of new products, will below optimal scale, demand is still pretty light for NS-6 so as we ramp up, we'd expect margins to recover. The bigger challenge, or the more, naughty challenges the rise in supply chain costs, which is really what we've seen when in the first half of the year we saw OEMS principally, availability impacting our operations, supply chain and the engine business. We've seen that spread more to more electrical components. And what's happened is the components business has picked up more cost and efficiency. So that one's not you were working Mark Smith: through all that. Yes, we got the metal costs, we got the normal contractual adjustments around that. But it's that focus on the supply chain and the other actions that we talked about at the start of the call that we're focused on here. But I just wanted to try and simplify the message. There's a lot of noise out there. I'll just say one other thing just -- you didn't ask me, just clear up some noise I hear. Whilst -- in the explanations, we mentioned higher product coverage costs in this segment, it's compared to an extraordinarily low number last year. There's no big charge for product coverage or warranty in the segments. I just wanted to clear that up for other listeners. Thank you. Tim Tse: Got it. All right. Thanks for the time, Mark. Mark Smith: Cheers, Tim. Yeah. Operator: Thank you. Our next question is coming from Jerry Revich of Goldman Sachs. Please go ahead. Jerry Revich: Yes. Hi. Good morning, everyone. Tom Linebarger: Hi, Jerry. Jennifer Rumsey: Hi, Jerry. Jerry Revich: Tom, you folks target structural improvements in the business every cycle and I'm wondering as you look at the supply chain challenges that the entire industry face here, how are you folks thinking about potential changes in the way you manage inventories or the way you manage the supply chain going forward? Is there an opportunity to reduce some of the volatility by meaningfully increasing inventories given where cost of debt is, etc.? wondering how you're thinking about positioning comments coming out of this pretty complex environment we're facing here. Tom Linebarger: Jerry, it's a terrific question, and as you can imagine, it's been on my mind for a while. We did -- early in the pandemic we did do some structural reform. I think we talked about on some previous calls trying to say, hey, well, the market's down, let's make sure that we get our capacity rightsize and I think we did some good work early on on that. But with the supply chain challenges, we've also seen a bunch of new problems that we weren't seeing before. You highlighted some of them. Do we have enough inventory in the right places? Are we outsourced in places we should be insourced? And then of course with trade challenges between countries, are we relying too much on cross-border trade. So all those things now are in our strategy looking forward about how we want to reposition our supply chain. So today what we're doing is trying to get our costs down, trying to get our production up to meet customer demand, and trying to keep our supply chain people at work. when it's -- they're basically working 24/7. It's been really, really rough, so I would just say that the strategic elements, while we're doing a lot of work and analysis on them, there's no question that we've taken a backseat to try to keep operations going in the last couple of quarters. But those issues are first and foremost, for us and the leadership team, thinking about how we want to position. And I will just say this, broadly speaking, what we're thinking about is we do need to reposition what we outsourced and what we in-source for the future, partly because of some of the supply chain challenges we've seen here, but also because the industry is likely to consolidate further. And we need to make sure that we can be the reliable supplier that we need to be for our customers. So we will be looking at that and thinking through where the right way to position ourselves in different supply chains is, but I think you've hit on a key point that there will be some optimization that will be helpful to us, both from a cost and reliability point-of-view overtime. Jerry Revich: Terrific. On a separate note, I'm wondering if you could talk about the outlook for your electrification opportunities in off-highway markets, obviously a pretty fragmented supplier base in terms of other engine systems in the market now. How do you see that as an opportunity set for comments and are there significant major new product milestones that we should look forward to as you folks electrify the off-highway offerings? Tom Linebarger: As you said, off highway is more fragmented and generally speaking, conversations are a phase behind on highway in battery electric power trains, but they are common. As you'd guess, every major off highway producers trying to figure out what their long-term strategy is from carbon point of view and sustainability point of view. We are having conversations with many of them. In all cases, I think the battery electric conversation, it is at a high level strategically as the same thing. All of them need a solution. All of them want to figure out when is the costs -- the total cost of ownership for end-users work out and it generally doesn't today unless you're in a publicly financed application. If you're in a train or a bus or a ferry, okay. If you're in a commercially viable thing, it doesn't quite work out yet, but the numbers as you know are changing quickly, but it still doesn't work out. So they are trying to figure out how to position themselves for when it does work out, who they partner with, and how. And today, most of those partnership conversations are pushed out because there's not a viable offering to make today, nor is there a way to get to a viable offering within technologies and the costs as they are now. So everyone's looking forward trying to figure out what does it look like. Off-highway, I believe, strategically, will be in the same challenge that they're in today. Not enough volume to justify a special one, but very specific needs to their application. And our view is that Cummins will be well-positioned because we will have products and on-highway which will give us volume and scale and then we will have an understanding of their application and how to adapt the technologies most effectively to off-highway so that we'll represent a good partner to them, and as you guessed, that sort of the pitch I'm making to them now that we'd be the right partner for them in battery electric as we are with engines. Jerry Revich: I appreciate the discussion. Thanks. Tom Linebarger: Thank you. Operator: Thank you. Our next question is coming from Noah Kaye of Oppenheimer. Please go ahead. Noah Kaye: Hi. Good morning. Thanks for taking the questions. Tom, I wonder if you could kind of update us on how the naturaliser pipeline is developing. I think we've seen some of the companies in the industry just a really robust demand growth since the start of the year. And if you can also comment, obviously it's not set in stone, but there appear to be some pretty healthy incentives for nitrogen production in the reconciliational provision. So just wondering if you'd comment on potential impact of that outgrow the business? Tom Linebarger: Yeah. He thinks -- no I appreciate your question and the answer is, we have continued to see backlog growth in the electrolyzer business, and I'd say the big strategic move we wanted to make was to add some bigger projects to the backlog and those conversations have been going much better in a backlog. I think last time we checked with 60 megawatts or something quite a good backlog, some newer larger projects which were exciting to add in there. And of course the problem with larger projects, they take longer to get together, and more likely delays in funding, but that's where the market's going. We need to have those big ones, so it was good to see some of those come into backlog. and I would just say that the interest in electrolyzers is still quite strong. As you mentioned, the bill -- the Build Back Better Plan has some incentives in there for producing hydrogen, especially low -- carbon-free ammonia. We think that's going to be a good use of electrolyzers in the early phase of electrolyzers. We see it in Europe where there's a carbon price already. We see it in some fertilizer-related projects and it's an area where there's a lot of carbon used in fertilizer through gray hydrogen and making that hydrogen green is a way -- there's already demand calculations about how to get cost. Equivalency are pretty straightforward. They're not easy, they take some funding and they take some incentives, which is why you see those in the bill. But once you do the calculations, you can see how you can get there, so I do expect that to be one of the markets that's likely to move more quickly, especially if those incentives make it through into law. I do think it will promote the green hydrogen -- green nitrogen, I guess the green ammonia business pretty quickly in the U.S. Noah Kaye: Thanks. And then just on a different topic, wonder if we could get any update on the filtration business, particularly in light of the comments made earlier about some of the operational changes or realignment from a high level that you're planning. Where you at in terms of exploring the alternatives for that business? Mark Smith: Hi Noah, this is Mark. Yes, we continue to make progress in pursuing the alternatives for that business. Our plans are unchanged and you should expect an update in the new year as we continue that work. Will be no -- I don't anticipate any significant change in the remaining three months. But an update in the new year and the direction and the enthusiasm for that process remains unchecked. And I will just say the performance of that business has also been very strong this year that. It's embedded within the components business, but the business continues to do very well. Noah Kaye: Yes. Thanks very much, Mark. Mark Smith: Thanks. Operator: Thank you. Our next question is coming from Matt Elkott of Cowen. Please go ahead. Matt Elkott: Good morning. Thank you. So guys, in the U.S., we're looking at significant upcycles in truck production as well as construction and mining equipment. As these upcycles begin to unfold, are there opportunities for you guys to increase the percentage of your engines with your customers, both on-highway and off-highway? And if I take it a bit longer term, are there opportunities for potentially gaining new customers who may currently be fully integrated? Jennifer Rumsey: Yeah, great question. We are constantly working to make sure that we have the most competitive engine in the market that drives end-user pull and grows our position in the market and also ensuring that we have capacity to meet OEM s' needs through strong cycles. And we continue to have conversations. You've seen announcements around the partnerships with Isuzu, with Hino, with Dymo. We're continuing to have those conversations with customers that may not offer Cummins engines today to introduce those in the future. So we expect that those opportunities will continue over time. Matt Elkott: So generally, during an OEM cyclical production up-cycle, does the vertical integration usually go up or down for the OEMS? Tom Linebarger: Matt, it depends, but at the very top of the market, generally speaking, our penetration goes up a little bit because they run out of capacity if they use both, if they have both their own demand and ours. But again, generally is not a good indicator for a given quarter and as Mark was saying earlier, quarter-to-quarter variation is pretty high because they may have backlogs. In this case, they may have unfinished trucks with more of their engine. So just quarter-to-quarter, it's hard to see. What's more is because of the supply chain challenges, right now, OEM truck production is capped by suppliers. So we're not anywhere near the maximum production of the industry today. I mean, we hope to be based on what engine users demand, but we're not. We're in an area where they can produce more if they could get more parts. So I think we're not really near the spot that you're asking about in terms of industry production. Matt Elkott: Got it. Next [Indiscernible] Tom and then just one follow-up question on the natural gas engine. In the U.S. it's very small. I think it's -- you guys produce about 10,000 engines and you dominate the market. With the 15-liter engine, can you talk about the growth opportunity and when you could see it unfold? I mean, is it going to be a meaningful opportunity next year or is this more longer-term? Jennifer Rumsey: Yes. So the plan -- we've announced that we're bringing this N15 natural gas engine that we have in production in China now into the U.S. market by '24. So we're couple of years out from offering that product. As I've talked to end customers, they are very excited about this product and in particular, as they pursue their own goals for carbon reduction. In the coming years, they see natural gas as a great way to meet those, including using renewable natural gas. So we expect some upside opportunities as we bring that new platform into the market and also some growing interest yo natural gas in the market. Mark Smith: Which again should boost our share given our position in natural gas, yeah. Matt Elkott: Thank you very much. Tom Linebarger: Thank you. Operator: Our next question is coming from Rob Wertheimer of Melius Research. Please go ahead. Rob Wertheimer: Thank you. You guys touched on pricing earlier, could you remind us maybe just give a quick recap overview of how pricing works on engine platforms. Is that the only one where you have constraints on what price that includes material costs, escalators, but not freight maybe if I understand right. And then, what portion of the mix do you then have to go after things like freight on? Tom Linebarger: Broadly speaking, Rob, the way it works is that we have OEM long-term agreements with large customers for engines and the major components. That's the sort of sectors where you'll see some of those long-term agreements. The benefit of those, of course, is that we can count on continued customer orders over a period of time over phase of production of trucks and engines. And the pricing arrangements in those for the most part, again, they're -- each one's a little different, but the general deal is it on basic material costs. There's an escalator or a pass-through, and on the rest, you need to negotiate if you want to make a change. Doesn't mean you can't negotiate, just means you have to negotiate with your partner. And then on generator sets and aftermarket where we go directly to retail customers, then we only have what's on the order book as what's what you can -- you can't price on. So as Mark and Jen said, we -- this year, we priced in the aftermarket. Early in the year, we priced in the aftermarket again. In the middle of the year, and we always are looking back at that to see if we should do more. And then gen sets we also move pricing right away. And then now what we're doing is talking with all of our OEM customers about the fact that we've had these escalators, not just freight, by the way, freight, logistics, material costs, special shipments as a result of delays in semiconductors, and other products that we want to recover from them, and we're in negotiations with them now. Rob Wertheimer: Okay. That's helpful. And then, Tom, thinking about an overview on -- you touched on it earlier on semiconductors. Do you have a sense on when you think the industry be in better shape and what does Cummins doing specifically I'd love your re-qualifying supplier, qualifying new suppliers, redesigning chips, etc, before the industry gets better? I'll stop there, thanks. Jennifer Rumsey: Yeah, I will comment on that one. So it's something we've been working really closely throughout the year and we've started to see some improvement quarter-over-quarter since the middle of the year and supply of microprocessors for most of our components that we've seen some growing disruption on other electrical components. That has become a bigger issue for us in the second half of the year. And we have also in parallel been working and I think we'll revisit inventory strategies as we are able to build inventory. Not today in the current very constrained environment. And we're also looking at, sourcing strategy and doing dual-sourcing back all the way to a tier 3 level to make sure we've got more flexibility in the future. Tom Linebarger: And Rob, the thing we really needed in the U.S of course, as we need, we need domestic semiconductor production that's targeted at the automotive industry. That's -- I mean, that's -- I don't mean to be pie in the sky about it, but strategically, it's kind of a nightmare that we only have -- all those semiconductor wafers are coming from pretty much one factory or one set of factories in Taiwan, and that we're a very small part of that Company's output. That's not the ideal situation for a supply chain. So if you ever said, hey, what's the strategic plan? The strategic plan has to be defined semiconductor manufacturers who think the automotive industry is more critical to their success and ideally to have some closer to shore onshore so that we can look at the total capacity and demand, because right now most automotive -- most trucks and buses are adding a significant portion of electronics. Each revolution or each time that their new product ramps come out, they add 30% more chips or sensors or something, and that's not the way the industry semiconductor -- the capacity of the semiconductors is moving. So we need to add more capacity and we need to add it -- target it at those customers. Rob Wertheimer: Thank you. Jack Kienzler: Thank you, Tom. And thank you, everybody. I believe that concludes our teleconference today. As always, thank you to everybody for your continued interest in Cummins and for joining today. I will be available for questions after the call. Thank you again. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.

Operator: Good day and thank you for standing by and welcome to the Q2 2021 Meritor Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Todd Chirillo, the Senior Director of Investor Relations. Thank you. Please, go ahead, sir. Todd Chirillo: Thank you, Felicia. Good morning, everyone, and welcome to Meritor's second quarter fiscal year 2021 earnings call. On the call today we have Chris Villavarayan, CEO and President; and Carl Anderson, Senior Vice President and Chief Financial Officer. The slides accompanying today's call are available at meritor.com. We'll refer to the slides in our discussion this morning. The content of this conference call, which we're recording, is the property of Meritor Inc. It's protected by U.S. and international copyright law and may not be rebroadcast without the express written consent of Meritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to slide two for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you'll find the reconciliation to GAAP in the slides on our website. Now, I'll turn the call over to Chris. Chris Villavarayan: Thanks, Todd. Good morning, everyone, and thank you for joining us today. Let's turn to slide three. We had strong results this quarter, with $983 million in sales and adjusted EBITDA margin of 11.3%. Total company sales were up 13% year-over-year, as truck demand increased in all our global markets. Free cash flow performance was excellent this quarter, coming in at $47 million. This was one of our highest second quarter cash flows since we began the implants in 2013. Once again, the Meritor team demonstrated its ability to successfully respond to markets. Even with the sharp increase in volumes and supply chain challenges, we maintain excellent delivery and quality performance for our customers, while converting increased sales to profits at expected levels. Looking at the full fiscal year, we're holding our sales, margin and cash flow guidance, despite indications that we will have one of the largest unfavorable steel impacts we have seen, in addition to higher expense in electric powertrain development, as we ramp up production capabilities to meet the increasing demand. Carl will provide more detail, but our ability to offset these headwinds reflects the consistent strong execution you expect from us. We have a brand-new electrification program to announce this quarter, in addition to an exciting new opportunity to accelerate development of our 17Xe electric powertrain in Europe. And in our core business, we have recently finalized long-term agreements with two global OE customers. Please move to slide four. In the second quarter, we extended our agreement with Navistar through 2026. We are pleased to continue our long-standing relationship with Navistar, as it becomes part of the Traton family. This agreement extends our current relationship, while providing opportunity for future growth in our major product categories of axles, brakes and drivelines. We also completed a new agreement with IVECO in Europe through 2024. This includes the supply of single reduction axles and strengthens our successful business relationship between our companies. It also provides the opportunity for future growth on other product lines. With Navistar and IVECO complete, most of our long-term agreements with major customers have been renewed well past the 2022 time frame. Moving to electrification on slide 5. We are pleased to announce a new collaboration with Hexagon Purus Systems, a global leader in zero emission e-mobility. Hexagon will integrate Meritor's 14Xe powertrain into its Class 6, Class 7 box trucks and Class 8 6x4 vehicles starting 2021. Customers, including PACCAR, AutoCar, line electric Volta trucks and Hexagon have chosen Meritor's 14Xe integrated electric powertrain. We believe this is market validation of its industry-leading performance. In early 2020, we announced an agreement with PACCAR to be the initial launch partner and supplier for the integration of the fully functional battery electric systems on the Kenworth T680 and Peterbilt 579 and 520 electric vehicles. We have begun prototype production and PACCAR is performing validation testing on its test tracks. It's very exciting for us to see these fully electric vehicles being assembled. Soon these and many others with Meritor's preferred electric powertrain solutions will be fully operational on roads and highways. Please take a minute to view a video of this truck in motion on meritor.com. This footage was shot last week, at our Escondido California facility. With market adoption growing for our 14Xe, we're now shifting the focus to the development of the 17Xe platform in Europe. Last month, we learnt we were a grant recipient of the advanced propulsion center in the United Kingdom. This grant will partially fund the development of Meritor 17Xe. After a comprehensive months-long nomination and consideration process, we were thrilled to be selected along with our consortium partners Danfoss Editron and Electra Commercial Vehicles. This grant totaling almost £16 million will rapidly accelerate development of this product, that is designed for multiple vehicle platforms and extend our ability to offer Meritor's e-powertrain solutions for the European market. We believe demand for this product will grow because of the EU 2025 CO2 reduction targets. Stricter targets will start applying in 2030 and by 2040 all new trucks sold in Europe will need to be fossil-free to reach carbon neutrality by 2050. The 17Xe is another significant step towards completing our electric powertrain portfolio. Carl, will now provide details on our financial results. Carl Anderson: Thanks, Chris, and good morning. On today's call, I will review our second quarter financial results and provide an update to our fiscal year 2021 outlook. As Chris mentioned at the beginning of the call, we delivered another quarter of strong financial performance. Adjusted EBITDA margin was 11.3%, and we generated $47 million of free cash flow. Now, let's review our financial results compared to the prior year on slide 6. Before I continue, I want to highlight a revision we are making to our presentation of two non-GAAP measures, adjusted income from continuing operations and adjusted diluted earnings per share. To better align with SEC guidance, we will no longer include in non-GAAP measures the adjustment for non-cash tax expense related to the use of deferred tax assets in jurisdictions with net operating loss carryforwards or tax credits. It is important to note, this is a change to our reporting metrics only as the underlying availability and benefit of tax attributes to offset future taxable income has not changed. We expect to maintain an effective cash tax rate of approximately 15% through the M2022 planning cycle. In the appendix, we have also updated prior periods to reflect this change providing for consistent comparatives. Now let's review the details of our financial results. Beginning with the total company, revenue came in at $983 million, up $112 million from the same period last year. As economies rebounded globally, we saw increased truck production in all of our markets. Net income from continuing operations was $63 million, compared to $240 million last year. As a reminder, prior year results include $203 million of after-tax income related to the termination of the distribution arrangement we had with WABCO. This was partially offset by the recognition of value-added tax credits in our wholly owned Brazilian entity of $22 million or $15 million net of tax during the second quarter of fiscal year 2021. Adjusted EBITDA for the second quarter was $111 million, which translates to an adjusted EBITDA margin of 11.3%, a decrease of 100 basis points from the prior year. Adjusted EBITDA this quarter excludes the $22 million Brazil value-added tax credit I previously mentioned. The decrease in margin was primarily driven by an approximately $20 million impact from incentive compensation cost compared to the prior period. Keep in mind, last year we significantly reduced our incentive compensation accrual at the onset of the pandemic. Additionally, we experienced higher freight costs as compared to a year ago. This higher expense was offset by cost reduction actions executed in the second half of last year. Overall, we were pleased with our margin performance, especially given some of these cost headwinds. Adjusted diluted earnings per share was $0.68, up $0.04 from last year. And free cash flow for the quarter was very strong at $47 million. Last year we generated $292 million of free cash flow, which included $265 million related to our distribution agreement termination. If you adjust for the one-time impact from last year, free cash flow improved $20 million year-over-year. Based on our market outlook and expectations on cash flow generation going forward, we are in a position to return to a more normalized level of cash on our balance sheet. We therefore are announcing the redemption of the remaining 6.25% notes due in 2024. The $175 million principal balance will be redeemed at the call price of just over 101%, utilizing available cash on hand, which was $321 million at the end of the second quarter. Our objective of maintaining BB credit metrics through market cycles was reinforced this past year, as we were able to successfully manage through the onset of the pandemic. Upon completion of the debt repurchase, our gross debt balances will be similar to where we were pre-COVID. We were also on track for net leverage to be approximately two times this year and plan for a further step down in 2022. Now let's look at our segment results compared to the same period last year. Sales in commercial truck increased by 23%, driven by higher global truck production in all markets. Segment adjusted EBITDA for commercial truck was $73 million, up $15 million from last year. Segment adjusted EBITDA margin increased to 9.4%, an increase of 20 basis points over the prior year. The increase in segment adjusted EBITDA and EBITDA margin was driven primarily by conversion on higher revenue and by cost reductions actions executed last year. This was partially offset by higher incentive compensation and freight costs. Aftermarket and industrial sales were $247 million in the second quarter, down $30 million compared to the prior year. The decrease in sales was primarily driven by the termination of our distribution arrangement, which occurred in the second quarter of fiscal year 2020. Segment adjusted EBITDA was down $12 million compared to the second quarter of 2020 and segment adjusted EBITDA margin decreased to 13.8%. The decreases were driven primarily by the impact from the termination of our distribution arrangement and increased incentive compensation costs, partially offset by cost reduction actions. Before I review our current global market outlook on slide 7, I want to provide an update on supply chain constraints in the markets we are closely monitoring. Global supply chains, primarily for semiconductors have become constrained during this global production upturn. This has affected many global manufacturing industries including commercial trucks. We are seeing some impact to production schedules as a result. In India, the current wave of the pandemic is having a significant impact on the country, which could affect the ability of our OE customers and suppliers to manufacture in the short run. Demand however, remains high in all of our markets. In particular, order activity in the North America Class 8 market continues to be robust averaging over 40,000 units per month in our fiscal second quarter and cancellation rates remain very low. Overall, as we assess all of the pluses and minuses, we are keeping our global production outlook unchanged as we balance strong global demand with potential supply chain constraints. Let's turn to slide 8 for an update to our fiscal year 2021 outlook. Consistent with our market assumptions, we are holding forecasted sales to be in the range of $3.65 billion to $3.8 billion unchanged from our prior forecast. We are also maintaining our adjusted EBITDA margin guidance steady at an expected range of 10.6% to 10.8%. We are however seeing steel costs continue to increase. Since September hot-rolled coil prices have increased more than 130% and scrap prices are up nearly 100%. The price movement in steel has been the most severe and rapid increase we have seen over the past 10 years. As a result, we now anticipate a full year headwind of $25 million to $30 million in higher steel costs up $10 million from our prior review. Most of this impact will be felt in our third fiscal quarter as prices begin to reset with our steel suppliers. While this is a significant headwind in 2021, we do a pass-through mechanism in place with our customers, which are typically on a three- to six-month lag. We expect to see most of this recovery beginning in early fiscal year in 2022. Additionally, we are increasing our electrification spend between $5 million to $10 million from our prior guidance as we continue to respond to this growing opportunity. While we are experiencing these higher costs, we expect to be able to offset most of these increases through continued operational performance. Our purchasing team has done an excellent job in driving material performance savings and we continue to see the benefits from cost reduction actions executed last year. Moving to adjusted diluted earnings per share, our outlook for 2021 is now in the range of $2.15 to $2.30. This reflects the impact from the adjustment for non-cash taxes as well as the lower interest expense expected from the bond redemption. Our effective cash tax rate of approximately 15% in fiscal 2021 remains unchanged. And finally, we are maintaining our expectation to generate between $110 million to $125 million of free cash flow. Overall, the team is doing a fantastic job, managing through the challenges of the strong global rebound and deliver a solid glide path to M2022. Now I will turn the call back over to Chris. Chris Villavarayan: Thanks, Carl. Let's turn to slide 9. While it is difficult to schedule events with certainty, we're planning to hold our Analyst Day in person this year in New York. More details will be provided in the coming months. At that time we will present M2025. We will move of course -- we will of course closely monitor the situation as we move closer to this date to ensure we can meet safely. Before we close I would like to express our concern for the serious situation occurring in India as the pandemic worsens. Our team in the region has taken actions to help employees and the community through care centers, vaccination and mobile testing facilities and we plan to do more. Our thoughts are with our colleagues and their families during this crisis. Again, I want to thank you for joining us today to review Meritor's second quarter results and welcome any questions you may have at this time. Operator: [Operator Instructions] And your first question comes from the line of James Picariello of KeyBanc. James Picariello: Hey, good morning. Chris Villavarayan: Good morning, James. James Picariello: Just within the company's reiterated guide for the year, you're now anticipating what was I think referred to as record commodity inflation in the back half, right not surprisingly, but can you help quantify what the net headwind exposure is relative to what will likely flow through within your recovery mechanism just to get a sense of that net exposure? Carl Anderson: Sure. James, it's Carl. As it relates to steel prices, which is the really primary driver for us we do expect it to be year-over-year about $25 million to $30 million headwind in fiscal 2021. So if you think about the recovery mechanisms as that begins to kind of flow through that will come through really beginning in fiscal -- the first part of fiscal 2022. And so of that we would expect to be recovering around probably $20 million of that number as we go forward. James Picariello: Okay. No that's really helpful. Just from an industry standpoint focusing on the North American market for a second, I mean again from an industry standpoint we're trying to get near record order levels. This year the industry backlogs are also going to be at or close to all-time highs. Are you seeing anything unique in terms of builds build commitments build slot commitments for next year at this point? It just seems as that's where we're going to be especially given the temporary chip shortage impacts which I think are also proving to be more muted. Just seems like we're on track for a really, really strong volumes next year. Chris Villavarayan: For sure, James. I'll take that. So when you think about it it's beyond the last three months. If you look at it it's the last six months. Order intake has come in at 40 or above 40. And to your point, backlogs are passing I think, I believe 300,000. And for our fiscal year right now the midpoint with the recent change is -- it's 285000 for the fiscal between ACT and FTR. And if you look at the midpoint for next year for the heavy market, it's at about 340. So to your point great highs and you got to believe the Texas storms resolved, as well as the fire in Japan. So the chip shortage will get resolved here shortly or will improve shortly. We do believe there is impact through the next couple of quarters, but it eventually should improve. So again we believe there's a strong 2022 ahead of us as well. James Picariello: Got it. If I could just squeeze one more in. Within the aftermarket and industrial segment this quarter's -- the second quarter's margins was there anything within that related to the timing of price increases or excess of premium freight? Just any color on that segment's margins? Carl Anderson: Yes, James, it was really just driven by a couple of factors. One was, we did see some higher freight costs in the second quarter, as well as a little bit higher cost from steel that affected the aftermarket business. James Picariello: Thanks. Carl Anderson: Thank you. Operator: Our next question comes from the line of Joseph Spak of RBC Capital Markets. Joseph Spak: Thank you. Appreciate it. So I think just to maybe sort of to get a little better sense for some of the costs you talked about Carl in the back half, I think, if we look at the guidance it still implies on a year-over-year basis about 20% incrementals. But I think that seems to be maybe some of the base period in the map, because is it fair to assume that sequentially we should see maybe decrementals a little bit higher than normal given some of the headwinds and then as you can start to get some of those recovery mechanisms back next year that reverts? Carl Anderson: I think that's the right way to think about it Joe. If you look at the six months EBITDA margin performance to-date, we're right around 11.4%. So if you think what our guide is of 10.6% to 10.8% that does imply the second half margins will be about 10% on roughly the same type of revenue. Joseph Spak: Right. Right. Okay. Thank you for that. Just a bigger picture question on electrification. I know you have to --you're up in the spend again here. In the past when you've talked about that it's really sort of been to support programs that you think are sooner rather than later. So maybe if you could just sort of confirm again if that increase of 5% to 10% is for that. And then somewhat related on electrification, can you talk at all about your ability to attach other Meritor products like maybe disc brakes, for instance, like when you get eAxle limbs like is there a pretty high attach rate for Meritor when you're able to do that? Carl Anderson: Absolutely Joe, but I'll start with the first question. First, I think, glad to see the backlog continuing to grow. As you remember, we talked about having this $500 million target for electrification as our revenue pipeline. We accomplished $400 million of that with the -- at the last quarter. And so with this announcement with Hexagon, we've taken a chunk of that. So we continue to see the growth. And to put it in perspective of spend, if you go back to 2019, we spent about $12 million. Last year we spent $21 million, and this year we're moving it up to $35 million to $40 million. So we're almost doubling it per year, and it's primarily because of the wins and it's essentially application and testing of our products as it wins with more customers. To your second question, the ability to attach components, absolutely, we do see a path with brakes -- as primarily with brakes with many of the customers as an opportunity to grow business as well. Joseph Spak: But when you up your electrification backlog, I mean, those associated products I am assuming are not in that. So is it fair to assume the other side of your backlog is being benefited too by the electrification wins? Carl Anderson: It is on, let's call it, everybody that is, let's call it, new entrants coming into the market. So when you think about the new entrants, we have a significant share of the existing traditional business. So it is on the new business, but you also have to take into account when you think about electrification always remember it's five times and up to five times content on a 14Xe, for example. So, we're already seeing that growth as well. Joseph Spak: Okay. Carl maybe just a quick one on -- thanks for the color on the tax rate and sort of the change in guidance. I think you used to sort of point to mid-teens with the way you sort of adjusted. So, should we model something more like 20% in the outer years now given the change? Chris Villavarayan: Well, I think it's -- Joe to that point, it's 15% definitely through 2022. I think once you start getting past 2022 you got to 2023 and 2024; it could begin to moderately step up. So, you're probably not too far off with that assumption. Joseph Spak: Okay. Thanks very much. Chris Villavarayan: Thank you. Operator: Your next question comes from the line of Ryan Brinkman of JPMorgan. Ben Fung: Hi, good morning. This is Ben Fung form JPMorgan for Ryan. I just have two questions. The first one is what is your view on the impact of higher labor cost to margin and production start to come back? And on the same note, how are you seeing freight cost progressing through the rest of the year? I know that someone in the aftermarket last week said something about the freight cost could be two or three times higher than they're seeing right now. So, how much impact to margin do you expect this headwind? And what are some factors that can be used to offset the impact? Thank you. Chris Villavarayan: Absolutely. So, let me start with the first question specific to labor. It's a red hot market out there as you could see with the first question. There's significant drive and demand for the product. And I think it's running right through the economy GDPB being strong and consumer spending. So, in essence, we were able to drive that -- some of that recovery is specific to that with some of our customers. However, on top of that, it's really about operational performance. It's driving incremental operational performance whether it's labor and burden in how we look at our lines or whether it's how we look at material opportunities. So, that's how we drive that savings to offset labor. Specific to freight, we're seeing about three times more freight in terms of cost to your point whether it's on ocean or internal as well. And for those elements what we are again doing is trying to offset a lot of that with -- sorry with material performance and operational performance. But on top of that we also look at working with our customers as well. Ben Fung: And I'm sorry to ask. So, this is pretty cost and everything already factored in the guidance, right? Carl Anderson: Yes, it is. Yes. And to add to what Chris said, as we look at just overall freight costs in our first quarter, we did experience probably higher premium costs associated with the rapid increase in production that we saw in the first quarter. But the -- what we're seeing is kind of just the basic run rate with cost today is all factored into our guidance. Ben Fung: Thank you. Very helpful. And my second question is on the RV business. So, the RV demand has been very strong in the last few months and just this morning an RV dealer up their adjusted EBITDA guidance materially. Can you talk about the opportunity for growth in this area of the business? And I think last quarter you mentioned something about independent suspension. With wheels and motors for RVs? And if you can please just give any update on that? Thank you. Carl Anderson: Absolutely. So, the industrial specialty and off-highway markets are incredibly important for us. This is why we did the AxleTech and Fabco acquisitions two years ago. And so we are seeing the fruits of those acquisitions as we think through 2022 and our -- as we look at our revenue pipeline growth. When we think about the core business and as we have talked about exceeding our revenue targets for 2022, a lot of it is coming in our industrial Defense & Specialty business and a lot of it is driven by this. So we are seeing that growth. Again last quarter we talked about developing an independent suspension for this market. And it is going into production this year and it will be in run-rate next year. And then second is we're also developing a similar system on the electric side. So we're looking at an electric platform that requires to accomplish us the same thing as well for the RV space. Ben Fung: Thank you very much for taking my question. Operator: The next question comes from the line of Bruce Chan of Stifel. Matt Milask: Hey good morning, this is Matt Milask on for Bruce Chan. Chris Villavarayan: Good morning Matt. Matt Milask: Morning. With regards to higher freight costs, you mentioned one of the mitigating things that you're doing is working with customers. Any additional color we can get around there and how those conversations might be going? Carl Anderson: Sure. I think when we -- at this point, we are working with customers that we have agreements in certain regions. And as you could imagine, they are hard agreements and they take a while to work through. And it's a discussion that we are working through and we are seeing the benefits in some areas. Matt Milask: Thanks a lot. Chris Villavarayan: Thank you. Operator: And your next question comes from the line of Itay Michaeli of Citi. Itay Michaeli: Good morning everybody. Just two quick ones for me. First just a little bit of housekeeping on CapEx. I mean, it looks like it's still running maybe below the full year. And I think the original plan for the cumulative CapEx through 2022 was about $475 million. Just curious whether you're seeing efficiency there if that's just some timing? Carl Anderson: Good morning Itay. It's more timing. For the first six months, we had about $25 million of CapEx. We are planning for about $70 million of CapEx in the last six months of the year. So part of it was production came back pretty quickly as you recall in our first fiscal quarter. And I think some of the programs we are just beginning to ramp back up here this quarter as well as in the fourth quarter for us. Itay Michaeli: Great. That's helpful color. And just -- I think you addressed it to the prior questions, but just as we think about that bridge from the second half margins to the 2022 target, I think you mentioned some of the recoveries on steel. But can you just maybe walk us through some of the bigger puts and takes in terms of what -- at least some of the headwinds that you're facing today that are contractually going to reverse next year particularly on the other steel side? Chris Villavarayan: Yeah. Itay, the biggest thing we're seeing when you really boil it down is really on steel. So as I referenced that $25 million to $30 million headwind is really a second-half story for us. So while freight costs what we've talked about are -- have increased and are elevated from what they have been historically our material performance and some of our operational performance items have been able to offset that. So the true story is steel. And if you were to simply adjust for this deal of $25 million to $30 million; our margins would be very similar to what they are here in the first and second quarter. Itay Michaeli: Got it. Perfect. That’s real helpful. Thanks. Chris Villavarayan: Thank you. Operator: And there are no further questions at this time. And I'll turn the call back over to Todd Chirillo. Todd Chirillo: Great. Thank you, and thank you everyone for joining our call today. If you have any questions please feel free to reach out to me directly. Thank you and have a great day. Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the first quarter, 2021 Meritor Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference to one of your speakers today, Todd Chirillo, Senior Director of Investors. Sir, please go ahead. Todd Chirillo: Thank you, Michelle. Good morning, everyone, and welcome to Meritor's First Quarter Fiscal Year 2021 Earnings Call. On the call today, we have Jay Craig, CEO and President; Chris Villavarayan, Executive Vice President and Chief Operating Officer; and Carl Anderson, Senior Vice President and Chief Financial Officer; all of whom will be available for questions following the call. The slides accompanying today's call are available at meritor.com. We'll refer to the slides in our discussion this morning. The content of this conference call, which we're recording, is the property of Meritor, Inc. It's protected by U.S. and international copyright law, and may not be rebroadcast without the express written consent of Meritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to Slide 2 for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you'll find the reconciliation to GAAP in the slides on our website. Now I'll turn the call over to Jay. Jay Craig: Thanks, Todd. Good morning, everyone. Let's turn to Slide 3. As you can see from our results this quarter, we're off to a tremendous start for the year. I want to thank Meritor employees for the excellent performance. Regardless of the environment, this team exceeds expectations, as demonstrated last year, and right out of the gate, in fiscal 2021. Our Class 8 truck orders from North America, our largest market, rose to the fourth and fifth highest months in history, in November and December. We executed it exceedingly well, as you will hear from Chris and Carl. In fact, with truck volumes materially rising in almost all our end markets, we are raising our full year outlook significantly. Since 2021 rebound provides us with increased confidence and a clear path to 2022 objectives, particularly because we believe that some of this year's headwinds, will become tailwinds next year, as we complete our current M-plans. At the same time, we're investing in the revolutionary technologies we are bringing to market. These technologies will give commercial vehicle OEMS, optimal solutions to meet regional CO2 reduction targets, and will also provide a host of other benefits. At this point, I will turn the call over to Chris, for highlights for the quarter, and come back later for closing comments. Chris Villavarayan: Thanks, Jake. We're obviously pleased with our results this quarter. On revenue that was essentially flat year-over -year, our adjusted EBITDA margin was 60 basis points higher than the same period last year, and free cash flow was up significantly. Carl will give you more details on the financials in just a moment, but the primary takeaway is that we're optimistic about the demand for commercial vehicles throughout the remainder of fiscal 2021. We expect significantly higher volumes than most markets, as most economies deploy fiscal and monetary stimuli, the vaccine rollout gains momentum, and the demand for goods increases, particularly in North America. On the right half of this slide, we highlight business wins this quarter. You will remember that last November, we said we expected to exceed our M2022 new business target of 300 million. We're going to talk about some of those contracts that are driving that outperformance in our truck and industrial businesses, as well as production awards for our electric powertrain. Moving to Slide 4, you will see a few examples of customers with whom we have recently secured new business on a variety of applications. In India, we have additional axle contracts with Ashok Leyland and Daimler India, for medium and heavy duty vehicle. We now have standard position with Terex for front and rear drive axles and brakes on concrete mixers. We will supply an existing customer with independent front suspensions for recreational vehicles, and we have entered a new three-year LTA with John Deere for 100% of its applicator axles. Transitioning to electrification, Slide 5 gives you a look at additional contracts we’ve secured for our ePowertrain. As mentioned last quarter, we believe we'll be the first supplier to manufacture electric ePowertrains for Class 8 trucks. These new contracts reflect the application flexibility we’ve designed into our electric powertrain portfolio, and the growing demand for Meritor’s solution. The ePowertrain is an integrated product, engineered to allow for a variety of subsystems, including axle, transmission, motors, wheel ends, and brakes, to function as one efficient system. We have entered into a five-year agreement to supply Meritor’s 14Xe electric powertrains for Autocar’s refuse vehicle. With Lion Electric, a Canadian manufacturer of zero-emission vehicles, we signed a three-year agreement to supply our heavy duty tandem electric powertrain for Lion’s AT tractor. And we’ve also secured a three-year contract with Volta Trucks in London. Meritor’s 14Xe will be equipped on the Volta Zero, a full land 16-tonne commercial vehicle designed for inner city parcel and freight distribution. We expect revenues from all these contracts to ramp up in 2023. With the industry recognition we have already received for this product, the growing number of production contracts, we are highly confident that Meritor’s electric powertrain represents game-changing technology for commercial vehicles. Carl will now provide more detail on our financial results. Carl Anderson: Thanks, Chris, and good morning. On today's call, I will review our first quarter financial results, discuss the upturn we are seeing in most of our global markets, and provide an update to our fiscal year 2021 outlook. Overall, as you heard from Chris, we delivered strong financial performance in the quarter. Adjusted EBITDA margin was 11.5%, and we generated $34 million of free cash flow. Now, let me provide the details of our financial results compared to the prior year on Slide 6. Beginning with total company results, revenue came in at $889 million, roughly flat from the same period last year. Net income from continuing operations was $32 million, compared to $39 million in the prior year. Lower net income was primarily the result of higher interest expense, which included $8 million of debt extinguishment costs incurred in the first quarter of fiscal year 2021. This was partially offset by cost reduction actions executed in the second half of last year. Additionally, joint venture earnings increased $5 million from a year ago. This was driven primarily from a $6 million one-time gain recognized from our joint venture in Brazil relating to a value added tax credit. Overall, this drove adjusted EBITDA of $102 million in the first fiscal quarter of 2021, which translates to an adjusted EBITDA margin of 11.5%, a 50 basis point increase from the prior year. Adjusted diluted earnings per share was $0.60, down slightly from $0.64 last year. And free cash flow improved by $69 million from a year ago, as we saw a tailwind from our back stream programs, and we had $32 million in lower incentive compensation payments in the quarter. Now, let's look at our segment results compared to the same period last year. Sales in commercial truck increased by 4% to $691 million. The increase in revenue was driven primarily by slightly higher market bounds in Europe and India. Segment adjusted EBITDA for commercial truck was $63 million, up $6 million from last year. Segment adjusted EBITDA margin increased to 9.1%, an increase of 50 basis points over the prior year. The increase in segment adjusted EBITDA and EBITDA margin was driven primarily by conversion on higher revenue, cost reduction actions executed last year, and higher joint venture earnings. This was partially offset by higher freight premiums, and a $6 million increase in electrification spend, as compared to last year. Aftermarket industrial sales were $234 million in the first quarter, down $41 million compared to the prior year. The decrease in sales was primarily driven by the termination of the distribution arrangement with WABCO, which occurred in the second quarter of fiscal year 2020. As we saw last quarter, even with lower revenue, segment adjusted EBITDA margin increased 80 basis points to 15%. The increase was driven by cost reduction actions executed last year, which more than offset the impact from lower revenue. I'll review our current global market outlook on Slide 7. In the North America Class 8 market, we are now projecting production levels between 270,000 to 290,000 units, a nearly 20% increase at the midpoint from our prior outlook. We have seen a full quarter of strong order intakes, including two months of orders greater than 50,000 units. And just last night, January preliminary orders came in at over 42,000 units. This aligns with the strong production forecast we are seeing from our customers, all pointing to a significant production recovery in 2021. Turning to Europe, we're also seeing a steady increase in this market. We now forecast production will be in the range of 360,000 to 380,000 units. South America is another market where we are experiencing a strong rebound. We are now forecasting production to be in the range of 135,000 to 145,000 units, almost a 50% increase at the mid-point from our prior outlook. At these levels, it would be the strongest Class 8 production year since 2014. And in India, we are maintaining our previous forecast of 230,000 to 250,000 units. Keep in mind, this still represents an increase of approximately 80% year-over -year from historically low volumes in 2020. Let’s turn to Slide 8 for an update to our fiscal year 2021 outlook. Given the market assumptions we just reviewed, we are now forecasting sales to be in the range of 3.65 billion to 3.8 billion. Adjusted EBITDA margin is expected to be in the range of 10.6% to 10.8%, an increase of 100 basis points as compared to the midpoint of our previous guidance. With the upturn, we are encountering several headwinds which will impact earnings conversions as we move through 2021. Increasing demand across the global economy is driving significant increases in steel, our largest material cost. While we have cost recovery mechanisms in place with most of our OE customers, they generally are on a three to six month lag. As a result, we are currently seeing $15 million to $20 million in higher steel costs in fiscal 2021, due to the timing impact of these cost recovery mechanisms. Additionally, at the significantly higher market levels, we are anticipating higher incentive compensation costs of approximately $15 million. With these headwinds, we now anticipate earnings conversion of approximately 19% on incremental revenue, compared to last year. Overall, if you were to adjust for these two items, our conversion on the incremental revenue would be around 22 to 23%, more in line with our expectations. Moving to adjusted diluted earnings per share, our outlook for 2021 is now the range of $2.25 and $2.50. And finally, we expect to generate $110 million to $125 million of free cash flow. On Slide 9, I want to provide an update to our path for achieving the company's M2022 margin target of 12.5%. As we have seen in prior M-plans, the steps for achieving our targets may change, but we typically are able to adjust to the current operating environment and deliver on our targets. The 12.5% margin target is no exception. As we discussed on the previous slide, we are seeing increased costs related to both steel and incentive compensation in 2021. Next year, we do expect these costs to normalize, providing a 60 to 80 basis point tailwind. We also anticipate converting on incremental volume and new business wins at greater than 20%. Additionally, as we announced last quarter, we are in the process of executing a footprint optimization plan, which will result in the consolidation of four locations into existing facilities. This will provide an additional tailwind of $12 million to $15 million, as $5 million of cost to execute the consolidation in 2021, will be behind us, and approximately $7 million to $10 million of savings from the smaller footprint, will be realized. The conversion on increased revenue and the footprint optimization, are expected to provide an additional 90 to 130 basis points of incremental margin next year. Overall, the path to achieving our 12.5% margin target remains clear. Before I turn the call back over to Jay, I want to take a moment to express my deepest appreciation for his extraordinary leadership he's shown through his many years at Meritor. On both a personal and professional level, I wish Jay all the best, and look forward to working with him in his new role. Now, I will turn the call over to Jay for final remarks. Jay Craig: Thanks, Carl. Let’s turn to Slide 10. With this being my last call with you, I wanted to make a few comments before we go to questions. My first earnings call with Meritor was in the second quarter of 2008, and except for a few quarters in 2013, and ‘14, when I was running the business, I have not missed one. So, I guess that puts me somewhere close to 50 calls. While in charge and all CEOs and CFOs look forward to them, I can honestly say, I always did. Our investors and analysts, many of whom have been with us a long time, always drove us to be better, and challenged us to look at the business from different perspectives. Your insight, comments, and questions, contributed to the successful transformation of the company over the past several years. As I transition to the role of Executive Chairman, I have full confidence in Chris's ability and that of his leadership team, to maintain the trajectory of high performance that we have demonstrated for quite a long time now. Growing our base business, expanding our electrification capabilities, and maintaining excellent levels of operating performance, will continue to be the highest priority, as we remain focused on returning value to shareholders. As we near the successful completion of our third M-plan, we recognize the discipline and execution that it took to become the company we are today, and we'll proceed with the same diligence. For this, I want to thank all our employees around the globe that have helped us achieve the enormous stretch targets we have set for ourselves. I will miss working day to day with such a diverse, talented and driven team. I also want to thank our Board of Directors for their support and guidance. We have a strong board with a diverse set of strengths, that has played an important role in the company's journey. I look forward to continuing to work with them as Executive Chairman. I wish all of you my best in the future. And with that, we will take your questions. Operator: [Operator Instructions] Our first question does come from the line of James Picariello with KeyBanc Capital. Your line is open. Please go ahead. James Picariello: Hey, good morning guys. And Jay, congratulations again on your retirement. It's been a pleasure. Within your FY’21 guidance here, can you just talk about what the implied incrementals are, what the additional EV related spend might be? And then, Carl, you did mention color on incrementals to FY’22. I mean, can you just talk about those incrementals, how we get to that targeted 12.5% for FY’22 within that framework? Thanks. Carl Anderson: Good morning, James. Yes, as it relates to fiscal ’21, as I referenced, we do expect all in, to have about 19% conversion on the incremental revenue that we're seeing. We are faced with a couple of headwinds, and I referenced both steel and incentive compensation, but with - and as it relates to electrification. In the quarter, we did at $6 million of higher electrification spend compared to a year ago. We are also probably tracking closer to the $30 million of electrification expense within fiscal year ‘21 as well. So overall, as we look forward, we're very confident in our ability to continue to deliver and get close to that 20% kind of incremental margins for fiscal 21, but more importantly, it really is - as I laid out, we're definitely on track to deliver on our ‘22 target. James Picariello: Got it. The 30 million electrification spend, that's cumulative, right? That would be like an incremental $10 million or so, is that right? Carl Anderson: Yes. It's about 7 million to 8 million higher than we did a year ago. James Picariello: Got it. And then can you just - I mean, maybe I just missed this, but can you provide an update on what the number is in terms of EV awards that are booked, and then what the - is the pipeline potential, that 200 million, has that changed at all? And just maybe talk about what the latest two - the last two awards, what is a highly competitive process. Thanks. Chris Villavarayan: James, it's Chris Villavarayan. I'll take that question. So what we talked about is a line of sight for $500 million, of which, with the announcements we've made today with booked business to $400 million. And we still have our line of sight for the last $100 million to the targets that we had provided earlier. And then talking about the three agreements that we announced today with Lion Electric Volta, and Autocar, that accounts for a total of $200 million of booked up business in total. We're not breaking that out by year. James Picariello: Understood. Thanks guys. Operator: Thank you. And our next question comes from the line of Ryan Brinkman with JPMorgan. Your line is open. Please go ahead. Ryan Brinkman: Hi, thanks for taking my questions. Can you hear me? Jay Craig: Yes, we can. Ryan Brinkman: Okay, great. Thanks. Given the mention on Slide 4 of exposure to the RV market via front suspensions and the record wholesale shipment numbers that have been coming out of the recreational vehicle industry association lately, I just wanted to ask about what your revenue exposure is to this area, what kind of growth you might be seeing. Are you primarily benefiting from the increase in industry volumes, or are you also in any way incrementally targeting that market with new products, et cetera? And also since you last reported earnings, I think we heard the very first announcements relative to the potential for electrification in the RV space, which came from Lordstown Motors and Camping World in December. Do you have any thoughts on electrification in this corner of the market and what role that Meritor could potentially play? Chris Villavarayan: Sure. Ryan, it’s Chris Villavarayan. I'll start the question and then maybe hand it over to Carl to just provide some of the financials. But very quickly, with the acquisition of AxleTech, obviously this has been a very important market. And so, as part of M2022, we also had a strategy to grow in this market. And so, what we're doing is exactly executing on that strategy. The new win is part of a growth strategy and is not associated with the current market growth. So we had a plan to grow this business, and that's exactly what we're doing. Specific to electrification, we are looking at, let's call it independent suspensions with Wieland Motors, but that is something that we're exploring a little bit further. With that, I'm going to turn it to Carl. Carl Anderson: Ryan, that business kind of resides in our industrial segment. And if I look at what we're seeing in that, especially entering into ‘21 in total, we do now see our industrial business up on a high single digit percent on a year-over-year basis at this point. Ryan Brinkman: Okay. Very good. Thank you. And then just last question, relative to the electrification opportunities that were identified on Slide 5, I'm curious if the potential pipeline has maybe grown. And I'd be interested too, if you have any thoughts on GM's new BrightDrop plans, and whether that automaker’s relatively greater vertical integration of electrified drive line components in the light vehicle side, might or might not translate into similar vertical integration on the commercial vehicle side. Also, just what you're seeing generally in terms of the latest developments with regard to commercial vehicle manufacturers’ plans to either insource or outsource the types of electrification components that you're able to provide. Chris Villavarayan: Well, I'll take that question, Ryan. Just maybe first perspective, from a broad spectrum, when we look at the three customer awards that we presented today, Autocar, a nameplate that's been around for 125 - 123 years. And then if you look at Volta, it's a brand new entrant, and Lion’s been in the market for about 10 years. So it's great to see that from a broad spectrum of customers, they see the value in Meritor’s product. Now, specific to where we see this growth, we do see - the first thing that we're focused on is obviously completing our pipeline. And to that point, we’re testing with a multitude of OEs right now around the globe. So hopefully we can talk about more wins here, but right now, we're targeting - targeted on closing out on our $500 million book of business that we talk about. Specific to the GM, and let's call it the skateboard, I think when you look at - the best part about it is, in terms of whether you look at OEs integrating this, the best part of electrification is in any sense, I think what it does is, it drives competition, and it will speed us faster towards sustainable energy. And in any sense, as we look at the real estate we have, it just means more content for us, no matter what happens. And in that sense, our perspective is that as long as we're in this space, this will continue to grow for us. Jay Craig: Yes. And I’d say, Ryan - this is Jay. One last comment. There’s always been a significant difference between the commercial vehicle and the light vehicle OEs and the level of vertical integration of components. So we've obviously had a significant share of the drive train market across the EV industry, and we expect that to continue into the future, based on the discussions that we're having so far moving to electrification. Ryan Brinkman: Very helpful. Thank you. Operator: Thank you. And our next question comes from the line of Joseph Spak with RBC Capital Markets. Your line is open. Please go ahead. Joseph Spak: Thank you very much, and wanted to echo my congratulations to Jay again, and then obviously the rest of the team. Back on electrification, a couple of questions here. You mentioned a bunch of these startups. There’s obviously a lot more we've seen trying to come to market than on this page. Like how - can you just talk to us a little bit about how you approach the opportunity? Because obviously, they’re sort of all incremental, but it does require you guys to commit resources and capital and the exact path of some of these ventures is maybe a little bit unclear. So how do you think - you almost have to be a little bit of a VC in that respect, right? So how do you think about sort of approaching the opportunity with some of these startups? Chris Villavarayan: So, Joe, I'll take that question. And I think the perspective that we use, if we look at the Class 8, let's call it the medium and the heavy duty Class 8 market, and we look at, what is the percentage of electrification, and we aim for that, or a percentage - a fair share of that. And in essence, work with every OE that is approaching that space and provide our product. But in overall in how we capacitize, we're looking at what we believe will be the model of what roles will be there in electrification as a percentage of the overall market. Joseph Spak: Okay. So it's not necessarily - you don't necessarily view it as sort of like a bet on any one of these individual companies, because the product is somewhat fungible between them? Chris Villavarayan: Yes. I think, Joe, to that point, I think it’s - for us, it’s more about the product as far as all the development, all of the testing that we have done and kind of how that stands. And I do think, as we think about how that fits in with whether a couple of the startups with existing customers and obviously the large OE customers we have today, that is kind of the focus. And we do believe our product is a differentiator, and that will - is really kind of the path to market for us across all of these potential opportunities. Joseph Spak: Okay. So, maybe then just to follow up, or two quick follow ups on that. Like, one, can you talk about the range of activities on electrification, like from - like either whole e-axles or components and how that might vary with different potential customers? And I guess also, we touched a little bit on the EV spend, but it seems like that might need to continue to sort of move higher, especially if the new wins continue to move higher. So, wanted to get some thoughts on that and when you might sort of get to a breakeven, or sort of self-funding level on the investment, Jay Craig: Well, let me start off. And just following on Carl's comments, if you look at the three announcements today, they're all based off the 14Xe powertrain. So it's the perfect example of using the same product and making - as you called it, fungible across the three OEs. So that's one perspective that we're using. On top of that, when we - the announcement we made with PACCAR, the last one for a full EV kit, that includes the PCARs, the battery system, as well as the electric powertrain, or the 14Xe tandem. With that, I'll turn it over to Carl. Carl Anderson: Yes, Joe, as we look at it, we're not chasing all the various startups. We’re really just focused on what's fitting our product portfolio. So that's kind of one of the first lens that we look through. And as Chris just discussed, we are - we both have the kit side, as well as the 14Xe and the axle side, and 17Xe in the future. And as we look forward, our expectation is, when it kind of flips to profitability, it’s probably outside the ‘22 time horizon, but as we see it now, that that can come potentially as early as in 2023, depending on what we're seeing in the market at that time. Joseph Spak: Okay. Maybe I could just sneak one more. I thought I heard you mentioned some additional optimization and restructuring. I’m just curious if you could provide a little bit more details on that because, right, the team - you guys mentioned sort of early on, it seems like the markets are moving in your favor, sort of going more up than down. So I just wanted to better understand that. Chris Villavarayan: Yes. So nothing was new. This was just - we didn't talk about this last quarter as well. So we just helped to try to frame what the impact we will see in ‘22 as a result from these optimization plans. So in total, we are expecting, as you kind of compare ‘22 to ‘21, it's probably somewhere about $13 million to $15 million of tailwind, if we think about EBITDA as we enter ’22, once we're fully are - complete these facility closures. Joseph Spak: Okay. Thank you very much. Operator: Thank you. [Operator instructions]. And our next question does come from the line of Brian Johnson with Barclays. Your line is open. Please go ahead. Brian Johnson: Good morning, and want to echo congratulations to Jay, who I'm sure will still be helpful on the strategic direction. I think I've been at probably 95% of those calls since then. So in terms of the 14Xe and these interesting wins, just when I thought I knew every electric bus and truck company out there, you find another one. But the question is, can you just remind - a few things. One, just remind us of the content opportunity, obviously not your price list. But if you think about an electric urban truck like Volta is talking about, with the 14Xe axle versus if you did one for one of your traditional OEMs, the type of content you might have. Jay Craig: Sure. Brian, I'll take that. And first of all, Brian, it's about five times in terms of content of our traditional vehicle platform. Brian Johnson: And then, we’re certainly well aware of Dana, the competitor sort of in that space, then they focus more on medium duty. A question we get though is, given Cummins, EDEN, Allison, are also very important Class 5 to 7 and Class 8 suppliers, how do your - what do you see from those powertrain buyers coming over into the electric truck and bus marketplace? Jay Craig: Well, I think, the one thing is, as I look at it, and as I mentioned that competition and obviously is something that will make us all better and drive towards electrification and drive the products to be better across the whole spectrum. But specific to our products, I think the one great thing is, we're going to be first to production here in the summer of this year. We have over 100 vehicles on path. And in that sense, if you look at our product, I think the best part about it is the fact that it's fully integrated. You have a motor integrated with an axle, integrated with the wheel end, and that’s - the sense of what we're putting together, that's only about 100 to 150 pounds heavier than a standard axle. So if you put that in perspective, you're removing an engine and a transmission and shrink - then shrinking it into that space. Brian Johnson: Right. And given the high margins we've seen in the transmission space, one way to think about is you're basically taking both engine and transmission content and margin, and bringing it over to Meritor. Is that a fair generalization? Chris Villavarayan: Well, that’s - as you said, maybe the best way to answer that, Brian, is we … Carl Anderson: Yes, I think, Brian, I would say, over the last six years, we've seen that margin move up, not only cost reductions, but from all the new products we've introduced, taken out the traditional side. And I would say, our expectations for the electric products are no different. We’ll be introducing products we think have more concepts and higher margin. Brian Johnson: Okay. And then kind of a follow on question, which is kind of, as you look at these specs and the new entrants, most of them are kind of pre-revenue. How do you - I know you sort of answered this question earlier, how do you get comfortable that it's actually worth your time? And I guess the second one is, with some of the larger fleet and larger Class 8 manufacturers, how would you - if someone doesn't go with a startup truck operator, but wants to go with a player provider, how are you positioned there? Jay Craig: Well, again, I think we're focused on the product, and let's call it the weight class. So when we come in, we're looking at it as, what does the 14Xe powertrain cover? And we think about it as the Class 8 line hall space, or just down to a medium duty, the top end of a Class 7 space. And we're taking a product and positioning it where it can go across, whether it's to a new entrant, or to a company that's been well entrenched and a customer of Meritor for many, many years. So - and there's perfect examples of both ends of that spectrum, even in our announcements in the last two quarters, whether it's Autocar and PACCAR on one side, or Lion and Volta on the other side. Brian Johnson: Okay. And final question. You didn't have your trademark analyst day at a hotel this year. But we are both coming up on the successor to Meritor ‘22, as well as starts to kind of kicking the tires again, so to speak, or the axles, on some of your products - e-products, is going to be interesting. Do you have any thoughts about an event later in the year that would bring those two important things together? Chris Villavarayan: We do, Brian. And I think, just as you have experienced with Jay, we've in essence, always done - started preparing for the release of it a year in advance. And so, we're in the process of developing our M2025 strategy. And ideally, we'd like to have it with all of you in-person, probably at the end of the year or worst case, let's call it at the beginning of next year. But that's our goal right now, is to drive for the end of this year. Brian Johnson: Okay. Thank you. Look forward to that. Operator: Thank you. And our next question comes from the line of Itay Michaeli with Citi. Your line is open. Please go ahead. Itay Michaeli: Great. Thanks. Good morning, everyone. Just two follow-up financial questions, first on the M2022 revenue target that you expect to exceed. Hoping you can just update us, remind us of the latest end market assumptions, particularly relative to the original end market assumptions behind the $4 billion of revenue target. And then secondly, just on free cash flow conversion, I think last quarter, you were still talking about 75%. Just curious if there's any change to next year's free cash conversion outlook. Carl Anderson: Okay. Good morning, Itay. As it relates to - maybe I’ll answer the free cash flow first, yes, no change in our planning assumptions for ’22. We still expect to drive and achieve the 75% free cash flow conversion. I think in the short term, in ‘21, I think every cash flow is cutting a high 50% - just about 70% as we are expanding a little bit of our CapEx spend this year by about $10 million, which is one of the drivers to that. As relating to the end market assumptions, we're not updating them today, but what we did say back in November, we were still planning for replacement demand market levels in North America and Europe, primarily in 2022. And it's something that, just based off the strength of the market that we're seeing here in ’21, we will be taking a closer look at that once again as we kind of get later out this year and provide a further update as we kind of get into ‘22. Itay Michaeli: Great. That's very helpful. Thank you. Operator: Thank you. And our next question comes from the line of Bruce Chan with Stifel. Your line is open. Please go ahead. Bruce Chan: Gents, good morning, and congratulations. Maybe want to wax a little bit more philosophical here for a second. I think a lot of investors have been drawing comparisons this freight cycle with the last great cycle, which is maybe natural, except that the wavelength this time around has obviously been very compressed. And I'm wondering, as you talk to your customers on the commercial vehicle side, especially what your perception is in terms of where we are in the cycle inning-wise. And then maybe just a little bit more broadly, with the continued growth in the EV opportunity, how do you think about cyclicality in your business going forward? Chris Villavarayan: Sure. Let me - Bruce, I'll take that question. So when - in terms of the market, obviously going back probably fall of last year, not too many of us could have predicted this return. However, as we looked at the last November, December, 40s and supplies, truck order intakes, and then with January at 42,000, in essence what we're seeing from our customers is, all of them are cautiously raising line rates up, primarily focused on three things. One is COVID. The second one is looking at the impact of the supply chains. And then the final one is also being mindful of finding folks to be able to staff up the shifts. So - but with that, what we're seeing right now is, the backend or the mid to backend of this is, line rates are starting to come back up with most of our customers. So that's one perspective. And specific to electrification, I think it's a very fair question. I think when you think about electrification, the cyclicality should come out because of - you think about a growth that is much more muted as the growth goes through. I think we'll see far less cyclicality. So I hope that's helpful. Bruce Chan: It is. Great. I appreciate the time. Operator: Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. Chirillo for any further remarks. Todd Chirillo: Thank you for joining Meritor’s first quarter earnings call. If you have any questions, please feel free to reach out to me directly. Thank you, and have a great day. Operator: Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.