Gates Industrial Corp Ltd. (GTES)

Item 2: Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this quarterly report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Cautionary Note Regarding Forward-Looking Statements” above and Part I, Item 1A. “Risk Factors” in our annual report.

Our Company

We are a global manufacturer of innovative, highly engineered power transmission and fluid power solutions. We offer a broad portfolio of products to diverse aftermarket channel customers, and to OEMs as specified components, with the majority of our revenue coming from aftermarket channels. Our products are used in applications across numerous end markets, including: automotive aftermarket, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources and personal mobility. Our net sales have historically been, and remain, highly correlated with industrial activity and utilization, and not with any single end market given the diversification of our business and high exposure to the aftermarket channel. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built over more than 110 years since Gates’ founding in 1911.

Within the diverse end markets we serve, our highly engineered products are often critical components in applications for which the cost of downtime is high relative to the cost of our products, resulting in the willingness of end users to pay a premium for superior performance and availability. These applications subject our products to normal wear and tear, resulting in natural, and often preventative, aftermarket cycles that drive high-margin, recurring revenue. Our product portfolio represents one of the broadest ranges of power transmission and fluid power products in the markets we serve, and we maintain long-standing relationships with a diversified group of well-known customers throughout the world. As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of our end markets and the regions in which we operate.

Business Trends

The diversification of our business limits our exposure to trends in any given end market. In addition, a majority of our sales are generated from customers in aftermarket channels, who serve primarily a large base of installed equipment that follows a natural maintenance cycle that is somewhat less susceptible to various trends that affect our end markets. Such trends include infrastructure investment and construction activity, agricultural production and related commodity prices, commercial and passenger vehicle production, miles driven and fleet age, evolving regulatory requirements related to emissions and fuel economy and oil and gas prices and production. Key indicators of our performance include industrial production, industrial sales and manufacturer shipments.

During the six months ended June 27, 2026, sales into aftermarket channels accounted for approximately 68% of our total net sales. Our aftermarket sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Aftermarket products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.

During the six months ended June 27, 2026, sales into OEM channels accounted for approximately 32% of our total net sales. OEM sales are to a variety of industrial and automotive customers. Our industrial OEM customers cover a diverse range of industries and applications and many of our largest OEM customers manufacture construction and agricultural equipment.

During the six months ended June 27, 2026, sales in the personal mobility end market continued to experience strong growth, and our aftermarket channel sales grew modestly, including positive core growth in the industrial aftermarket channel. We continue to focus on managing our business through current economic uncertainties, improving our gross margins through our efforts of material cost savings, footprint optimization and productivity. In the first half of 2026, we expect certain one-time footprint optimization, restructuring, and system implementation costs. We anticipate these and other investments and product development in personal mobility and data center opportunities will position us to drive long term growth and margin expansion.

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On February 20, 2026, the U.S. Supreme Court issued a ruling addressing the validity of certain tariffs implemented under the International Emergency Economic Powers Act ("IEEPA"). In March 2026, the U.S. Court of International Trade issued an additional ruling that importers that paid tariffs under IEEPA are due refunds. We paid tariffs during fiscal years 2025 and 2026 on certain imported products and materials that were subject to these IEEPA‑based duties. The Company submitted refund claims in the second quarter of 2026 and recognized a receivable for these claims. The Company is evaluating the disposition and potential pass-through of refunds to customers that were charged for tariffs related to these refunds. The ultimate receipt and disposition of IEEPA refunds is not material to the Company’s financial results.

Our global operating footprint and worldwide sales reach expose us to risks associated with geopolitical tensions and trade conflicts. Global trade conflicts due to recent U.S. and retaliatory tariffs and geopolitical tensions, including the conflict in the Middle East, have led to, and may continue to lead to, inflationary pressures, supply chain disruptions, uncertainty, and volatility in the market and, therefore, could impact our operations and financial performance. As the geopolitical climate continues to evolve, we could have additional exposures in the future. We will continue to monitor and evaluate risks related to geopolitical tensions and trade conflicts and any resulting impact on macroeconomic conditions and our business.

Results for the three and six months ended June 27, 2026 compared to the results for the three and six months ended June 28, 2025

Summary Gates Performance

(1)    See “—Non-GAAP Measures” for a reconciliation of Adjusted EBITDA to net income, the closest comparable GAAP measure, for each of the periods presented.

Net sales

Net sales during the three months ended June 27, 2026 were $941.6 million, compared to $883.7 million during the prior year period, an increase of 6.6%, or $57.9 million. The following table lists the primary drivers behind the change in net sales (amounts in millions):

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Net sales during the six months ended June 27, 2026 were $1,792.7 million, compared to $1,731.3 million during the prior year period, an increase of 3.5%, or $61.4 million. The following table lists the primary drivers behind the change in net sales (amounts in millions):

Cost of sales

Cost of sales for the three months ended June 27, 2026 was $555.5 million, compared to $523.5 million for the prior year period, an increase of 6.1%, or $32.0 million. The following table lists the primary drivers behind the change in cost of sales (amounts in millions):

Cost of sales for the six months ended June 27, 2026 was $1,068.6 million, compared to $1,026.5 million for the prior year period, an increase of 4.1%, or $42.1 million. The following table lists the primary drivers behind the change in cost of sales (amounts in millions):

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses for the three months ended June 27, 2026 were $250.7 million compared to $231.2 million for the prior year period. This increase of $19.5 million was driven primarily by higher labor and benefits expense of $5.4 million, unfavorable impacts of exchange rates of $3.5 million, an increase in depreciation expense of $3.2 million, and an increase in restructuring expense of $2.2 million. This increase was partially offset by lower corporate owned life insurance expense of $3.0 million.

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SG&A expenses for the six months ended June 27, 2026 were $477.6 million compared to $447.4 million for the prior year period. This increase of $30.2 million was driven primarily by higher labor and benefits expense of $9.7 million, unfavorable impacts of exchange rates of $9.6 million, an increase in depreciation expense of $5.4 million and

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Item 7: Management’s Discussion and Analysis

of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this annual report. This discussion and analysis addresses Fiscal 2025 compared to Fiscal 2024. For discussion and analysis of our financial condition and results of operations for Fiscal 2024 compared to Fiscal 2023, see Management's Discussion and Analysis of Financial Condition and Results of Operations, in Part II, Item 7 of our Annual Report on Form 10-K for Fiscal 2024, which is incorporated herein by reference. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors” above.

Our Company

We are a global manufacturer of innovative, highly engineered power transmission and fluid power solutions. We offer a broad portfolio of products to diverse aftermarket channel customers, and to original equipment manufacturers (“OEM”) as specified components, with the majority of our revenue coming from aftermarket channels. Our products are used in applications across numerous end markets, including automotive aftermarket, automotive OEM, diversified industrial, industrial off-highway, industrial on-highway, energy and resources, and personal mobility. Our net sales have historically been, and remain, highly correlated with industrial activity and utilization, and not with any single end market given the diversification of our business and high exposure to the aftermarket channel. We sell our products globally under the Gates brand, which is recognized by distributors, equipment manufacturers, installers and end users as a premium brand for quality and technological innovation; this reputation has been built over more than 110 years since Gates’ founding in 1911.

Within the diverse end markets we serve, our highly engineered products are often critical components in applications for which the cost of downtime is high relative to the cost of our products, resulting in the willingness of end users to pay a premium for superior performance and availability. These applications subject our products to normal wear and tear, resulting in natural, and often preventative, aftermarket cycles that drive high-margin, recurring revenue. Our product portfolio represents one of the broadest ranges of power transmission and fluid power products in the markets we serve, and we maintain long-standing relationships with a diversified group of well-known customers throughout the world. As a leading designer, manufacturer and marketer of highly engineered, mission-critical products, we have become an industry leader across most of our end markets and the regions in which we operate.

Business Trends

The diversification of our business limits our exposure to trends in any given end market. In addition, a majority of our sales are generated from customers in aftermarket channels, who serve primarily a large base of installed equipment that follows a natural maintenance cycle that is somewhat less susceptible to various trends that affect our end markets. Such trends include infrastructure investment and construction activity, agricultural production and related commodity prices, commercial and passenger vehicle production, miles driven and fleet age, evolving regulatory requirements related to emissions and fuel economy and oil and gas prices and production. Key indicators of our performance include industrial production, industrial sales and manufacturer shipments.

During Fiscal 2025, sales into aftermarket channels accounted for approximately 68% of our total net sales. Our aftermarket sales cover a very broad range of applications and industries and, accordingly, are highly correlated with industrial activity and utilization and not a single end market. Aftermarket products are principally sold through distribution partners that may carry a very broad line of products or may specialize in products associated with a smaller set of end market applications.

During Fiscal 2025, sales into OEM channels accounted for approximately 32% of our total net sales. OEM sales are to a variety of industrial and automotive customers. Our industrial OEM customers cover a diverse range of industries and applications and many of our largest OEM customers manufacture construction and agricultural equipment.

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Table of Contents

During Fiscal 2025, we realized modest growth in our aftermarket channel led by the automotive aftermarket partially offset by a decline in our OEM channel, which was primarily impacted by Automotive. Our profitability improved supported by solid cost management and favorable channel mix. We anticipate demand in several of our industrial end markets to improve in 2026. In the first half of 2026, we expect certain one-time costs associated with system implementation and footprint optimization. As the industrial markets stabilize, we expect that our ongoing execution of these and other enterprise initiatives and incremental new business investments will enable us to enhance our profitability and drive higher organic growth over the long term.

Our global operating footprint and worldwide sales reach expose us to risks associated with geopolitical tensions and trade conflicts. Global trade conflicts due to recent U.S. and retaliatory tariffs and geopolitical tensions have led to, and may continue to lead to, inflationary pressures, uncertainty, and volatility in the market and, therefore, could impact our operations, supply chain and financial performance. While we have not experienced significant disruptions to our supply chain, we have experienced some slower than expected demand recovery and cost increases, primarily for our businesses in North America. The global tariff regime continues to evolve and we could have additional exposures in the future. We will continue to monitor and evaluate risks related to geopolitical tensions and trade conflicts and any resulting impact on macroeconomic conditions and our business.

Results for the year ended December 31, 2025 compared to the results for the year ended December 28, 2024

Summary Gates Performance

(1)    See “—Non-GAAP Financial Measures” for a reconciliation of Adjusted EBITDA to Net Income, the closest comparable GAAP measure, for each of the periods presented.

Net sales

Net sales during Fiscal 2025 were $3,443.2 million, compared to $3,408.2 million during the prior year, an increase of 1.0%, or $35.0 million. The following table lists the primary drivers behind the change in net sales (amounts in millions):

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Table of Contents

Cost of sales

Cost of sales for Fiscal 2025 was $2,071.5 million, compared to $2,049.7 million for the prior year, an increase of 1.1%, or $21.8 million. The following table lists the primary drivers behind the change in cost of sales (amounts in millions):

Selling, general and administrative (“SG&A”) expenses

SG&A expenses for Fiscal 2025 were $876.1 million compared to $876.5 million for the prior year. This decrease of $0.4 million was primarily attributable to favorable labor and benefits expense and decreased outbound freight costs. The decrease was partially offset by higher restructuring-related costs and unfavorable movements in average currency exchange rates during the year.

Transaction-related expenses

Transaction-related expenses of $0.5 million were incurred during Fiscal 2025, related primarily to debt restructuring costs and certain other corporate transactions. Transaction-related expenses of $3.3 million were incurred during the prior year, related primarily to the debt agreement amendments and refinancings that occurred in June 2024 and December 2024, the four secondary offerings completed in 2024, and certain other corporate transactions.

Restructuring expenses

Restructuring expenses during Fiscal 2025 included $14.3 million of severance and related benefits expense related to a global cost reduction effort. In addition, during Fiscal 2025, we incurred $5.7 million of costs related to the relocation of certain production activities and reorganization of our operations in Mexico and $3.6 million of costs related to a manufacturing reduction in force in the Americas. Additional restructuring expenses during Fiscal 2025 were related to professional service fees and severance.

Restructuring expenses during Fiscal 2024 included $2.1 million of costs related to the relocation of certain production activities and reorganization of our operations in Mexico. Additionally, we incurred $1.6 million in severance and other costs in Fiscal 2024 related to the consolidation of production activities across certain North American plants. Additional costs related to restructuring incurred during Fiscal 2024 included professional service fees, and costs associated with prior period facility closures or relocations in several countries.

Interest expense

Details of our long-term debt are presented in Note 15 to the consolidated financial statements included elsewhere in this report.

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Interest on debt for Fiscal 2025 decreased by $18.5 million when compared to the prior year, primarily due to lower

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