Fourth Quarter 2025 Earnings Teleconference February 5th, 2026 CONTENTS 2025 Summary Q4 2025 Summary 2026 Guidance Q4 2025 Supplemental Information Appendix 2 Disclosure Regarding Forward-Looking Statements Information provided in this presentation that is not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our forecasts, guidance, preliminary results, expectations, hopes, beliefs and intentions on st ...

Core Insights - Palm Valley Capital Fund experienced a 2.35% appreciation in Q3 2025, underperforming compared to the S&P SmallCap 600's 9.11% gain and the Morningstar Small Cap Total Return Index's 7.99% rise [1] - The fund's allocation to cash equivalents increased from 73.5% to 74.1% during the quarter, reflecting a cautious investment strategy [1] - Small-cap stocks outperformed large caps during this period, driven by expectations of Federal Reserve easing and reduced tariff concerns impacting corporate profits [1] Company Insights: LKQ Corporation - LKQ Corporation is identified as a leading distributor of vehicle products and parts, focusing on aftermarket and recycled auto parts in the U.S. and Europe [2][3] - The stock of LKQ Corporation saw a one-month return of -7.711% and a 52-week decline of 21.97%, closing at $29.97 per share with a market capitalization of $7.711 billion on October 7, 2025 [2] - LKQ's business model is characterized by sourcing a significant percentage of its parts from recycled vehicles, making it resilient during economic downturns [3] - Demand for LKQ's products is influenced by factors such as repairable auto insurance claims, parts inflation, the aging vehicle fleet, and trends towards non-OEM parts and electronic vehicles [3]

Group 1 - O'Reilly Automotive operates physical retail locations selling products for DIY and professional customers, achieving a 242% stock increase over the past five years, outperforming the broader market [1] - The company's stock has a price-to-earnings ratio of 36.9, which is near its highest level in two decades, and has increased by 65% over the past five years [2][4] - O'Reilly has a strong track record of revenue and earnings growth, with 33 consecutive years of same-store sales gains, indicating durable demand regardless of economic conditions [4][6] Group 2 - Due to the high valuation, it is advised that investors refrain from purchasing shares at this time and instead monitor the company for potential pullbacks [5][6] - O'Reilly Automotive is recognized as a high-quality company that should remain on investors' watch lists despite not being included in the latest top stock recommendations [6][7]

Financial Performance - Cummins Inc reported Q2 2025 revenue of $8643 million, a decrease of 2% compared to Q2 2024[9, 13] - The company's EBITDA for Q2 2025 was $1587 million, representing 184% of sales[9, 13] - Net income for Q2 2025 reached $890 million, with a diluted EPS of $643[9] Segment Performance - Engine segment revenue decreased by 8% to $2899 million due to lower On-Highway demand in North America[13, 22] - Components segment sales declined by 9% to $2705 million, also driven by lower On-Highway demand in North America[13, 25] - Distribution segment experienced a 7% increase in sales, reaching $3041 million, fueled by higher demand for power generation products in North America[13, 28] - Power Systems segment saw a significant 19% revenue increase to $1889 million, primarily due to increased power generation demand[13, 31] - Accelera segment reported sales of $105 million, a decrease of 5%, with an EBITDA loss of $100 million[13, 34] Additional Information - Operating cash flow for Q2 2025 was $785 million[39]

Financial Data and Key Metrics Changes - Sales in the first quarter were up 0.7% year-over-year on an organic basis, or 2.3% on a daily organic basis, with strength in residential HVAC, aerospace, and energy markets [11][12] - Adjusted gross margin was 37.9%, up 50 basis points year-over-year, while adjusted EBITDA margin was 21.8%, up 30 basis points [13][14] - Adjusted earnings per share in the quarter was $2.15, up 7.5% year-over-year, or approximately 10% adjusted for the impact of the Industrial Systems divestiture [14] - Free cash flow generated in the quarter was nearly $86 million, up 32% year-over-year, contributing to a debt reduction of $164 million [14][32] Business Line Data and Key Metrics Changes - Automation and Motion Control (AMC) net sales were up 40 basis points year-over-year on an organic basis, driven by strength in aerospace and defense, and a return to growth in discrete automation [22] - Industrial Powertrain Solutions (IPS) net sales were down 3.4% year-over-year on an organic basis, reflecting weakness in the machinery off-highway market [25] - Power Efficiency Solutions (PES) net sales were up 8% year-over-year on an organic basis, largely due to strong growth in residential HVAC, which was up nearly 30% [28][29] Market Data and Key Metrics Changes - IPS sales in North America were up low single digits, while sales in China, Europe, and the rest of the world experienced weakness [26] - Orders in IPS were up nearly 9% in the first quarter, reflecting further outgrowth in attractive markets [26] - Organic orders in April were down 1.8%, largely due to aerospace project timing in AMC and anticipated order rebalancing in PES [12] Company Strategy and Development Direction - The company is focused on executing growth, synergy, and cash flow acceleration plans, while implementing robust tariff mitigation strategies [10][14] - The humanoid robot market is identified as a significant growth opportunity, with expectations of strong double-digit CAGRs for the next decade [15][19] - The company aims to leverage its automation portfolio to gain market share in the humanoid space, with recent wins worth over $20 million in annual sales [20] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about improving growth prospects, noting three quarters of positive orders growth and a belief that most end markets are near trough levels of demand [7][9] - The company reaffirmed its earnings guidance for the year, despite macroeconomic uncertainties and tariff-related challenges [9][33] - Management emphasized confidence in achieving tariff-related cost and margin neutrality by mid-2026 [42][44] Other Important Information - The company ended the quarter with total debt of approximately $5.3 billion and net debt just below $5 billion [32] - The company plans to continue deploying the majority of its free cash flow to debt reduction in 2025 [32] Q&A Session Summary Question: Dynamics of long cycle versus short cycle orders - Management noted good momentum in winning longer cycle projects, especially in IPS, while short cycle orders remained stable [48][50] Question: Competitive positioning and share gains - Management highlighted a net advantageous position due to global manufacturing footprint and dual country sourcing strategies, expecting share opportunities to arise [53][54] Question: EBITDA margin outlook and drivers - Management expects a step-up in EBITDA margins in the second half, driven by mix, volume, and price synergies [58][59] Question: PES revenue outlook and conservatism in guidance - Management expressed caution regarding the second half outlook for PES due to macroeconomic factors, despite strong first quarter performance [63] Question: Mitigation of tariff impacts - Management outlined that supply chain realignments and production relocations are primary mitigation strategies, with pricing actions also contributing [69][70] Question: IPS margin guide and mix effects - Management confirmed that the margin guide for IPS is primarily affected by mix rather than tariff pressures [83] Question: Humanoid market opportunities - Management indicated that the $100 million opportunity funnel is global, with recent wins not primarily based in China [100]

Financial Data and Key Metrics Changes - Sales in Q1 2025 increased by 0.7% year-over-year on an organic basis, or 2.3% on a daily organic basis, with notable strength in residential HVAC, aerospace, and energy markets [10][12] - Adjusted gross margin was 37.9%, up 50 basis points year-over-year, while adjusted EBITDA margin was 21.8%, up 30 basis points [12][13] - Adjusted earnings per share in the quarter was $2.15, reflecting a 7.5% increase year-over-year, or approximately 10% adjusted for the impact of the Industrial Systems divestiture [13] - Free cash flow generated in the quarter was nearly $86 million, up 32% year-over-year, contributing to a $164 million debt repayment [13][33] Business Line Data and Key Metrics Changes - Automation and Motion Control (AMC) net sales were up 40 basis points year-over-year on an organic basis, driven by strength in aerospace and defense, with discrete automation returning to growth [22][23] - Industrial Powertrain Solutions (IPS) net sales decreased by 3.4% year-over-year on an organic basis, reflecting weakness in the machinery off-highway market, but orders were up nearly 9% [25][27] - Power Efficiency Solutions (PES) net sales increased by 8% year-over-year on an organic basis, primarily due to strong growth in residential HVAC, which was up nearly 30% [29][30] Market Data and Key Metrics Changes - IPS sales in North America were up low single digits, while sales in China, Europe, and the rest of the world experienced declines [26] - Orders in IPS were up nearly 9% in Q1, indicating strong performance in metals and mining and marine markets [27] - Organic orders in April were down 1.8%, largely due to aerospace project timing in AMC and anticipated order rebalancing in PES [11] Company Strategy and Development Direction - The company is focused on executing growth, synergy, and cash flow acceleration plans while implementing robust tariff mitigation strategies [8][10] - Regal Rexnord is well-positioned in the humanoid robot market, with expectations for significant growth opportunities in the coming years [14][19] - The company aims to achieve EBITDA margin neutrality by mid-2026 through effective tariff mitigation actions [40][43] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about improving growth prospects, noting that most end markets are at or near trough levels of demand and starting to rebound [6][7] - The company reaffirmed its 2025 guidance, indicating confidence in its ability to manage through tariff-related uncertainties while maintaining a positive outlook on order momentum [34][45] - Management highlighted the potential for share gains due to tariff-related pricing and strategic opportunities [38][45] Other Important Information - The company ended the quarter with total debt of approximately $5.3 billion and net debt just below $5 billion, with plans to continue deploying free cash flow to debt reduction [33] - The company has a funnel of opportunities worth approximately $100 million in the humanoid robot market, with several recent wins worth over $20 million in annual sales [20][104] Q&A Session Summary Question: Dynamics of long cycle vs short cycle orders - Management noted good momentum in winning longer cycle projects, particularly in IPS, while short cycle orders remained stable [49][50] Question: Competitive positioning and share gains - Management emphasized a net advantageous position due to global manufacturing footprint and dual country sourcing strategies, expecting share opportunities to arise [53][54] Question: EBITDA margin outlook and tariff impacts - Management expects a step-up in EBITDA margins in the second half of the year, primarily driven by mix and volume improvements, with confidence in achieving EBITDA neutrality by year-end [59][60] Question: PES revenue outlook and conservatism in guidance - Management indicated that while pleased with Q1 performance, they remain cautious about the second half due to macroeconomic factors [63] Question: Mitigation of tariff impacts - Management outlined that supply chain realignments and production relocations are primary mitigation strategies, with pricing actions also contributing [70][71] Question: Humanoid market opportunities - Management clarified that the $100 million opportunity funnel is global, with recent wins primarily not based in China [102][104]