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 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.
