On Friday, Gates Industrial Corp (NYSE:GTES) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Gates Industrial Corp reported first-quarter sales of $851 million, a core sales decrease of 2.9%, impacted by ERP implementation and fewer working days.
Adjusted EBITDA was $177 million with a margin of 20.8%, down 130 basis points year-over-year due to ERP inefficiencies and fewer working days.
The company reiterated its 2026 financial guidance, projecting improved core growth and adjusted EBITDA margin in the second half of the year.
Notable operational highlights include the successful ERP transition in Europe, which temporarily increased operating costs but is expected to stabilize.
Gates Industrial Corp announced the acquisition of Timken's Industrial Belt business, expected to enhance its power transmission position in North America.
Full Transcript
OPERATOR
Good morning and welcome everyone to the Gates Industrial Corp first quarter 2026 earnings call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time I would like to turn the conference over to Rich Quozzo, Senior Vice President, Investor Relations. Please go ahead.
Rich Quozzo
Greetings and thank you for joining us on our first quarter 2026 earnings call. I'll briefly cover our non GAAP and forward looking language before passing the call over to our CEO Ivo Yorick, will be followed by Brooks Mallard, our CFO. Before the market opened today, we published our first quarter results. Copy of the release is available on our website at investors.gates.com our call this morning is being webcast and is accompanied by a slide presentation. On this call we will refer to certain non GAAP financial measures that we believe are useful in evaluating our performance. Reconciliations of historical non GAAP financial measures are included in our earnings release and the slide presentation, each of which is available in the Investor Relations section of our website. Please refer now to slide 2 of the presentation which provides a reminder that our remarks will include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements are subject to risks that could cause actual results to be materially different from those expressed in or implied by such forward looking statements. These risks include, among others, matters that we've described in our most recent Annual report on Form 10-K and in other filings we make with the SEC, including our annual report on Form 10-K that was filed in February 2026. We disclaim any obligation to update these forward looking statements. We'll be attending several conferences over the coming weeks and look forward to meeting with many of you. And before we start, please note all comparisons are against the prior year period unless stated otherwise. Now I'll turn the call over to Ivo.
Ivo Yorick (Chief Executive Officer)
Thank you Rich and Good morning, everyone. We appreciate your participation on our call today. I will start on slide 3 with a brief recap of the first quarter. Our team executed well on our business priorities during the first quarter, navigating successfully through a fair level of business transition. In particular, our Europe team successfully implemented a new Enterprise Resource Planning (ERP) system and achieved higher efficiency rates as the quarter progressed. Exiting the quarter, our Europe business had stabilized and was delivering revenues on par with prior three Enterprise Resource Planning (ERP) implementation periods, although with still somewhat above normal operating costs. We anticipate our operational efficiency in Europe to stabilize further during the second quarter. On a global basis, our sales dollars and margin rate, were broadly consistent with expectations we have outlined in February, excluding the impact of the anticipated headwinds from the Enterprise Resource Planning (ERP) transition and the two fewer working days that affected the first two months of the quarter. Overall demand trends improved during the quarter. Core sales growth approximated mid single digits year over year. In March, we finished the quarter with a book-to-bill solidly above one. As we sit here today and based on our present run rates, we feel good about our core sales growth prospects for the year absent of any additional potential escalation of the conflict in the Middle East. In addition, we do not anticipate any material financial impact from the recent revisions in Section 232 tariffs,. As such, we are reiterating our 2026 financial guidance. Please turn to slide 4. Our first quarter sales were $851 million, representing a core sales decrease of 2.9% relative to our core sales guidance provided in February. We experienced some small incremental distribution inefficiencies associated with the Enterprise Resource Planning (ERP) transition which led to a build of past due backlog as we exited the quarter. We expect to recover these sales in the second quarter and Brooks will go into more detail later on the call. The European Enterprise Resource Planning (ERP) transition and fewer working days relative to a prior year period combined represented approximately a 600 basis points headwind, to our core sales. Entering 2026 we experienced a positive inflection in industrial OEM orders and that trend has continued. Adjusted EBITDA was $177 million in line with expectations, resulting in an adjusted EBITDA margin, of 20.8% down 130 basis points year over year. The decrease was primarily driven by inefficiencies related to the Enterprise Resource Planning (ERP) transition and the impact of having too fewer working days compared to prior year period. Our adjusted gross margin was 40.5%, down approximately 20 basis points. Our adjusted earnings per share was 35 cents and down slightly. The fewer working days in a quarter and Enterprise Resource Planning (ERP) transition combined to represent a 7 cent headwind to adjusted EPS. Operational performance and a lower adjusted tax rate were modest Benefits. On slide 5, I will cover segment highlights all year over year. Comparisons were substantially impacted by the Enterprise Resource Planning (ERP) conversion as well as the fewer working days. Looking past these items, we saw a very solid strength across both of our segments with noted underperformance in commercial on highway production common to both in the Power Transmission segment, we generated revenues of $533 million in the quarter, a decrease of approximately 2.5% on a core basis, primarily driven by the fewer working days and Enterprise Resource Planning (ERP) transition In Europe. The Power Transmission segment realized accelerating order trends during March, personal mobility expanded 6% and our growth rate, was affected by project timing as well as the Enterprise Resource Planning (ERP) transition. In Europe, the region with the largest exposure to personal mobility. We anticipate a return to our normalized levels in personal mobility starting in Q2. Additionally, the construction end market continued to improve and the ag market is recovering. In a fluid power segment, our sales were $318 million with a decrease in core sales of approximately 3.5%. Fewer working days and the Europe Enterprise Resource Planning (ERP) implementation again contributed to the decline. We realized strong double digit growth in Asia-Pacific (APAC) during the quarter. Broadly, order intake was strong exiting the quarter. I would note that the commercial on highway was relatively weak in a quarter. That said, North American orders have inflected positively to start 2026. Our data center business continues to perform in line with our expectations and revenue grew approximately 700% from a low base in the prior year period. I'll now pass the call over to Brooks for further comments on our results.
Brooks Mallard (Chief Financial Officer)
Thank you Ivo. I'll begin on slide 6 and discuss our core sales performance by region. In the Americas, core sales declined approximately 2.6% in the first quarter. Two fewer working days in our first quarter relative to the prior year period had an unfavorable impact on growth. North America core sales were down a little less than 2%. Excluding the working days impact, North America core sales would have increased compared to the prior year. In EMEA, core sales declined approximately 8.5% year over year, most of which was incurred in February. While production outpaced targets, finished goods shipping lagged production output in February and through the first part of March. This led to slightly lower than expected revenues of around 4 million and higher pass through backlog than normal as we exited Q1. Overall, we were pleased with our improvement through the quarter. We delivered positive core growth in EMEA in March and that trend has continued through the early stages of Q2. We expect to further improve our distribution efficiencies through the second quarter and exit at normalized levels of shipping output and past due backlog. Our Asia-Pacific (APAC) region grew almost 4%. Industrial OEM and auto aftermarket both grew nicely and fueled the performance. slide 7 shows the components of our year over year change to adjusted earnings per share on a combined basis, the temporary headwinds of the Enterprise Resource Planning (ERP) transition and fewer working days represented a $0.07 headwind to adjusted earnings per share. Underlying operating performance contributed $0.02 per share. Other items, including a lower tax rate and share count, represented a 2 cent benefit. Slide 8 provides an overview of our free cash flow and balance sheet position over the last 12 months. We delivered free cash flow conversion of approximately 101%. Stronger operating cash flow drove positive free cash flow for the quarter. We continue to strengthen the balance sheet, exiting the quarter with net leverage at 1.9 times, representing an improvement of approximately 0.4 turns compared to the first quarter of 2025. Our capital allocation approach remains balanced and we repurchased additional shares in the first quarter. In late February, we received a credit rating upgrade from Moody's to Ba2 from Ba3. Our return on invested capital remains strong while incurring margin headwinds associated with the Enterprise Resource Planning (ERP) transition and continuing to make investments in our key process and growth initiatives. Turning to Slide 9, we have reiterated our full year 2026 financial guidance. We anticipate core growth to improve over the course of the year. For the second quarter, we are guiding revenues to a range of $905 million to $945 million at the midpoint. Core growth is estimated to be approximately 3.5% year over year. We project adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin to decline 30 basis points compared to the prior year period influenced by temporary impacts from the Enterprise Resource Planning (ERP) transition and our footprint optimization projects, which we expect to benefit adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin performance in the second half of this year. I'll now turn it back to Ivo for closing thoughts.
Ivo Yorick (Chief Executive Officer)
Thanks Brooks on slide 10, let me summarize our key messages. First, our team executed well and showed a great degree of resiliency during a period of significant business transition. We delivered slightly better adjusted EBITDA margin than expected and solid free cash flow on a seasonal basis. Our European business is operating as expected post the Enterprise Resource Planning (ERP) transition and our team is highly focused on driving incremental efficiencies. With a new system in place, we have shifted our operational focus to optimizing customer service fill rates to pre Enterprise Resource Planning (ERP) implementation levels which were at world class. Second, we continue to see improving demand trends across most of our end markets. Industrial OEM orders are gaining momentum and we experience good demand trends in April in emea. Our revenue is trending nicely above expectations to start the quarter. As such, we have good confidence in achieving our core revenue growth guidance with where we sit today.. Third, we believe our Business is in a strong position. We are executing on our footprint optimization projects and anticipate achieving an adjusted ebitda margin approaching 23.5% in the second half of the year. In addition, our balance sheet is in a strong shape. We announced a small acquisition today acquiring Timkens Industrial Belt business which we expect to close in the third quarter. The acquisition augments our part transmission position in North America and should supplement growth moving forward. We intend to remain opportunistic, deploying capital to enhance shareholder returns. Before taking your questions, I want to thank all of our global Gates Associates for their diligence and effort, supporting our customers needs and executing on our strategic goals. With that, I will now turn the call back to the operator for Q and A.
OPERATOR
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one. Again, we ask that you please limit yourself to one question and one follow up to allow everyone an opportunity to ask a question. We'll take our first question from Michael Holloran at Baird.
Michael Holloran (Equity Analyst at Baird)
Hey, morning everyone. Maybe we just start where you were leaving off there a little bit. Ivo. So it sounds like core growth would have been positive in the quarter excluding Enterprise Resource Planning (ERP) and some of the days issues. Feels like the trajectory is what you're wanting to see, exiting Q1 into Q2 holistically, maybe just confidence in the sustainability. As we sit here today, any areas of concern? What are your customers saying? Just kind of generically help us understand how you think this tracks to the year.
Ivo Yorick (Chief Executive Officer)
Yeah, Mike, good morning and thank you for the question. Look, we actually had a terrific quarter. You know, taking into account the quantified issues that we have highlighted on our Q3 earning call last year outlining that we have a major Enterprise Resource Planning (ERP) upgrade that we are going to do on basically 24% of the global company's revenues in a Big Bang type event. And we have executed in an amazing way. I'm super proud of our Europe team. They have done a fantastic job and the business performed as we have anticipated. The business continues to behave in a very strong fashion. Net of the two less selling days than the Enterprise Resource Planning (ERP), we would have been basically up 300 basis points on core, which is right in line with what we have expected for the year and is basically trending towards the midpoint of our annual guidance. April,, we have exited in a very strong position as well. The Order flow is very solid. We have highlighted on last couple of calls that we have seen a very nice inflection in the industrial OEM order flow that remained throughout Q1 and into April,. So as far as I, you know, as far as I, you know, as I see it today, I feel quite confidently that we are in a very good position to be able to achieve our annual guidance and, and, you know, we've actually put the business in a position to be able to do really well as, you know, as the revenue generation capabilities and the end market stabilize. So we're in a very good shape.
Michael Holloran (Equity Analyst at Baird)
Yeah, that makes a lot of sense. And, you know, maybe just the Timken Belts purchase. Why does it make sense now? What capabilities does it add that you lacked before and then any sense of size, revenue, profitability, any of that? Yeah, look, it was very opportunistic. We were approached some time ago about the opportunity to acquire an asset that, frankly, when you talk about around the edges of what you do, this is right front and center of what we do. This is highly complementary in nature for us. The business has evolved. I think that there have been some, you know, some highlights about what that business was about 10 years ago. I think the business has gone through some transitions. You know, we are buying assets in a facility in Mexico. That is going to be highly complementary for us. You know, the size, you know, we think that, you know, that business can kind of add maybe $five million a month in annualized revenue. And so, you know, it's, you know, it's highly complementary. And I believe that it will be very accretive to us as we embed it into our operations and it has the opportunity to continue to accelerate our growth rate. Makes a lot of sense. Appreciate it. Thank you.
OPERATOR
Next slide, we'll move to our next question from Jeff Hammond at KeyBank.
David Tarantino
Hey, good morning. This is David Tarantino on for Jeff. Hey, Devin, maybe could you, could you give us a little color on kind of the margin trends? If you kind of back out the Enterprise Resource Planning (ERP) transition and maybe give us some color on price costs relative to the increased inputs,, particularly around any kind of oil derivative impacts or any tariff impacts you expect moving forward? It looks like the year's going to playing out in line with expectations overall.
Brooks Mallard (Chief Financial Officer)
Okay. All right, David, that's a lot to unpack, so get ready. So first, let's start with the, you know, with the headwinds, the margin headwinds. As I look at Q1 conservatively, I would say we had at least 200 basis points of ebitda margin, headwinds. At least half of that was associated with the ERP transition in Europe. So that's a combination of lower sales, as we talked about, and then the impact of, you know, higher, you know, temporary SG and a cost as we move through the hypercare phase of that go live. You know, those, those costs are temporary. They'll come out as we exit Q2. And then, you know, the, the other half is, you know, a combination of the, you know, footprint optimization kind of cost out that we talked about in the first half of the year, as well as the impact of less days, just kind of the leverage part of the less days. And so you kind of take that into account. You know, we're, you know, kind of pushing up toward 23% Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), you know, from A, from A, you know, one off perspective. And then I look at Q2, you know, the midpoint, we're at 22.2 percent, I think 22.3, 2.2. And, you know, I see we still have about 100, you know, basis points of headwind. Again, about half of that coming from ERP, almost entirely coming from hypercare and increased sga, and then the rest really coming around the footprint and cost actions. You know, that should be complete by the end of Q2. And so again, you know, before we get started to get any of the savings or anything, you know, we're approaching 23%. And so as I look at those two, you know, kind of two data points and I look at the 23.5% that Ivo talked about in the back half of the year, boy, I mean, we feel pretty good. We feel pretty good getting through the ERP transition, exiting the way we did, eking out a little core growth in May and then kind of looking at the rest of the business and starting to get a little bit of growth there. We feel pretty good about things. From a tariff perspective. We don't really expect any impact from the 232 stuff. Most of ours was classified as automotive. And so that really doesn't impact us at all. We have a little bit of headwinds, maybe 20bps of kind of dilution as we priced for tariffs. We're not even counting that, though, in any of our numbers. We're going to get to where we need to get, irrespective of that. When you think about what's going on in the Middle east and the cost of oil and how that kind of impacts through the entERPrise, you know, obviously that's going to impact things like resins and polymers. And compounds, it's going to impact things that have high energy use like aluminum and steel. You're seeing those go up and then there's, you know, ripple effects to the rest of, you know, through the rest of the P and L. When it comes to pricing for inflation, we're very confident on that. Right. We've always been able to price for inflation. You know, we're getting out ahead of that and we learned some, you know, some lessons as we, as we think back, you know, post Covid and the Russia, Ukraine conflict. And we're really focused on surety of supply for our customer. In addition, you know, we've done a lot of work around our supply base, so supplier development, alternative materials, different things like that. And we feel like we're in a very solid position in terms of making sure we can take care of our customers, you know, get surety of supply, not have any of interruptions in the business. And then also as I said, you know, we know we can price for, we could price for inflation and we will make sure we take care of that. In addition, you know, we're sticking by our guidance in the second half and we feel pretty good about it. Okay,
Ivo Yorick (Chief Executive Officer)
great. Yeah, that's really helpful. And then maybe following up on the demand trends, could you just give us a little bit more color on the underlying demand trends relative to the strong order take you highlighted? How do the current customer conversations track with that initial end market framework you guys provided last quarter? Yeah, look, I mean, I don't think that anything really has fundamentally changed. I mean if there was a change, I would say maybe the particularly in North America on highway order flow has gotten better than where it was kind of exiting 2025. Outside of that, you know, we see pretty solid demand trends across the portfolio. You know, we see good behavior in automotive aftermarket. We feel well about industrial off highway. I mean, obviously commercial construction has been quite strong. AG has been recovering very, very nicely. Energy and resources have stabilized. So that's kind of more still neutral around the edges. But we anticipated there may be an inflection taking into account what's happening in the Middle East. Diversified industrial is in a good place. You know, auto is soft, auto always soft. But it's such a small part of our business and it is right where we anticipate it. So when I take a look at where we sit, you know, we feel very confidently that the midpoint of our guide for the year is super achievable.
OPERATOR
We'll take our next question from Nigel Ko at Wolff Research.
Ivo Yorick (Chief Executive Officer)
Thanks Good morning. And by the way, congratulations on the deal. I think this is your first deal as a public company, right Eva? It is, thank you, Nigel. And you know it's kind of a, it's a really nice, nice stuck-in transaction that you know, it's not even middle of the fairway. I mean in the middle of your household.
Nigel Ko (Equity Analyst at Wolff Research)
Yeah, it does seem like hand in glove. Maybe just a bit more details on what you've seen, you know, sort of through April. Number one, given the short cycle nature of your product. I'm just trying to understand why the push from the Enterprise Resource Planning (ERP) transition. So just want to understand how, how you're recovering those sales because I think we tend to think of short cycle as sort of like one and done. It's lost, doesn't recover. So just want to understand that. And then it sounds like you're seeing recovery in industrial oem. You mentioned on highway as an area of recovery as well. So I'm just wondering if some of the strength you're seeing is really being driven by some of this heavy industry recovery.
Ivo Yorick (Chief Executive Officer)
Yeah, thank you a lot to unpack. So look, why do we feel that we're going to recover the sales in Europe? Because we really the way to think about in Nigel is that we went live basically in the first week of February and you have to back flush the system. So no matter what you do, you kind of lose one week of activity and then you fire back your assets and you restart them. And so everything was going the way that we've anticipated. It just took us think about it as one more day to un gum our distribution centers and we've just simply run out of calendar in March. Europe revenue in March was on par with prior year pre Enterprise Resource Planning (ERP) implementation. So they were fully recovered. And frankly in the month of April, at the beginning of April, they've recovered the revenue from Q1. So actually our Europe business was up almost double digits in the month of April. So they've had full recovery, they are performing well. We are doing a really good job. That team is just executing in a world class level. So I feel quite well that we have recovered completely and not really lost any revenue. So again one day and that was nicely recovered. When it comes to these demand trends, I believe that what you see on the heavier industry is more in line with that underlying economy around the large projects that are coming out of ground around the data centers and power gen and power infrastructure. And you need lots of construction equipment, earth moving equipment and so on, so forth. And we've anticipated that those Businesses were quite weak for an extended period of time. And I think that you and I discussed that on our Q3 earnings that the outlook has been stabilizing and we are now starting to actually see the outlook turn nicely positive. And so Purchasing Managers' Index (PMI) is above 50 and that's good for kind of the overall underlying trend. And look, I'm not, you know, I'm not prepared to declare victory in here but I feel pretty, you know, I feel pretty positive about the demand trends.
Nigel Ko (Equity Analyst at Wolff Research)
Well, Institute for Supply Management (ISM) 52.6 I think this morning. So another fourth, fourth month above 50 so it's a bit of a trend now, but thanks for that Ivo. And then just, just going back to the previous question about the inflation recovery. Is there more price coming into Q2 versus Q1 and then Brooks the selling date headwind in Q1, does that come back in 4Q? Do we have some tailwind in the back half of the year?
Brooks Mallard (Chief Financial Officer)
We have an extra day in Q4, so that's as we kind of move through the year. Whenever we actually talk about Q4,, you'll see it a little bit higher and it'll be because of that extra day. From a pricing perspective you might see a little leak into the end of Q2,, but that's mostly going to be a second half event. So that'll evolve over Q2, and we'll give more guidance as we see how things evolve and we start to roll out our Q3, guidance after this quarter.
Nigel Ko (Equity Analyst at Wolff Research)
That's great. Thanks guys.
Julian Mitchell (Equity Analyst at Barclays)
We'll take our next question from Julian Mitchell at Barclays. Hi, good morning. Just trying to understand the sort of Enterprise Resource Planning (ERP) catch up. So I think you're, you had 3 percent sort of underlying growth x Enterprise Resource Planning (ERP) in first quarter and then you're guiding for around that rate for Q2, and I think for the second half as well. But just wondered if you might have some Enterprise Resource Planning (ERP) catch up that would push up that underlying growth in the balance of the year from the 3 percent you did in Q1, particularly as your order trends seem pretty good and you had a good book to bill. So I'm just trying to square those things. I guess I'd say if you're running at 3 percent every quarter underlying, but then you should get a catch up from Enterprise Resource Planning (ERP) and the orders seem better. Why is it 3 percent every quarter through the year?
Ivo Yorick (Chief Executive Officer)
Yeah, look Julian, a good, good question, right? So the ERP catch up, where I was talking about the Enterprise Resource Planning (ERP) catch up, we basically were about a day worse than what we've anticipated, you know, we've lost seven, seven working days. Excuse me. And so the order turns out very, very solid. You know, we are early in the year. I, you know, I don't think that it is prudent to be making any adjustments to guidance this early in the year. Of course, you know, when you take a look at the order trends, you know, you would. And I think that you probably hear it from our responses. We feel a lot more positively around where we sit for the year. But it is, you know, it's quite early in the year and, you know, we will execute on what within our control and manage our revenue generation to deliver on the guidance that we have put forward.
Julian Mitchell (Equity Analyst at Barclays)
And then just my follow up around price versus volumes in the revenue line, maybe I missed it, but did you mention what price was in the first quarter? And then I think for the year as a whole, you'd guided one, one and a half points of price. Is that still the case or there's a bit extra now because of the higher cost inflation?
Brooks Mallard (Chief Financial Officer)
Yeah, as I said before, Julian, we're kind of seeing how things evolve. We've begun to roll out some price increases and then we're looking at the impact of some other things. And so there will definitely be an evolution of price versus volume as we work our way through the second quarter. But, you know, this is all relatively, you know, kind of, you know, late breaking and we're still kind of working through, you know, some of the numbers. And so, you know, I would say, you know, stay tuned for the second half of the year. We reiterated our guide. We feel comfortable with our, with our numbers both from a top line and a profitability perspective. And we'll update you on the components of it. And as we work through, you know, how the, you know, how all this oil increase in cost impacts, impacts our numbers. Okay, got it. But in the first quarter, sort of reported price was what, a point and a half or something? A little bit, a little bit higher. Yeah, a little bit, little bit higher. I mean, we have a little bit more tariff-related pricing in the first half of this year because we kicked that off in the third quarter of last year. So a little bit more in the original numbers, a little bit more price heavy in the first half related to tariffs.
Julian Mitchell (Equity Analyst at Barclays)
Great, thank you.
OPERATOR
We'll move to our next question from Andy Kaplowitz at Citigroup. Good morning, everyone.
Ivo Yorick (Chief Executive Officer)
Morning. Andy, I think you said personal mobility up 6% in Q1. I know. Affected by Enterprise Resource Planning (ERP). I know you've talked about personal mobility growing Sort of that high 20s to 30% over the next few years. I think you said Q2 returned to more normalized growth run rates in personal mobility. So maybe just update us, is that the case? Can you get back to those rates and do you still expect 26 to grow at that sort of normalized high growth rate in personal mobility?
Andy Kaplowitz
Yeah. Thank you, Eddie. Absolutely. We've had some delays with a couple of projects that, that were supposed to ramp up in Q1. They are ramping up in Q2 and the ERP was an outsized impact because very significant amount of our revenue base is Europe based. And so that drove a pretty meaningful impact to the Q1 growth rate. But as I indicated in a prepared remarks, we certainly believe that the business is going to grow and, and deliver that mid-20s growth rate as we have committed in our original guidance. Okay, I think I have to ask you about that other big growth driver data centers. I mean I think you said up 700% off a low base. I don't know, that probably puts you at what like 10 million for the quarter? Maybe a little bit more, you tell me. But is there a way to more directly refine what 202026 could look like? And then you know, obviously we're all wondering how you fare versus that 100 million to 200 million rate by 2028. Like so how's the progress versus that?
Ivo Yorick (Chief Executive Officer)
Yeah, look, you know we feel very good about where we sit today. I mean our order intake, and billings are strong in data centers indicating you know, a really nice acceleration of penetration. I mean obviously it is from a small base last year, but we've started to accelerate our our revenue gen and order intake, in in Q4,. We continue to develop a much more wholesome understanding of the infrastructure partners and the semiconductor partners cooling technology and their needs. And you know what, we continue to drive and tailor our technology for those needs. We are launching new products. Those products we believe put us at the forefront of the incremental improvements that are needed to facilitate much better liquid cooling flow rates, to improve the efficiency from the existing infrastructure and be kind of a leading a supplier kind of on the next generation of the chips that are now being developed. So you know, we are kind of building and the kind of the traditional approach that I have probably demonstrated over the last ten years. We go after an application that is exciting and emerging. We develop a highly specialized knowledge and we tailor our products that will offer differentiated performance and we build as you know, sustainable durable revenue stream on forward going basis. And I, and I think that our, you Know, our data continues to demonstrate it beyond that trajectory. And you know, I've committed to you all and to our shareholders kind of 100 to $200 million of revenue by 2028. And I believe that we're on the trajectory.
Andy Kaplowitz
The bottom line on track toward that goal in Q1 is how you characterize it. Okay, thank you.
Dean Dray (Equity Analyst at RBC Capital Markets)
We'll go next to Dean Dray at RBC Capital Markets.
Ivo Yorick (Chief Executive Officer)
Thank you. Good morning, everyone.
Dean Dray (Equity Analyst at RBC Capital Markets)
Morning, Dean. Good morning, Dean.
Ivo Yorick (Chief Executive Officer)
Hey, love to circle back on the Timken deal and congrats, Ivo. Can you just give us some color strategically what this brings to Gates? You know, is this a product line extension? Because if I look at the SKUs, they're awfully similar but you know, maybe it's you know, some on the sports equipment side and does it bring any new distribution partners maybe to the table? I like seeing the manufacturing facility coming in, but maybe we could start there.
Dean Dray (Equity Analyst at RBC Capital Markets)
Yeah. Good morning, Dean. Yeah, those are all, those are all really good questions. I mean I would think about it more as kind of an industry consolidation more than anything else. I mean, as you know, Gates is the global leading supplier of all types of belts in all sorts of different applications. And you know, this was just another competitor for us that was small. And I think that Tim can tell that that was not, you know, at the front and center of what, you know, what they wanted to focus on. Focus on, on forward going basis. And you know, it is something that is additive to us more across the customer base. I think that, you know, the technologies and the type of applications that they participated in and that business participates in is, you know, very, you know, it's complementary and it's not, you know, something that is super new. We will be switching a whole bunch of that portfolio into Gates Constructions. And you know, the factory is nice to have. So I think that you should just think about it more as a kind of industry consolidation than anything else. And you know, they have some good folks there that, that's always nice to bring into our, you know, into our family. And we'll welcome the employees to Gates to Gates organization with open arms. And we just think that it's a, it's a good transaction. It's, you know, it's right at the core of what we do and you know, we feel that we are the right owner and a good steward of that business on forward going basis. Yeah, that's really good to hear. And I know we don't have the terms but based upon the sellers previous comments about margins, it looks like this is coming in well below the power transmission margins for Gates. So that would suggest there's some nice secretion opportunity. Can you give any color or context there?
Ivo Yorick (Chief Executive Officer)
Yeah, look, I mean, I think that the business is certainly coming in kind of below what our, you know, what our North America power transmission fleet averages. Lots of that business is frankly OEM business in just a natural way that's got a little bit lower margins. But for us, again, you know, this is, this is kind of core of what we do. So we believe that we have a significant opportunity to drive margins to be at a company fleet average. And that would just indicate that there's a very nice opportunity to improve profitability on that asset. And it should be a very good transaction for us once we have the opportunity to integrate it in and start running it under the Gates operating system and, and you know, frankly drive the margins to where they should be.
Dean Dray (Equity Analyst at RBC Capital Markets)
All good to hear. Thank you.
Chris Snyder (Equity Analyst at Morgan Stanley)
Our next question comes from Chris Snyder at Morgan Stanley. Thank you. I wanted to follow up on some of the commentary on the Enterprise Resource Planning (ERP) disruption and potential catch up. You know, I guess if we assume, you know, the Enterprise Resource Planning (ERP) was a three point headwind in the quarter, I guess would imply about 25, 30 million dollar impact. But then I think Evo, you said that Europe has fully caught up on the lost revenue in April. So I just want to make sure I'm understanding that.
Ivo Yorick (Chief Executive Officer)
Right. Like, was Europe some subsegment of that 25 to 30 million,? Just trying to understand how much catch up there really was there in April. Thank you. Yeah, Chris, thanks for, thanks for the question. Let me just clarify. You know, we came about 5 million light to the midpoint that we have guided on Q1. So my comment has been more around that $5 million that we've came a little bit light on in Q1, that we have fully recovered, not the incremental, you know, $25 million that, that you are stipulating that, you know, that is, you know, something that we anticipate we will recover as the year progresses.
Chris Snyder (Equity Analyst at Morgan Stanley)
And that was built into our original guidance. Right. And so was bridging the gap on Q1 versus the balance of the year. Got it. Thank you. If I felt like the 25 to 30 was a lot, so I appreciate that clarification. Thank you. And then if I could just follow up on Data Center. You know, it's, you know, very emerging for you guys now and I guess my question is, is this just a emerging market since it's tied to Liquid Cooling, which is still in the very early stages or, you know, is there already an established player that's out there in the market that you guys have to go and take share from? Because I think it's understandable why you guys have a right to win there. But then also just the question is, if this market's already developing, you know, why aren't you guys meaningful share already? But correct me if you, you already are. Meaningful share. Thank you.
Ivo Yorick (Chief Executive Officer)
Yeah, look, I think it is a nascent market, right? I mean, I think that, you know, we've, we all started to talk about liquid cooling much more profoundly in about 12 months ago. We, you know, we have started to quantify our growth rates in, in that market pretty meaningfully in the second half of the year. I think that our order intake does indicate that we are taking a fair share of that revenue. They are well established players, just like Gates is an established player that will be competing for the available infrastructure build out. But this so many projects that in our view there will be room for more players to come in and for everybody to have plenty of opportunity to build strong, solid revenue stream as this business becomes mainstream. And my sense is, you know, we didn't just kind of come up, you know, with 28 as some, you know, some random date. I mean, we feel that by 28, this should become, this should transition from emerging applications to mainstream where all data centers will be liquid.
Chris Snyder (Equity Analyst at Morgan Stanley)
Thank you, Ivo, Appreciate that.
David Rasso
Next we'll move to David Rasso at Evercore. Isi, hi, thank you for the time. With the second half of the year implying organics around four and a half. I'm curious, the order strength that you mentioned multiple times for March and April, can you give us a sense of what the order growth is trending right now year over year?
Brooks Mallard (Chief Financial Officer)
Yeah, so look, we've, you know, obviously order growth is outpacing, you know, core growth, you know, certainly in Q1, as we saw backlog build, you know, kind of across the business. And that's, I think it's an indication of the industrial OEM strength that Ivo talked about. And so when, you know, that's really, you know, as we've been going through, you know, a little bit of the trough that we've seen on the industrial side. You know, the strength in the industrial OEM businesses has given us pretty good confidence. And so, you know, we had backlog build in Q1,, we continued, we saw strength in April,, which is why we highlighted that. And so orders are on pace to support our core growth number right now. And I'd say also remember that the second half of the year there is that extra day that we have in the second half of the year that kind of offsets the two days in the first quarter. And so that gives you a little bit higher growth rate in the second half. And then also there's some catch up throughout the year on the EMEA side. And so when we, when we look at it kind of from an overall perspective, we feel like it's pretty evenly paced throughout the year from a core growth perspective. David, what I would, I would remind everybody. Sorry, go ahead. I'm sorry. What I would remind also, everybody is that, you know, prior year comparisons are a little more difficult too. Right. Because we had that big step up in AR business of the channel, channel win that we had. So first half, in the first half. So actually, you know, the underlying performance in Q1 was quite, quite, quite good. Yeah. Well, that's always just wondering, are we really seeing orders running above that second half organic growth rate, which is the chart? Just trying to set that up. Yeah, I think when you, when you look at the one offs that I talked about in terms of, you know, the extra day, you look at the order rate right now and you look at the trend and kind of, and what we've guided to for Q2, again, we feel pretty confident in our guide and we feel good about, you know, where we stand from an orders perspective and a sales perspective. And lastly, it's early, early in the year as well, right, David? It's very early in the year. Yeah, I appreciate it. And I think if I heard you correctly about the second quarter, while the guide for the margins around, I think 22, two, you feel there's still about 100bps in there of, I guess, ERP drag, if I heard correctly. Is that the right way to think of it? Well, I would say, yeah, please go ahead. Yeah, it's about half ERP and half footprint optimization, you know, cost out. So it's kind of similar to what it was in Q1, but it's, you know, half. And so we, you know, you progress from, you know, 20.8 to 22.2, you still have 100bps of headwind. And so, you know, you're kind of knocking on 23% from an Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) perspective, you know, when you adjust for the one off. So when, you know, again, you know, we talk about the 23.5% target in the second half of the year, we feel pretty good about that.
OPERATOR
All right, I appreciate the time. Thank you. Thank you.
Jerry Revich (Equity Analyst at Wells Fargo)
We'll move to our next question from Jerry Revich at Wells Fargo. Yes, hi. Good morning everyone. Ivo Brooks. I'm wondering if you just talk about the difference in demand cadence you're seeing on the replacement market, by end market, if you have that type of visibility. We were surprised to hear from somebody else on the supply chain that parts demand in truck applications, was really soft in the first quarter. I'm wondering if you're seeing that or if you have that level of granularity and visibility and any other replacement demand trends that you can talk about in terms of cadence would be helpful.
Ivo Yorick (Chief Executive Officer)
Yeah, we don't really break out replacement channels by end market. What I will tell you is that the aftermarket in Q1 was quite healthy. Absent of the two things that we have listed, it was running at a trend line. So I would not be able to tell you that there was something out of ordinary that was not behaving well. Our aftermarket is actually quite okay. And when I take a look at positive, the POS data was very healthy. So there wasn't any indication of somebody trying to pull demand forward. We didn't see that. I mean, the sales out kind of outpaced our sales in slightly. So, you know, everything is what I see a normal operating conditions. I wouldn't call that as you know, this extraordinarily out of line on a positive or that it is negative at all. I think it's behaving the way that we anticipated.
Jerry Revich (Equity Analyst at Wells Fargo)
Super. And separately, nice to see the transaction announced this morning. Can you talk about as you look at the M and A pipeline, are there additional opportunities that we should be thinking about over the next 12 to 18 months? What's the range of capital if you do have an active pipeline, what's the range of capital that you think you could do deploy beyond the announcement today?
Ivo Yorick (Chief Executive Officer)
Yeah, look, we have a very healthy balance sheet.
Jerry Revich (Equity Analyst at Wells Fargo)
We spend. I spend years on trying to get this balance sheet to be durable. We are right in line with what we have committed. You know, in our last cmd, we feel that we have a ton of capacity. I think that we are operating the business quite well. We're driving profitability forward and we believe that there are many opportunities. Presently our pipeline is very robust. We are doing presently a ton of work on number of assets that would be highly accretive to what we do. Again, front and center to our portfolio. We are really not looking anything that would be, you know, an extension or a third leg. We don't believe that is the most meaningful way to Add to our scale. And so we will talk to you as these things develop further. But you know, I would say yeah, there's a very good likelihood of more announcements coming certainly within this calendar year.
Tomo Sano (Equity Analyst at JPMorgan)
And we'll take our next question from Tomo Sano at JPMorgan.
Ivo Yorick (Chief Executive Officer)
Hello everyone. Hi Tomo.
Tomo Sano (Equity Analyst at JPMorgan)
Good morning. Thank you. Could you share your perspective on business opportunities for Gates and robotics, especially humanoid applications, based on your discussion with the customers and your technology services. What is Gates potential in this space and there are any specific technology services you see as a key differentiators?
Ivo Yorick (Chief Executive Officer)
Yeah. Good morning. Look. Yes, we do see opportunities. There are some nice opportunities that we already participate on today. We have a very nice small scale business in, in China in particular and in Japan in robotics. I would not be in a position frankly to tell you today whether or not there's some humanoid. Humanoid opportunities very specifically. But we do have a very nice robotics power transmission business with small belts that you know them perhaps more cost efficient than, than the alternative technologies. And so we believe that that's going to be as small accretive end market as it develops on forward going basis.
Tomo Sano (Equity Analyst at JPMorgan)
Thank you. And just follow up on the Tim Cans acquisitions. Could you talk about expected impact on a net leverage following these acquisitions and how should we think about the capital allocations, strategies including the balance sheet, please?
Ivo Yorick (Chief Executive Officer)
Yeah, it's immaterial. I mean it was a, you know, super, you know, positive purchase price, opportunistic purchase price that we've, you know, that we've acquired this business will be not meaningful on our net leverage.
Tomo Sano (Equity Analyst at JPMorgan)
Thank you.
Rich Quozzo
And that concludes our Q and A session. I will now turn the conference back over to Rich for closing remarks.
OPERATOR
Thanks everybody for participating. If you have any further questions, feel free to reach out to me. Otherwise, have a great weekend. Take care. And this concludes today's conference call. Thank you for your participation. You may now disconnect.
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