Cummins Aktie

Good afternoon, everybody. Once again, I'm Jerry Revich, and we're really excited to have with us from Cummins, Nick Arens, Executive Director of Investor Relations. We also have Colin Curtis in the audience here, Senior Analyst and Investor Relations.

Nick, thank you so much for joining our conference.

Thanks for having us. Appreciate it.

So we'll run the conversation in the fireside chat format. Maybe as a starting point. So one of the big news items from the Analyst Day was Cummins introducing a new natural gas, a large 120-liter engine platform aimed at Prime Power. Can you talk to us about the development curve? Are you folks essentially dusting off the Hedgehog design, and that's why the time to market is so fast? Or is it more complex than that?

Yes. You've got the general idea exactly right. So when we design these engine architectures, I would say the underlying 80% of it is a common architecture. When we think about that 95-liter diesel that we design, and we've gone to market with, that's our primary product in the standby backup power space. And when we designed that architecture, we did it in a fuel-agnostic way that offered us the opportunity that as and when the gas prime opportunity arose that we could make that further 20% investment to customize it into that gas prime application. So that's exactly what we're doing.

And what that allows us to do is make a very efficient incremental investment on that core architecture, get to market sooner and then also leverage a common supply chain for many of the parts as we think about the risk profile associated with that investment.

So to kind of bring a little bit more color to that, that shorter time to market, we're looking at second half of '27 as being our development milestones and hitting those development milestones that would allow us to then take that prototype or pilot customer order, which we do have strong demand for right now, but we're going to wait until we hit those milestones to actually take those orders. And then we'll be looking to go into limited production second half of '28 on those same limited production pilot orders and then assuming the development in all of the pilot efforts go according to plan, we look to scale production '29 and into '30 as we think about the shape of that coming online.

And in terms of the key development milestones, what exactly do we need to see relative to where we are now in the process because you folks had the Hedgehog essentially designed 15 years ago. Do you have any prototypes that are running already? Or we're truly talking about first prototypes, back half '27?

Yes. I mean we're going to have different prototypes as we naturally go through our development cycle. But really, what you're talking about is getting to a maturity level with your development program where you're looking at really driving improved fuel efficiency, which is incredibly important for this particular space, also then expanding the number of cylinders on that core block as we think about expanding to that 130-liter solution, driving fuel efficiency.

And then durability is another key element. You want to make sure that your durability is operating at a very peak level before you get those pilot units out. So those are really the development milestones that we're working towards is to get the prototypes we have now performing at that level that then we're comfortable putting that into a customer application.

And in terms of the strong customer demand, I'm assuming we're talking major hyperscalers, very interesting. And the industry is shifting towards in terms of engine production, 30% plus Prime Power, 70% backup it sounds like the customer demand is there. It sounds like it's possible instead of the 5% that we spoke about at the Analyst Day, if things go well, 2030, we could have 30% that's prime.

Sure. So I think the important way to characterize is first to talk what is in the $9 billion number that we put out at our Analyst Day. And the key thing is underpinning that is we see very clear demand in the diesel standby product growing from where we're at this year to that $9 billion number that we talked through.

So the 20 gigawatts of incremental capacity is largely underpinned by strong diesel standby, and that $9 billion is largely underpinned by diesel standby where the opportunity lies is incremental to that. The gas prime playing and as we talk about '29 and '30 and ramping that product is really as a portion of 2030 can be gas prime, but the gas prime opportunity is really 2031 and beyond as you think about ramping full-scale production and the potential to utilize that capacity, that same 55 gigawatts of capacity.

And then -- so you folks are having 20 gigawatts [ genset ] adding a similar amount. MTU is adding capacity. Is industry banking on 100 gigawatts of data center demand? Is that what people are solving for?

Sure. We're watching the things play out in the industry, and we see the same announcements. I think the most important thing is to flip it back from a Cummins lens, what are we seeing? And we see very strong demand from our customers out through the end of the decade and even believe that, that will sustain into the early 2030s from a diesel standby space.

The more important equation is the capital efficiency of how we're looking at meeting that demand. The $450 million for the incremental 20 gigawatts will largely be within the 4 walls of existing facilities, and we see very strong demand to pay that back very quickly, and we are doing it in a capital efficient way where we're not adding substantial cost to our underlying cost structure. So as and when we get to those outer stages of demand potentially waning, we haven't added a lot of costs, and we've more than paid that investment back very quickly.

The last thing I would call out is where Cummins is positioned relative to some of these other folks that are bringing capacity in. And when we talk about what a hyperscaler looks for when they're looking at where am I going to place that order for that standby unit. They're really looking at who has the best quality engine, and there's only a handful of players globally when we talk about high-speed diesel reciprocating engines, Cummins is one of the keys.

We've also talked a lot at our Investor Day about how we're vertically integrated around that with alternators, switchgear, controls, radiators. That vertical integration allows the performance of that unit to actually be differentiated. You then look at the fact we've been in these markets for decades now, and we have strong established relationships with many of these hyperscale players.

The third element is then our industrial channel that can both commission these, service these and make sure that as and when there's a need for parts, they're on site very quickly. And if you go through that algorithm, the key element is that as and when demand wanes, we still think that Cummins will be one of the first stops for these folks for any lingering needs they have.

And the 20 gigawatts of additional capacity, just over $400 million, that's $20 million per gigawatt, super efficient. If you were to add more capacity, what would the economics look like on the next 20 gigawatts, how much CapEx would that be just to help us understand what that looks like?

Yes. It remains to be seen. I think the important thing is we look back to 2024 through the end of last year. We added 9 gigawatts for $200 million. So we have a history of demonstrating taking this in increments rather than wholesale changes. And again, to your point, we've done that last -- the last tranche we did was about $20 million per gigawatt. We're now doing that again, where it's another $20 million per gigawatt, we would look -- if demand continues to build from where we're at to take a similar incremental step, the balancing act that we're looking at here is what can we continue to do within our existing 4 walls and down in our supply chain versus when do you reach that point where you actually need to do more of a greenfield investment. And that's the constant balancing act we're looking at in terms of what would be incrementally next.

And then when we're talking about the adding 20 gigawatts, that's across the power categories, but is it fair to assume that -- we're talking about greater percentage capacity additions for the 3-megawatt units for data centers. So the percentage increase is higher than 50%. It's more significant for the 3-megawatt units.

Well, I think the bigger thing is where we're adding the capacity is across our 95-liter, 78-liter and 60-liter solutions. It's also across our global footprint when we think about Seymour, Indiana, Fridley, Minnesota, U.K., India, China and then some aspects of Brazil. So you're really looking at across those engine displacements. Where do we have existing capabilities within our footprint, what is the local supply chain ability to bring on incremental capacity across those is how I'd characterize it.

And then the 95-liter when we visited you, folks, and Seymour, that was the only place where we're making the 95-liter, I believe at the time.

At that time, yes.

What's that look like now?

So we'll be expanding that to Daventry, and then we're also looking across that broader footprint if there's other opportunities where we look to expand that.

And that's included in the $400 million, the third site.

It is.

Okay. So we're trying to side between India and China?

The 2 sites are within the $400 million and remains to be seen if we push it beyond that to a third site.

Okay. I understand. So $400 million is -- includes 1 more site, not 2 more sites.

Correct, yes.

Okay. Very interesting. And then in terms of the right application, the U.S. is the 95-liter. We've spoken about 60-liter has being used more in China. Is that still happening? Or would the additional capacity is idea, they really shouldn't be using the 60, they should be using the 78?

Yes. So the incumbent solution in China is 2 60 liters paired together to essentially create a 120-liter equivalent solution. The reason for that is you have a lot of 60-liter capacity within China that was easy to pair together to meet their needs. As that market continues to evolve, we do see that, that could migrate up in terms of the displacement, but that would be an area that we continue to evaluate as we think about our product offerings.

Okay. And then in terms of lead time, so we've heard that the lead times for reciprocating engines are now out to 2029. Is that a case for diesel recips as well?

Yes, we are taking orders out to 2028. What I would say is that demand remains strong beyond that. The recent orders are in '28, is that how far out we've opened up our order book.

And Nick, at the Analyst Day, you, Jenny and I spoke about the industry data point that maybe 200 megawatts for our competitors, capacity was moving around. Have you, since then, heard about any of that? Are you seeing that at all in terms of maybe people double ordering. There was a large-scale project that was just canceled, any movement in the backlog?

We have not had any significant movements in the backlog. It's been more of one hyperscaler may have thought when they placed the order a couple of years back. We wanted to go to a certain site, in a certain location, and it's been more shifting the same order to a different site in a different location rather than a wholesale change or cancellation of our orders.

So you have not had to place from one customer to another customer. It's the single customer...

It's largely shifting within the same customers, yes.

And that's a function of them playing the permit race across multiple sites?

Yes. There's just different things that are driving their timing at different locations, exactly.

And then you mentioned you're taking orders out to 2028. What steps are you taking to make sure people don't place speculative orders?

Yes. So if you look at our -- they take different structures across our contracts, but we tend to have global framework agreements with these hyperscalers, broadly speaking. And then on the specific orders, there will be different punitive elements of that if they were to cancel orders that we would receive different compensation for that.

Any chance we get down payments and progress payments implemented in this market?

Something we're always striving for at this point in time, it's not a prevailing approach but something we're always striving for and continuing to look at.

And then in terms of how much availability do you have left in '28?

In '28, so this latest round of capacity that we're announcing will certainly help in '28. I'm sure we'll talk a little bit about the trajectory of how that capacity comes online, but that will help us continue to keep the order book open for '28. But again, we see that strong demand coming through it. So I think relatively soon, we'll be tipping into '29 from an order book perspective.

Yes, please, we'd love to unpack the timing of the capacity, what's that look like?

Absolutely. So the easiest way to talk to it is really when you look, we are starting to deploy different capital now and we would start to see that capacity come online beginning in '27. And think of it somewhat linearly '27 through '30 with a little bit of an outsized step-up in 2028 is the key element.

The other piece that I just want to make sure that we articulate within this is, remember, within that trajectory I just talked through is you have capacity coming online in 2029 that will be contributing to that $9 billion of revenue in 2030. And you also have capacity coming online in 2030 that would not yet be meaningfully contributing to that 2030 revenue number.

So more importantly, when you think about last year, we exited the year with capacity, as that translates to revenue, this year, there's been a little bit of a lag as that capacity translates through to power systems, then translates through to our distribution business. More distinctly put in '29 as we exit capacity in '29, the full run rate of that capacity won't really be all the way online until you get into the back half of 2030. And then 2030 capacity that you're bringing online won't fully be producing the revenue within 2030. It's going to be lagged into 2031 and beyond.

I think it's fair to say you beat your last plan by about 6 to 9 months, so we'll see on that. And then in terms of just the $9 billion number, so 20 gigawatts, I think power gen pricing is about $600 per kilowatt. So that would suggest $12 billion revenue opportunity. I just want to make sure I'm not missing any moving pieces when we talk about the $9 billion, maybe some intercompany transactions. But can we just unpack that?

Yes. I mean, I think the bigger element to talk about there is where we're starting at this year with our broader Power Systems business, that total capacity that we talked about, the 55 gigawatts is across all applications within Power Systems. And then we talked about the proportion of that coming online in '29 and '30 that may not contribute to your full run rate in 2030 that you alluded to.

But really, the key growth drivers within that Power Systems business are 2% to 3% across the broader company, which is about $4 billion revenue profile from data centers in particular. Then you have our mining business that will also continue to grow and then the aftermarket proportion within mining. And the $4 billion I said for data centers does include a proportion for distribution. So there's a subset of that that's in the Power Systems piece that you alluded to for the $12 billion.

And I just want to make sure I'm on the same page with you. So $4 billion that -- and call it $1 billion for mining, that's well short of roughly the $12 billion of revenue capacity. I just want to make sure...

I'm talking about the growth from where we're at right now. So the total run rate in that business is about $8.5 billion to $9 billion with our guidance this year. You're bringing on the incremental capacity to get to your $12 billion as I understand it, total run rate for Power Systems. So as we talk about the growth algorithm, maybe I'm misunderstanding your $12 billion. So if you can step back and...

Sure. So yes, that's why I want to get on the same page with you. The market price for recips, we're told it's about $600 million per gigawatt and we're adding 20 gigawatts. So that would suggest $12 billion of additional revenue capacity for Cummins.

So you're talking the $5 billion of revenue that's Power Systems and distribution today. And then the $12 billion number you're talking about is also Power Systems and distribution priced out. It's not just Power Systems to clarify. The important nuance here to really outline for the broader group is our Power Systems business today is about a $3 billion data center business within Power Systems. A proportion of that is sold through our distribution business, where it's essentially doubled from a content and our total external sales to data centers are $5 billion today.

I think the number you're quoting for 2030 is all-in distribution and Power Systems. And the key element that I would call out there is, again, you've got '29 and '30, a portion of that capacity you're bringing online in those years won't really pay off within 2030 would be the key element that I would call out there.

Okay. Super. And then in terms of what we've seen with the data center pulling power away from other applications, we see a scarcity of power all the way down through much smaller gen sets. How are you folks thinking about adding capacity in those areas? Is the supply chain any different at all versus the high end? Is that an incremental opportunity?

It could be. I think the biggest way to point to is 95-liter is the first priority for these customers. That's supply constraint right now, pushing orders out to '28 like we talked about. When we revised our guidance at the end of Q1, it was largely because people weren't able to get to 95, and they're moving down into the 60-liter and the 50-liter solutions. So now we're largely tapped out in that particular space. Back to where we're adding the capacity, it's really in that 60, 78, 95-liter space. We're not seeing them drastically move into the lower displacements at this point in time.

Sure. Okay. And then from a supply chain standpoint, with adding the 120-liter capacity, can you just talk about the steps that you're taking to make sure you can essentially provide enough supply to both areas?

Yes. So if you look at where supply constraints typically happen, it's your large components, blocks, heads, crank shafts and then even your injectors. So at any given point in time, one may be a limiting factor, you resolve that. The next one becomes your limiting factor.

So when you look globally across U.S., U.K., India, China as well, depending on the displacement, depending on your local supply chain, you're going to run into any one of those as your limiting factor. So we're constantly working to bring that capacity online through suppliers. And then what we're doing within our 4 walls are increasing our throughput down these production lines and also increasing our ability for local machining, mainly of the blocks because that is something when we brought it in-house, we've been able to vertically integrate that and increase our capacity by relying on that internally rather than external providers.

And in terms of the margin opportunity within Power Systems, you spoke about EBITDA margins being sustainably north of 25%. Incremental margins have been over 40%. And so as we add this additional supply, incremental margins should really be pretty close to gross margins, which would take up EBITDA margins even higher. I just want to make sure we're not getting up over our skis as we -- because the world doesn't run the spreadsheet?

Yes, exactly. So the key element is you're exactly right. We've driven very strong incremental margins in the last few years. The key element to call out within that is we've actually taken costs out of our underlying cost structure. At the same time, we've increased throughput, which has allowed us some outsized incremental margins within our cost structure.

As we bring additional capacity online, we think that it's going to be at a floor, 25%, which is what we guided to the broader company at our Investor Day. At a minimum, it will be 25%, but it will not be nearly the 40% that we've been driving in the prior few years because we just can't continue to reduce our cost structure.

And how are you managing price in terms of what you're booking in '28?

Yes. So we're constantly looking to push price. We pushed price a lot, the last few years, but they're diminishing returns in terms of how much further we can drive that. So when you look at price cost, we would still anticipate being favorable over the next few years, but it won't be outsized.

Got it. And then I just want to make sure I'm triangulating the lead time comment appropriately. So we're out into 2028. We're going to add between now and then somewhere between 5 to 10 gigawatts of capacity. So we're sold out relative to 5 to 10 gigawatts of higher capacity than today.

We are in the process that we're taking orders out to '28. We're in the process of filling up that order book for that incremental capacity right now.

Got it. Super. Can we shift gears and talk about EPA '27. The EPA was supposed to give us an update in the spring, I think it's June 10 today. So what's the latest -- what are you hearing?

It's fun -- we've been talking to investors all day. It's the same thing we've been saying for the last 5 or 6 months. We anticipate hearing in the next couple of weeks is the latest message. So truly this time, we do think in the next few weeks, we should get clarity around EPA '27. Largely, what we're hearing is the same thing we've been communicating the 35-milligram NOx. Also the extended warranty falling off are the key elements that we anticipate will come through.

And what's taking them longer?

That's a great question. I do not know, what I would say is that we continue to be actively engaged with them as well as the broader industry to try to get resolution to this as quickly as possible.

Any chance that they say June 2027 instead of January 2027 for implementation? Is that possible at all?

I would say, never say never, but our best guess at this stage is 35-milligram NOx extended warranty falls off and we have a pretty high degree of confidence in that at this point in time.

And I think your guidance embeds higher prebuy and medium duty than heavy duty. Is that a fair characterization of how you folks thought about it?

A bit. I think the bigger thing to characterize in our guidance, we have about 10,000 to 20,000 units of prebuy heavy duty, which is actually not very much given where we've traditionally been. And the reality is we're in a condensed timeline here of only another 6 months to get that prebuy in, and we do think we'll be in a supply-constrained environment to fulfill that prebuy because demand is starting to pick up and the question is really going to be how quickly can supply chains ramp in order to meet that demand.

And the heavy duty. And what about medium duty.

Less pronounced in medium-duty, still some prebuy, but we have announced that we're pushing out our EPA '27 product to January 1, 2028. So I do think that has alleviated a little bit of the prebuy dynamics. And then again, the key element there is we're waiting for clarity around the EPA '27 to understand how we should be pricing our existing product into next year. And once we get clarity on that, that could be what could drive some prebuy behavior this year.

And when you say clarity, Nick, it's a question around warranty because the NOx is all set, right? There's no technical elements that are going to change.

Yes. It will be the same product, but when you look at what it will be is, since it won't be compliant with the 35-milligram of NOx, what will be the regulations and any potential impact to our cost that then dictates our pricing into the market.

Right. Yes. And obviously, you folks manage tariffs completely seamlessly. So that's probably a fair way to think about how it will flow through.

Yes, fair.

Yes, cool. And then on the tariff point, so obviously pure pass-through for you folks. But does the recent change in terms of including some products? And obviously, you don't make construction equipment, you don't make farm equipment, but are there any impacts of the recent regulatory changes that maybe reduce the total cost to Cummins customers anything at all in the supply chain that's impacted by this last round of move from 25% to 15%?

Yes. I mean the biggest element here is I think we've had over 70 iterations impacting our cost structure that we've been then price through to our customers to negate those. We've largely got our internal machine going in terms of digesting these things and quickly turning around to pass those through to customers. So there will inevitably be puts and takes across these things, but the key thing for all of you to understand is really we intend to be neutral on these in terms of overall EBITDA impact.

And what about -- just the terms of -- it would just be helpful if the cost came down per engine. Is there anything that in this last round of revisions is going to be helpful at all or not much?

Still digesting. I don't think it will be meaningful compared to everything we've dealt with the last year.

Accelera, so you folks has a joint venture pause the investment in battery plants. Ford is using its battery plants capacity to supply data center batteries. Is that an opportunity? Or is that a different type of specification? How are you in the joint venture partners thinking about it?

Yes, we've looked at it. It's always going to be an opportunity, but we've made the decision that the right capital choice for the partners was to pause further investments. And really, we're looking at that joint venture at this point in time, largely being focused in on-highway battery cells and waiting for the right time when we see demand picking up there before we make that capital investment.

Our battery energy storage solution that we talked about at Investor Day that's targeting the power generation space, is really the cells within that are more of a commodity, when you look at deploying it in battery energy storage, so to deploy a significant amount of capital to produce those didn't make a lot of sense at this point in time. So we'd rather source those in and where we add the value is the integration of that into a system that then operates with high-speed gas reciprocating engines on the diesel side, the gas side or even the grid, and that's where we're able to add value within that solution, more so than the cells.

Got it. And then in Accelera, when you folks made investments initially and started moving forward on electrolyzers, the regulatory backdrop was different. As we take a look at the impact of the electrolyzer business today, where you folks essentially will complete or exit projects. What's the revenue and cost contribution of electrolyzers to the results in '26 and the pace of project completions that we should be thinking about?

Yes. So I won't talk specifically to electrolyzers because we don't guide within Accelera. The key thing I would tell you is that our original guidance, you saw us revise that favorably down to $270 million to $300 million this year. And I would say that within that $270 million to $300 million, you still have legacy costs from our fuel cell business that will come out as we move into next year. And then you also have electrolyzer costs within the $270 million to $300 million this year that as we move into next year will also allow us to continue to improve the cost trajectory in that particular business.

So we are laser-focused on taking those costs out, there are still opportunity to drive that into next year. And then what remains is we will continue to invest in what we call our e-mobility business, so battery electric solutions, traction systems and then also e-axles where we do see some limited adoption in transit bus and school bus applications. The challenge we have is there's not enough volume for the positive gross margin products we have in that space to offset the underlying costs of those. But we will continue to invest in that space, but that's the entitlement to move the losses down from the $270 million to $300 million this year, down to a much lower level as we move forward.

And roughly speaking, the losses on those projects are various small subset of the $270 million to $300 million?

We're not characterizing specifically, but I'd say there's a great opportunity to continue to move those losses considerably lower from where we're at this year.

And in terms of the pace of that, is it similar to the pace of improvement we saw this year versus last?

Yes, that's a fair way to characterize it, yes.

And then in terms of the engine margins, so a number of moving pieces, assuming EPA '27 happens on January 1. You folks are delivering 5% higher fuel economy on prior regulations. You folks -- we price your product for the value that you're generating, where even with warranty costs, margins still expand. Is that a reasonable paradigm based on history for us to keep -- to focus on for '27?

Yes, I think it's the right approach when you look over the product life cycle. The key nuance within '27 to look at is you're in your first year of your product life cycle that we've talked through. So you're going to have your average selling price increase quite considerably from the higher content.

Within that, though, you're also going to have higher warranty accruals because we're in the first period -- the first year of that product life cycle. And over time, '28, '29 and into '30, as the product performs, we would anticipate those warranty accruals improve and you're also going to have a volume dimension to navigate in 2027, where you're naturally going to have lower volumes because of the prebuy happening in '26.

So when you look over the life cycle, yes, we would anticipate those margin profiles improving with a key element within 2027 that we've got to be careful on what that first year looks like from a product life cycle perspective and also the lower volumes from the market cycle.

Got it. And given the challenges in financing for some trucking customers, given what the trailing results would look like. It's possible that this will be more like in 2010 than 2007 from a common transition standpoint, if we're not able to get much of a prebuy. Is that reasonable way of thinking about it?

Yes, I think that's right. So any prebuy that we get this year simply means that the first half of next year, lower demand. So the fact that we have 10,000 to 20,000 units of prebuy this year is not nearly as pronounced as we've seen in the past. So you would expect less of a cycle going into next year.

And what's the scope for customer stocking, particularly in medium duty to avoid the additional costs?

It remains to be seen as we look at kind of how things play out over the second half. But what I would say is we've seen production and demand for our medium-duty engines pick up quite a bit within Q2, which we alluded to in our -- at the end of our Q1 earnings. So we're seeing production ramp in the medium-duty space. As far as how that shows up in the channel versus end retail sales remains to be seen over the second half.

And in terms of cadence of demand, so we are hearing because of how fast diesel prices move. The first half of May was pretty rough and then we had just a step change higher in spot rates in the back half of May. Is that consistent with the cadence of order activity that you saw and with your parts business as well? Do you see that massive acceleration that we've heard about from the channel. Is that a fair characterization of the way the market played out?

Yes. I would talk more in terms of our first-fit production. We are seeing the production demand scale, which is what led to our higher guidance coming out of Q1. On the aftermarket side of things, I would say that we've yet to really see a significant step forward, consistent with what you've outlined.

Okay. Got it. And in terms of thinking about the cash that we're going to be generating, you folks who have been very clear in terms of cash returns to shareholders. If we're sitting here in 2 years and Cummins has made a big acquisition, what would drive that? What type of business would that be? Are turbines completely off the table? Just talk to us if we do see a meaningful acquisition, what would that look like?

Yes. I think first and foremost, the key thing is really, our capital allocation strategy is 50% of operating cash flow return to shareholders, dividends and share repurchase. That remains our core focus. When you look at acquisitions, really where you should anticipate we could be active as our smaller acquisitions that supplement our existing portfolio, more so than a big step out like a turbine, something like that. The simple fact of the matter is, we've not historically had very many transformative acquisitions. And generally, those tend to be more closer to the core rather than something that's a further step out.

Got it. And Nick, so the last time you and I caught up, Deere had a big AIPA recovery, and I know for you folks, it's a pass-through. Any nuance from a timing standpoint? And I know you had a little bit of AIPA timing in the first quarter, just calibrate us on if there are any moving pieces we should think about knowing that ultimately you'll be neutral.

Yes. The bigger element that we called out within our Q1 is we were neutral and immaterial across the company within Q1. We did call out that within our Power Systems business, in particular, when you look at that margin profile there, there was a little bit of outsized AIPA benefit there. Going forward, again, we would expect to be neutral and not have much noise in the P&L when it comes to those things.

Well, well done by the team in taking the noise out.

Absolutely.

Super. Please join me in thanking Nick for coming here.

Appreciate it. Thanks.

Good morning. Welcome to Cummins 2026 Analyst Day. I'm Nick Arens, Executive Director of Investor Relations. We have an exciting event planned for you today, and we're glad you're with us.

We'll begin today with a presentation from our Chair and Chief Executive Officer, Jennifer Rumsey; followed thereafter with presentations from Brett Merritt, who leads our engine business, and Jenny Bush, who leads our Power Systems business. And to end the presentation portion of our Analyst Day, you'll hear from Mark Smith, our Chief Financial Officer. After our presentations, we'll take a short break, and then we'll come back together to answer any questions you may have.

In addition to Jennifer, Brett, Jenny and Mark, our Q&A panel will also include Amy Davis, who leads our components business and Accelera; and Sean Wright, who leads our Distribution business. Following our event today, we will invite you to join us for lunch just outside these doors, where we look forward to engaging with you further.

Before we begin, please note that today's presentation will include forward-looking statements that involve risks and uncertainties as well as certain non-GAAP financial measures. Reconciliations of non-GAAP measures to GAAP, along with additional information regarding risks and uncertainties are included in the appendix of this presentation and in our SEC filings available in the Investor Relations section of cummins.com.

A replay of today's webcast and the presentation slides will also be available on our Investor Relations website shortly after the event. Again, thank you for joining us. We look forward to a great day with you. With that, I'm pleased to turn it over to our Chair and Chief Executive Officer, Jennifer Rumsey, to walk us through how Cummins is building on its strengths and raising the bar once again.

[Presentation]

Good morning, everyone. And as Nick said, welcome to Cummins Analyst Day 2026, whether you're joining us here in person or online, we're really glad you're with us. This is my fourth year as CEO and my 27th year with Cummins. During that time, I've seen the company navigate multiple cycles, changing regulation, new technologies and real complexity. And what has stood out for me is not just what we do, it's how we do things at Cummins. Cummins has endured over time because of our global footprint, the breadth and strength of our portfolio and the deep partnerships with our customers that we've built over many decades. We bring application expertise and experienced leaders that know how to navigate with discipline and ensure that we're delivering to the needs of our customers and all of our stakeholders every day. That is the power of Cummins.

These past 2 years have tested that discipline, supply chain disruptions, policy changes, uneven technology adoption. They've created pressure across industries. We did not step back from that complexity, we work through it, leaning into the strength of our people, teams and partnerships. And as a result, Cummins is in a stronger position today. We have a more diverse portfolio, sharper focus on our execution and are better positioned for the future.

This morning, I look forward to showing you why we have confidence and where Cummins is today and why we believe we're well positioned going forward. There'll be 3 clear takeaways for you from our presentations today. First, our global presence, broad portfolio, trusted partnerships and experienced people position Cummins to win. We operate across applications and regions in ways our customers rely on, and it allows us to perform through a variety of market conditions. Second, we are investing and executing with discipline. We're strengthening the parts of our portfolio that are working, expanding where demand is real and being deliberate on decisions we're making where markets are still developing. This shows up in how we allocate capital, and also how we execute day-to-day. And third, we're delivering record performance and raising our 2030 targets. What we see today gives us confidence in setting even higher expectations for the future. Everything you'll hear today from me, Brett, Jenny and Mark will tie back to these three points and show how we are increasing value over time.

Since 2024, we've strengthened our position despite market shifts that have occurred. In 2025, we delivered $33.7 billion in revenue and a record 17.4% EBITDA. Importantly, we achieved our prior 2030 margin target early even in the midst of a North America truck down cycle, a time that would historically have tested our margins -- HELM. That was driven by performance across our diversified portfolio, including strength in Power Systems and Distribution business and consistent execution across the company.

Two years ago, we talked to you about the growing role and long-term growth we expected in power generation, driven by growth in data centers. That demand since that time has continued to strengthen and grow, and we are investing to meet it. We've doubled the capacity of our large gensets and delivered that early. We continue to see strong demand and order intake, and we're investing responsibly to beat that. At the same time, we've seen slower adoption of 0 emissions technologies, and we're responding with discipline in Accelera focusing where adoptions and economics are clear, in particular, e-mobility, where we are deployed today with most major OEMs and have logged more than 1.5 million miles on our components globally.

As a result, Cummins is better positioned today. We have stronger earnings and greater confidence in our ability to execute through the cycles. Building on that progress, we're pleased to share that we are raising our 2030 targets. We now expect revenue to be in the range of $45 billion to $50 billion and EBITDA to exceed 20%. Just to remind you, this is an increase from our previous targets of $43 million to $48 million in revenue, and 17% to 18% margin.

In 2025, we delivered improved operational execution across every segment of Cummins. That execution plus stronger outlook in power generation and other growth drivers for our business, including continued content additions and engines and components, gives us confidence that, that earnings profile will continue to strengthen. We're less reliant today on a single market, which enables us to drive more consistency and further earnings potential. And you'll hear more about this throughout the morning.

Over 107 years, Cummins has built a global presence that continues to be a key driver of our performance. In a world that's increasingly complex with geopolitical and supply chain uncertainty and change, increased localized requirements, it makes this global presence more important now than ever. We operate across more than 190 countries globally. And more important than that, we have more than 50 years of experience and deep local capability in key regions, including Europe, India, China and Mexico. That includes local engineering, manufacturing and service capabilities close to where our customers operate. That local execution, supported by our global scale strengthens our position in key markets, including our components, engines, integrated power train systems and standby power.

Building on this strength is our global reach of our Distribution network, which is the largest and most extensive in our peer group. It's something that few can match and none can replicate the scale we have at Cummins. Today, Cummins has more than 640 distributors and more than 13,000 certified dealers around the world that drives uptime, trust and long-term loyalty from our customers. And our installed base of engines, components and genset solutions continues to grow. Today, the Distribution business is our largest segment, delivering $12.4 billion in revenue in 2025. And it plays a central role in supporting our customers across the life cycle from the initial sale through decades of service and support that exists on our products beyond that initial sale.

It's this combination of global scale, regional strength and local execution and support that gives Cummins a key competitive advantage. At the core of our strategy is our diverse portfolio, and this is designed to meet our customers' needs today while driving long-term growth for Cummins. What distinguishes Cummins is the breadth of our portfolio and how we invest to strengthen it both today and creating customer value and position the incumbents for the future. One clear example of that is with our HELM platforms. And Brett, of course, will talk a lot more about those platforms, but we've continued to invest in diesel solutions. Our platforms, including the B, X10 and X15 that will be ready to meet future regulatory requirements but also bring the most efficient, flexible engine platforms in the industry, enabling our customers to transition to alternate fuels when they were ready and preserving the performance and durability expectations that our customers count on Cummins for.

We're also advancing our power generation position. We'll continue to make targeted investments to support the strong data center demand and our customers' evolving requirements. That will include further expanding capacity in our existing global facilities, and leveraging the integrated model that we have between the Power Systems business and the Distribution business. Our customers are increasingly looking for us to bring broader system solutions for backup power, where we're strong today, and also solutions that can meet their on-site prime power needs when the grid is unreliable or unavailable. And I know you're all looking forward to hearing more from on exactly what that means.

We're making other investments to advance our technology position and bring value to our customers and grow our business over time. That includes targeted investments across bridge solutions like natural gas, and hybrid as well as 0 emissions technologies where customer demand is the strongest. Here, we're prioritizing scalable platforms with clear paths to returns. We're focusing on the applications that leverage our global reach, component integration and system know-how while pacing investment with adoption to support long-term growth and customer value. Additionally, we're investing in digital and AI-enabled solutions that can use data from our large installed base as well as our own technical knowledge to improve efficiency, safety and uptime for our customers. So one example of that is how we're using AI-enabled remote diagnostics. This helps our customers diagnose an issue, come into the shop and ensure that we can service and get them back on the road faster, reducing their downtime. So taking all of this together, our disciplined capital allocation strengthens our already strong leadership position and allows us to grow and serve our customers over time.

Our strategy works because of our deep, long-standing customer partnerships where our customers operate. You can see that these relationships span a variety of big truck OEMs as well as off-highway OEMs and our data center hyperscaler and co-locator customers. The common thread across these customer partnerships is trust. Trust built on leading performance, uptime and the support that we can bring where our customers are to help them operate and grow.

In on-highway, we have OEM partnerships like TRATON, Daimler, Stellantis and PACCAR that are long-standing. For example, PACCAR has been a partner of Cummins for 80 years, and they remain our largest customer today, a testament to the strength of that partnership and our ability to bring value to them. We also partner directly with fleets and end users, ensuring that we understand how to help them maximize uptime, get the best total cost of ownership and deliver solutions that meet the needs of their real-world applications.

In industrial and off-highway applications, we have partnerships like Komatsu and XCMG that also span decades and continue to expand into new technologies and new applications. And we're engaging with all of these customers, both at a system level as well as in components and the engines and integrated capabilities, partnering with a focus on creating a win-win for Cummins and for our customers and rooted, as I said, in that trust, deep expertise, presence -- global presence and Distribution and service network to support their growing needs.

It's our people that turn all of these strengths into performance. What we do would not be possible without our nearly 68,000 employees around the world with deep expertise and shared values. And that starts with experienced leaders and skilled teams. Cummins makes focused investments to grow leaders that are strong individually and in how they lead and work with teams. And this has been a differentiator for us as these leaders have guided the company and our customers through complexity and change, driving strategic direction and disciplined execution over time.

Our teams bring deep application expertise. They work closely with customers to deliver innovation and dependability. And we continue to invest in our employees broadly, equipping them with skills that will be important for today and for tomorrow. That includes AI and other tools that can improve effectiveness and decision-making across our employees. So I want to give you one example of how this has come together. Last year, we had more than 70 tariff policies that impacted our business. We used AI-enabled models to track and understand the impact of all of these changes. We then brought our teams together to evaluate scenarios and align on actions that we would take with our suppliers and our customers. And it really helped us deliver through that change.

Together, all of these capabilities reflect our values in action and enable consistent execution and growth in a complex environment. So now let me turn to how all of this translates into growth and margin expansion through 2030. First is our home platform launch tied to the EPA27 North America regulations. And with this launch, we'll have increased content on both the engine offering as well as the components offerings to our customers. In addition, we'll have market-leading performance and durability from these platforms. This will also move us past the peak investment period for the engine business.

Second, power generation remains a significant contributor to growth and margin expansion, driven by strong data center demand. We're continuing to make disciplined investment, expanding capacity and looking at ways that we support our customers' mission-critical applications at scale.

Third is our strength in aftermarket. We continue to have a growing installed base of engine components and gensets and higher content as emission cycles continue. And over the life, that will continue to allow Cummins to grow revenue and expand margins through the cycles. Fourth is a disciplined focus on Accelera investments, focusing on areas where adoptions and returns are developing and reducing our losses, leaning into e-mobility with where our pool is strongest, and that position in e-mobility, combined with the actions that we've taken in recent quarters and electrolyzers and fuel cells will allow us to reduce losses in the near term and improve the trajectory of this segment.

And finally, it's a continued focus on operational excellence that will enable us to continue to improve delivery to our customers and margin expansion in our business. And here, AI is one enabler for faster decisions, higher productivity and better execution. Combined, all of these drivers support continued growth and sustained margin expansion through 2030, supported by the execution of the Cummins team.

So in summary, Cummins has strengthened its position. We're investing with discipline, and we have a stronger outlook today than what we were here 2 years ago. Our global footprint, broad portfolio, trusted partnerships and experienced people position us to win. We are investing and executing with discipline and delivering at record levels, raising our 2030 targets. Together, this is how the strength we've built enhances our position today, reduces risk and enable sustained growth for the future. So I'll now transition to Brett. I think you're all aware that Brett is the leader of our engine business. What you may not be aware of is that Brett and I are both Columbus natives, born and raised in a Cummins headquarter community. Now he made a different choice when he left Cummins and went to my produce IU for college. But despite that poor decision, he's been an excellent add to the company's leadership team over the last 2.5 years, and I look forward to him sharing more about how the Engine business has strengthened the foundation to create long-term value for our customers. Thank you.

[Presentation]

Good morning, everybody. I'm Brett Merritt, and I lead the engine business. But more importantly, after that introduction, I'm a proud 25-plus year season ticket holder for our national champion Indiana So -- with that, the Engine business has been at the heart of Cummins for more than 100 years. And after nearly 17 years with the company and an additional 10 years in the industry, I've lived through many industry cycles. But what excites me today isn't the history. It's how strong the business is right now and how well positioned we are for the future.

Our engines power some of the most critical work in the world, keeping communities safe, infrastructure moving and economies running. This business is built around strengths, and it yields big advantages to Cummins, including technology, customer relationships and financial performance.

Many of you know Cummins for our position in the heavy-duty trucking industry in the United States, and that remains a critical part of our business. But as you see from the slide, the engine business extends well beyond that. Our engines go into applications where failure is just not an option. Think about fire engines responding to wildfires across the Western United States. Excavators and haul trucks, building infrastructure around the world in literally any location. And school buses driving our kids to and from school. These are applications where uptime and reliability aren't just expectations, they're what drives our customers' economics and ultimately, what drives their demand for Cummins products. Across all these applications, we leverage a common set of global engine platforms which allows us to move technology and capability across regions rather than reinventing solutions market by market. That platform approach creates global scale. And when you combine that with our presence in regions where markets and our customers operate, it becomes a real differentiator for Cummins. That's a scale that's reinforced by deep, long-standing OEM partnerships. These are not transactional relationships. They're built upon trust and technology leadership. We've been partnering with PACCAR since the 30s. We've been partnering with Komatsu since the early 60s, Tata since the early '80s and Dong Fung since the mid-1980s, just to name a few, from humble beginnings to billions of dollar relationships.

And an important extension of that model is our joint ventures, particularly in India and China. On an unconsolidated basis, these JVs generated approximately $4.6 billion of additional revenue in 2025 for the engine business alone. They allow us to compete at scale locally while still leveraging global platforms and technology, strengthening our market position and enhancing returns without over concentrating capital in those markets. Our revenue is pretty balanced across on-highway, off-highway and a growing aftermarket. That balance enables both growth and performance through cycles. This combination, global scale, strong partnerships, mission-critical applications and a global aftermarket is the foundation for continued growth in the engine business.

Even in a down North America market last year, we produced roughly 1.3 million engines globally, well over double our nearest competitor. That's the kind of scale that gives us purchasing leverage, manufacturing efficiency and the ability to weather specific market downturns. What makes the scale so powerful is how we execute it regionally. We design and source globally, but we manufacture locally for the regions we serve. That local-for-local model is intentional, and it's a huge advantage for Cummins. The U.S. is a great example. We build engines and after-treatments and our components in the United States for the United States, with the strong domestic manufacturing supporting our North American customers. In an increasingly complex geopolitical environment, that gives customers confidence that supply is secure, that we're responsive and that we're aligned with all the local requirements.

We've also been investing with a clear objective, to have the most technologically advanced customer-focused engines in the market. That investment shows up in how our engines perform, and it's a key reason we've been gaining customers over time. This is an operational model that strengthens our OEM partnerships. Our partners leverage that -- the global platforms and technology and combine that with regional content and manufacturing. They get the scale, consistency and engineering expertise of Cummins and the local supply. The result of all this is number one global positions in medium-duty truck, heavy-duty truck, bus and off-highway. This combination, long-term regional investment, technology leadership and strong partnerships is what underpins our customer relationships and generates cash.

The Engine business is built to perform their cycles. And the strength you see today has been building over time. Engines remain critical to our core applications and are staying in service longer, extending the period over which they generate value both for the customers and for Cummins. Additionally, we're adding content and winning new business across many markets. While we do expect North American truck markets to normalize, that's not really the story here. The headline is the additional content and why customers continue to choose Cummins and how long that value will persist. The aftermarket is the other critical piece, and it's an earnings growth story. Because we've been winning across multiple emission cycles, we now have a larger and growing population of engines in the field. That growing population is going to yield meaningful higher aftermarket revenue over time. It's also a stable revenue source. So when OEM markets start to soften, aftermarket demand continues to build. That's the power of having more engines in the field, higher content and running longer. And our peak investment period is largely behind us.

Over the past several years, we've made deliberate investments in new platforms and manufacturing capabilities. Those investments are largely complete, and they're now translating into launches, capability and growth. Taken together, this is what drives engine performance for the long term. Revenue driven by content and customer pull, a growing aftermarket that keeps building and the investment to support all this already in place.

Over the past 2 decades, Cummins has built a track record that few can match, consistently reducing emissions while improving fuel economy at the same time. That's not easy to do. It requires deep engineering expertise, sustained investment and the ability to execute across multiple technology cycles. You can see that pattern on the chart. As emission standards have stepped down, we've continued to drive improvements in fuel economy, which is ultimately what matters to a lot of our customers, and the numbers tell the story.

Since 2007, we've reduced NOx by 96%, while improving engine efficiency by 14%. And when you optimize the engine as a part of the total Cummins powertrain, which is how many of our North American customers experience it, that's an additional 8% efficiency gain on top of that. That efficiency advantage is a key reason customers continue to choose Cummins and why we've been gaining share in many of our markets over time.

We're delivering increasingly complex technology that works reliably over the broadest range of applications and duty cycles at a scale no one else can match. The 2027 platforms reset the hardware baseline and create a foundation for continued year-on-year efficiency gains beyond this transition, just as we've done in every previous cycle. And to meet the EPA 2027 transition, we've invested in a core set of HELM platforms, high-efficiency, low-emission, multifuel engines designed to scale globally. These aren't one-off solutions, they're common platforms built to serve multiple markets, applications and fuel types. And we're already seeing that product come to life. With products like the X15 in, which is our natural gas heavy-duty engine available and able to be ordered today. A key part of that approach generates content expansion. As emissions requirements tighten, we're adding meaningful content at the engine level and across the broader powertrain. EPA 2027 is the first application of the HELM platforms, and there are more to come.

A good example of the evolution of the HELM platforms is the movement from the L9 to the X10. The X10 moves from a legacy big board design to a true heavy-duty architecture. In layman terms, this adds 70 additional horsepower, 400-foot pounds of torque and it improves our oil drain at about 25,000 miles versus the current L9. Simply put, the L9 performs phenomenally well in the medium-duty market, but the X10 will also be not only in the medium-duty market but also the heavy-duty truck market across vocational, pickup, delivery, transit, coach, emergency as you can tell, many, many applications. More capability, longer life, lower operating cost without forcing customers into a larger package.

We've already announced the X10 for Max Granite platform. That's the first heavy-duty application as Granite is the heavy-duty application for Mack. In fact, though, it will be available in nearly every OEM platform in North America. These platforms were engineered alongside new after-treatment systems from the start, fully integrated solutions, not add-ons. Combined with industry-leading power density and packaging, this allows Cummins -- allows OEMs to standardize on Cummins across more applications without trade-offs as standards tighten.

Industry estimates suggest that EPA 2027 could add roughly $10,000 to the cost of a truck. And the majority of this sits in the powertrain and powertrain-related systems. That's exactly where Cummins plays. That added content shows up across our engines and our components business. With millions of miles of validation already behind us, this portfolio gives us a full set of compliant, scalable solutions ready to launch. And it positions us to capture more content per vehicle as customers look for partners who can manage complexity and deliver these platforms.

At the center of our market strategy is the product. Everything starts with this high-performing engine that I just went through. And from there, our model adapts. But the model is definitely push led. That means OEMs are making it a powertrain decision. They're choosing what engine system am I going to use and driven by technology requirements, a transition complexity, a need for a particular part of our broad portfolio, the partners are looking for another partner who can deliver these engines and execute at scale.

During major transitions like EPA 2027, OEMs turned to Cummins because we can reduce risk and we can accelerate their time to market. More and more, we are increasingly pull led, and it's an important distinction. Here, it's the end users, the fleets, the operators, those who are running trucks who are choosing Cummins. They choose Cummins because of what they experience. They get a competitive acquisition cost, lower total cost of ownership when they're operating the engine truck and then a stronger resale value. That rare combination drives a clear preference. And that preference flows back to the OEMs, pulling our product into more platforms, more applications and more OEMs. You can see the power of pull in areas like our medium-duty North American share or in engine offerings at our partners, Kenworth and Peterbilt. That reflects end user confidence in Cummins performance and long-term partnerships, translating into major OEM decisions.

Uptime is really the third leg of this model. Our global distributor support customers and thousands of dealers globally, and they must do so for the life of the product. That uptime commitment reinforces both the push and the pull. OEMs trust our support infrastructure and the end users experience the support every single day. These three elements continue to reinforce each other and create momentum. Push, pull and uptime together drive repeat business, platform wins and life cycle growth, extending the value well beyond the initial sale of the engine.

Our market strategy has yielded a growing presence for Cummins. Take the North American market, where we've been introducing 200,000-plus engines per year into the market, driven by high share for many, many years. This increased OEM share drives a higher population of engines rolling in the field. Today, that is at least 2.2 million active on-highway engines in the North American market alone, and that number continues to grow. Aftermarket demand increases as the engines mature, and it comes to a peak somewhere between 7 and 11 years when engines reach major maintenance or rebuild cycles. As the engines move from early service into that peak window, parts intensity builds meaningfully, meaning more revenue and more parts sales. A growing population of engines with higher content per engine running for longer, that means aftermarket revenue doesn't just hold through cycles, it keeps building. And the value doesn't stop at 11 years or 15 years on the slide. Last year alone, we sold $250 million in Engine and Components parts built before the year 2000. These engines are still running, still being serviced and still generating revenue, both for Cummins and our customers, well more than 2 decades later.

Our distribution and service network supports this across the full life of the engine, keeping customers running and lowering the total cost of ownership. That network is a critical enabler of the aftermarket growth story. Looking ahead, EPA 2027 engines and components entering service will extend this dynamic well into the next decade, more content, longer service life and a growing base of engines continue to generate value year after year.

Stepping back, this is how the strategy comes together. Revenue growth is driven by things we control we have visibility to. This is new content. These are big new customer wins and eventually market normalization as North American truck cycles recover. Emission cycles are a major contributor. The content required for these transitions add meaningful value, both across engine and components, creating growth opportunities well beyond my business alone. At the same time, the aftermarket continues to build. And again, a growing population of engines in the field with higher content and longer service life supports increasing parts and service demand over a long period of time. And that strengthens not only engines and components, but also our Distribution business.

And the investment to support this is already in place. We're ready to build more engines later this year. We're confident that the Engine business will continue to grow revenue and improve returns over time. The foundation is strong. We have leading products. We have global scale, deep customer relationships, a growing aftermarket and a distribution network no one else can match. This is a business built to perform through cycles, and we're just getting started with the next one.

With that, I'm going to turn it over to Jenny Bush, who will take you into the Power Systems business, where you'll see many of these same strengths in a market that's definitely accelerating. And I have to admit, every now and then I'm pretty jealous of her very large engines.

[Presentation]

Good morning. It's great to be back. For those that don't know me, my name is Jenny Bush. I've been with Cummins for 29 years, and I started my career as an apprentice technician. So fun fact, I'm still qualified to fix most of the engines that Cummins makes today and a few that we don't.

Since we last met, a lot has changed, both across our business and our markets. And as you may have noticed, we've been pretty busy. Over the last 2 years, we've intentionally accelerated our performance, and this has not been about short-term gains, but been about strengthening how we operate and setting up our business for profitable and sustainable growth. And it's showing up in our results, simpler operations, stronger execution and increased rigor across quality, delivery and cost.

And meanwhile, the markets we serve are accelerating. Demand is shifting, and we've positioned ourselves to lead. Today, we'll share how the last 2 years, we built a stronger foundation for our future and what's next as we build on that momentum. First though, I want to step back and look at what we've been doing over the past few years. And as you will recall, this business serves many markets, just like and customers. But at its core, it's really about mining and power generation. We focused on what matters most in these markets, sharpening our performance and exceeding prior targets. We've made clear choices on where we play, simplifying our product portfolio and strengthening our foundation. We've improved our performance across operations, cost and execution, driving over 1,000 basis points improvement in margin. We've expanded our capacity, reshaping our manufacturing footprint, improving our utilization and investing with discipline.

Since 2022, we've added 9 gigawatts of high-horsepower engine and gentech capacity, reaching 35 gigawatts by the end of last year. In simple terms, that's roughly doubling our 60-liter, our 78-liter and our 95-liter engine capacity all at the same time. We've also advanced our technology leadership, investing $575 million across our product portfolio over the past 3 years. We've launched the Centum range of gensets introducing 4 new platforms for key power generation applications, delivering higher power density, purpose-built to data centers. Today, we're announcing that we're launching a new mining engine delivering advanced power for the 100-tonne truck market, giving OEMs a market-leading option in more regions worldwide, and that will be available at the beginning of next year.

We've also expanded our capabilities through the acquisition of First Mode, the world's first hybrid solution for ultra-class mining haulage. And now called IEA, a large cooling technology provider, delivering even greater value through vertical integration for our power generation business. Bottom line, we're a stronger, more focused organization built to scale profitably as demand continues to grow.

Vertical integration is a clear value driver for our business. It captures more system margin, improved cost and quality and supports more resilient earnings. But the capacity and technology investments I just covered only matter if they show up as customer value. And that's where vertical integration differentiates Cummins. What you see here is a Cummins genset. We design, engineer and build every component. And owning the prime mover and in this case, the engine, it's a distinct advantage in meeting demand at scale from the engine to the alternator to the radiator, to the controls and the enclosures. We own the full system. This matters because it allows us to optimize the whole genset and not just the individual parts, driving higher reliability, faster integration and lower total cost of ownership for our customers.

We also own our distribution network globally, which allows us to deliver seamless installation, start-up and service at scale and capture value in the balance of plant solutions. If I leave you with one thing today, remember this, Cummins is the only integrated offering in the market.

So when we put all of that together, operational transformation, disciplined investment and vertical integration, the natural question is, what does that mean financially? As you can see in this slide, it shows the answer. Strong top line growth alongside expanding margins. Power generation is our largest and fastest accelerating market and it's the primary source of that scale and earnings growth. Within power generation, data centers, in particular, are adding meaningful volume, improving utilization and amplifying our operating leverage. Alongside that, the mining of critical minerals, particularly gold and copper, are benefiting from the same global power build-out. And although they're growing at a slower rate than data centers, that growth is still meaningfully above GDP. These drivers power our growth. Large industrial engines and aftermarket deliver a margin-rich tail. And power generation provides the scale and operating leverage to fund reinvestment. Finally, our global footprint of plants, customers and owned service channel adds resilience to our business.

As Jen and Brett both mentioned earlier, our strategy is to serve locally, benefit from global scale and lead in large industrial and power generation markets worldwide. That's the financial translation of our strategy, and it sets the stage for why power generation, especially data centers, is such a critical foundation.

Now let's talk power generation, where a meaningful share of that performance is coming from. Today, 95% of our power gen business is behind the meter backup power. It's nondiscretionary, an essential requirement that we've provided our customers for more than a century, and that won't change. What is changing is the pace and scale of demand. Growth is accelerating as AI and next-generation chips push higher power density and resilience requirements fueling the fastest infrastructure build-out that we've seen in over 100 years. The U.S. and China are leading that growth, and we have leadership positions in both places.

As you heard in Q1, we delivered 84% growth in China in our data center markets, giving us meaningful scale advantage as demand expands across the world. And because we own our distribution, we can show up as one global partner for hyperscalers and colocation customers, simplifying deployment, accelerating execution and strengthening our customer relationships.

Finally, this product creates a compelling service and life cycle opportunity, keeping us connected to our customer base, allowing us to adapt to their changing needs as the power landscape changes. To meet the accelerating demand in this space, today, we're announcing an additional $450 million of investment to expand our high horsepower engine and genset capacity within our current footprint by 20 gigawatts, reaching a total of 55 gigawatts by 2030. This investment is aligned to visible customer demand and backed by disciplined capital deployment. Growing revenue within data centers from $5 billion today to above $9 billion by 2030. And this shows up in both our Power Systems and Distribution businesses. This growth is about speed, repeatability and scale without compromising reliability.

We're also strengthening our operating model, further linking manufacturing and distribution to accelerate deployment, execute locally and deliver consistent performance across global data center builds. The result is a growth that is sustainable, anchored in backup power, supported by disciplined investment and delivered through a model that scales efficiently while creating long-term value.

As we scale back up power to data centers, we also need to zoom out and look at the power landscape because it's changing, and that how it's changing is opening new opportunity for our customers and for us. In key markets, especially the U.S. and Europe, grid constraints are intensifying while advancements in chip technology are driving need for higher power density in data-intensive applications, grid level investment in transmission and generation is still the priority, but that takes time. And many suppliers will not meet this need completely for over a decade.

In the meantime, customers are looking to supplement the grid, seeking speed to power and bridge to grid solutions that allow them to move faster without sacrificing reliability. That's driving demand beyond traditional backup and towards solutions that can run more continuously. This is where our opportunity expands. We will continue to deliver standby diesel today while also providing prime power solutions where the application and the economics make sense.

So far, we've covered our traditional role in power, the growing challenges is the grid and how that's reshaping customer needs. This combination creates a meaningful opportunity to expand the scope of power we supply, building on capabilities and technologies we've already developed. First, we're expanding how backup power is used, extending duty cycles and adding Tier 4 certified after treatment that will be delivered from our components business. This will also enable a larger aftermarket tail, as installed equipment is not only used on standby but also in prime and peak shaving applications.

Secondly, we're integrating battery energy storage with our power generation solutions. This supports evolving customer requirements, including resiliency and dynamic load management. We're actively advancing a 5-megawatt best platform in both 50 and 60-hertz configurations targeted at data centers and other energy storage opportunities. And we currently have a pipeline of over 1.5 gigawatts of opportunities for those installed equipment.

Third, today, we're announcing we're developing a new large megawatt natural gas engine and genset. Built on our proven HSK78, it extends up to 4 megawatts of prime power, expanding our portfolio and creating a long-term aftermarket tail as utilization grows. All of this will allow us to expand our balance of plant capabilities, grid-level controls, containerized solutions and integrated service offering. Taken together, we're evolving from a traditional backup power provider, broadening our product portfolio, deepening our customer relationships and enabling system performance and sustainability, all while capturing more life cycle value.

Today, you've seen how we've reset performance through transformation and disciplined investment, building scale and vertical integration that convert into customer value and resilient earnings. That is showing up in our numbers through stronger growth and margins, driven by a scale advantage in power generation and global data centers, reinforced by a margin-rich large industrial aftermarket tail and supported by our global footprint that we own around the world.

As a reminder, we've covered three critical announcements today. A new engine developed for the 100 tonne mining truck market; investing an additional $450 million of capacity to expand our high horsepower engines and gensets by 20 gigawatts within our current footprint; and expanding into prime power, broadening our Tier 4 solutions, integrating battery energy storage with our gensets and launching a new natural gas engine platform. We are winning with one of the fastest growing markets in the world, and we have an exciting future ahead of us in Power Systems. Now I'll hand it over to Mark. Fair warning. He has been smiling a lot lately, slightly worrying. So we must be doing something very right. Thank you.

[Presentation]

Good morning and thank you, Jenny, to you and your team for helping restore my natural sunny disposition. But it hasn't always been on full display to the investment community. We all know walking in here today that we've delivered strong returns to shareholders. And I hope you leave here sensing our confidence about the prospects for much stronger financial performance and market leadership going forward. .

A foundation of course of our strong financial performance has been its ability to improve cycle over cycle. A chart many of you will be familiar with, that shows our earnings per share over successive cycles, and shows our impressive track record of improvement over a long period of time. On the left, you see our earnings per share in successive North American heavy-duty truck downturns and on the right, you see our earnings per share in heavy-duty truck peaks. And I've been here through all of those cycles and I can honestly say, I think the scars are finally healed from some of those earlier years. And whilst our on-highway business, as you heard from Brett, remains a critical part of our business, we've also seen dramatically improved performance in other parts of our business. So let's take a look at them.

If we look over the last two downturns from 2016 to 2025, you can see on the left, we delivered $2.4 billion in EBITDA, 38% of those profits coming from Power Systems and Distribution. And whilst the profits of most of our segments have increased significantly over those two downturns, you will see that Power Systems and Distribution total over -- exactly 60% of the total in 2025. And the great news is there's a lot more to come from engines and components as we go through this next round of emissions changes and even more to come from Power Systems as well. So that's really been a big driver of this overall improvement.

And this earnings growth and disciplined capital investment has led us to deliver top quartile return on invested capital versus our peers, whether you look at the 1, the 3 or the 5-year period, you see a 400 to 500 basis point improvement relative to our peer group average. And if you cast your minds back to the similar chart from 2 years ago on this very spot, you will notice that, that performance advantage versus the peer group average has expanded. And of course, all that's translated into strong returns for shareholders over the 1-, 3- and 5-year period, total shareholder returns for Cummins and those invested in us, have comfortably outpaced our peer group average and broader equity markets.

And the great news is, as you've heard, we're in a really strong position going forward. We've got leading market positions, multiple drivers of growth. We've got this incredible track record of improving performance cycle over cycle and the financial flexibility to continue to invest in new technology and capabilities throughout economic cycles driven by our strong balance sheet, credit ratings and ample liquidity.

And if we look forward, those targets that Jen laid out for you translate into 6% to 9% compound annual growth rate, and that's really coming from three pillars. You've got the data center growth that Jenny just laid out. That delivers 2% to 3% of the compound annual growth rate for the company overall. Content growth and some recovery in on-highway markets delivers another 2% to 3%. And then all the other markets we serve, construction, mining, oil and gas, marine, ag, many more, other power generation markets and the strong aftermarket growth that we've got ahead of us, that delivers a third tranche of 2% to 3%. I appreciate my business partners, keeping the math simple for me. These are numbers that I can remember and relate, we have high confidence in the numbers going forward.

So let's just summarize. Since we were here 2 years ago, I think the biggest evidence of the performance improvement in the company has been in our EBITDA margins. You've seen 250 basis points of margin improvement. You saw last quarter that we restarted our share repurchase activity, and we grew the dividend at 8% a year over the last 2 years, and we delivered top quartile return invested in capital. As we look forward now, we're accelerating our performance, 6% to 9% growth in which we've got high confidence, a further at least 250 basis points of margin improvement. We're committed to return excess capital to shareholders in the form of share repurchases and continued dividend growth and remaining a top quartile return on invested capital company remains important to us.

I'd like to close by thanking you all for joining us, and it's great to see you all again today. Hopefully, you leave here with this confidence in our targets driven by our technology, our unmatched global customer partnerships, our financial strength and the operational improvements that we've shown across the company and yet more to come. So thank you, and I'll turn it back to Jen for some closing remarks.

Thank you, Mark. Mark and I were reminiscing last night. We've both been members of the Cummins leadership team now for more than a decade, and we were reflecting back on the different analyst days that we've done together during that time. And the fact that we have a really high amount of confidence and line of sight to what we're committing to you today for our continued profitable growth for 2030.

I told you at the beginning, I hope three points would be clear, and I believe that we've clearly articulated these points throughout the morning. Our global presence, broad portfolio, trusted partnerships and experienced people position Cummins to win. We are investing and executing with discipline. We delivered record levels last year, and we're raising our 2030 financial targets.

So we hope that what we talked about today gets you as excited about our business and our future as we are. We're going to take a short break and come back and do some Q&A. And I really look forward to bringing not just Jenny, Brett and Mark back to the stage, but some of our other leaders that we have here with us today to answer your questions. For me, I love the products of what Cummins does, but I takes a lot of pride in leading this company because of the great team that I get to work with every day, and I'm glad that you get a chance to talk to some of them during Q&A and during our lunch.

So with that, we're going to take a break, and we'll restart at 11:00. Enjoy your break.

[Break]

Okay. We're ready for some questions. We're going to have lots of time for questions, please.

Angel Castillo with Morgan Stanley. A lot of questions for each of you, but I'll try to start, I guess, with the one that we're getting...

Let's make sure we do one. We will rotate.

Absolutely. I'll start with the one that we're getting a little bit more, which is, Jenny, you announced a number of different capacity investments. And I think -- what was more notable around that is not just the natural gas side, but also even the aftertreatment, just kind of the overall expansion into prime. So I was hoping you could expand a little bit more into the timing of how we should see these capacity investments coming online, the magnitude of how much of that 20 gigawatts, how that splits across the different investments? And then importantly, how you're seeing in terms of order books today, like is this more in the future? Or is there already kind of a pipeline of orders for the prime side?

Yes. So I'll start with just reminding like 95% of our business today is standby. And if you look out to 2030, that won't change dramatically. It will be -- you'll see the prime stuff come in towards the end of the decade. The capacity investment, the 450 million that I spoke about that's beginning to go in now. You won't see big step changes. What you'll see is a gradual increase in terms of the way that we bring that capacity online, you'll begin to see that really, though, in '27 in terms of how that comes into the business.

And then just to add some context on capital investment. We're increasing in the Power Systems business starting to get -- we're getting to the peak on the Engine business. So we're not changing the framework of 3% to 4% of revenue for the overall company capital. Okay. Jamie?

Jenny, just to clarify, of the incremental that we're adding, how much is prime? Do we have a split prime versus standby?

Okay. The launch of a natural gas large engine will be in '28. And so we'll start to deliver units to customers in the field and start those up in the '28 time frame. That will come through Sean's business. So you'll see that in both areas.

We're behind the capacity

Yes, the capacity can be used across all of our ranges. So we build our natural gas and our diesel engines all on the same line. And so that's ultimately flexible in terms of how we pull that together.

And then the incremental content on the after treatment, the battery, like what's the -- is there a way to help us figure out like the dollar amount you mean sort of associated with that? And then to Mark, I guess, it doesn't sound like much of Jenny's capacity additions or whatever are really material to your -- mean to your longer-term targets? And then my other -- sorry, one other one. Just Mark, the 20% EBITDA target is greater than, can we elaborate on the range there greater? How much greater can it be above 20%?

Sorry, we'll come back to the EBITDA question, Mark. So let me just -- I know we shared a lot today, so let me like frame a couple of key things that will help you. First, we said we've got to $3.5 billion revenue for data centers full channel last year. This year, at the midpoint of our guide, it's $5 billion. 2030 target is $9 billion, just to frame the size of data center revenue. And if you look at our -- any of our plants, we build on a lot of flexibility, different engine displacements, different markets, it's true and Brett's engine plants true in as components plants and for Jenny. So in a high-horsepower engine plant, they're building engines for mining, marine, oil and gas, power gen and the genset plant you're building for different power the markets obviously allow for data centers, just we have flexibility in that investment as a key point, $9 billion total by 2030 for data center power gen still heavily dependent on prime -- or backup power, as Jenny said, but prime will start to come in and then can build as we go out beyond 2030. .

Do you want to talk about margins? .

Margins.

[indiscernible].

Well, I think there's a different cadence by segment if we think about it. So if you do the 20% total company EBITDA, that implies 25% plus incremental margins over time. It's not going to be linear by every business. Obviously, for engine components, the next step is we get to more mature volumes with the new products, which are going to evolve through '27, '28. We don't know exactly what demand is going to be. That's always an important factor, certainly in the first half of '27. Power Systems and Distribution, we should see more continuous improvement in the EBITDA over time. So that's the guidance I'll give you. We didn't give individual segment guidance because it tends to get distracted. We all want to go into the minutia of the individual numbers. The overarching stories, we've done a great job of and in margins. The businesses all know what excellence looks like. They've got their own benchmarks. And yes, yes, I think we're going to see that play out over time, but we're confident in that 25% overall. Rob, and then we'll go to David.

Data centers again, Jenny. How did you go about analyzing the market for planned power. There's a lot of just uncertainty around it, whether it's transitional, whether it even like goes away by the time you get there, whether it lasts 20 years. I mean how do you analyze that? And then does that fold into your battery or using the battery JV potentially in a couple of 3 years to do some of the buffering on data centers and then does that prime.

You take the battery JV, I'll start in terms of the bigger scale market. So when we're looking at prime, we're really looking at utility scale power, right? The reality is a data center always prefers to connect to the grid, always. If the grid is available, they would like to do that. The reality is the grid in the United States. One is massively complicated. And two, it's old and the infrastructure is breaking down in different states at different rates. And so the way that we look at that is really where will the grid catch up and where won't it? And in some states, you can vertically integrate power and other states you can't. And so again, super complicated, like that's probably like we could do a whole day on that another time. If we think about unmet utility demand. By 2030, we think it's somewhere in that 20 to 50 gigawatts of unmet power in the United States. And so that's kind of helped us think about the decisions that we've been making on the investment to the prime -- getting into prime and large natural gas. And then of course, with data centers, it's a highly dense operation, meaning I'm not selling 1 or 2, we're selling multiples, which helps us with that business case. Amy, do you want to talk Accelera.

Sure. So we announced that the Amplify joint venture, our partners, we all agreed and aligned to not put lines in that facility and slow the investment. We looked hard at stationary energy storage as partners. Those cells are highly commoditized and available and a lot of people were racing into that space. And it wasn't interesting to put the capital there for that. And we looked at being an integrator of energy stationary storage, the real value add there is the integration that Jenny does not packaging cells into a container. So we didn't see it really as a value creator, and so the JV didn't pursue it.

She spent a lot of time in different parts of that.

David.

Just trying to figure out the percentage of earnings may be coming from the power business, but also thinking about Distribution as well the impact. Can you help us just a little bit more. I know you gave some sort of some day color around the margin potential Distribution and Power in this framework, but also I appreciate some of the investments might suppress some of the margin. Just trying to think about -- I mean I know you don't want to give segment targets. But just trying to understand the percent of earnings that you feel is coming from power in 2030 would be helpful with margin color. .

I mean there's multiple factors that go into that, but I think it's -- we're expecting, obviously, one of the stronger growth pipelines on the top line. We're expecting continued margin investment. I don't think we're going to take any big bathtub in margins because of these incremental investments. So I think that's going to continue to grow. But of course, then we've got the expected step-up in engine business and components. So I think -- and Distribution has done a great job in growing year after year. I don't know it's hard to pin down an exact percentage, but you're probably not looking at less than 50% of the total from Power Systems and Distribution even when we get to stronger content story from engines and components.

At just so no greater. .

Really a big number.

50% of total earnings I think the power ecosystem, Power Systems and Distribution.

Total company.

And I think you all understand, but just to make sure when we talk about aftermarket growth, there's parts from each of the product businesses that then go through and the service of that flows mostly through the Distribution business as well.

Jerry? .

Jerry Revich from Wells Fargo Securities. I'm wondering, Brett, if we can just talk about -- I know in your business, you target higher margins on every change in regulations. Can you just talk about how long you think it will take post this rollout? And can I ask separately regarding Accelera, if we could just talk about you've taken actions to focus the portfolio. Can we talk about by 2030, what level of investment should we be thinking about within Accelera.

Sure. I'll take the first, and then, Amy, you can take Accelera. But I think components falls in with engine. During launch, 2 things will happen. One, we're uncertain of volume, as you've seen in previous product launches because of what the market does based on the cost of the overall system or truck and that there's usually some lag in volume uptick. But the second one is, with launch, we'll have quality accruals, and those will for sure take 18-ish months, so you're not going to see full margin and EBITDA impact in our businesses until 18 months after launch. So for most of our products, you're in the late '28 before we're seeing where they are truly performing from an EBITDA perspective. I don't know, Mark, do you have anything to add there? .

No, but we are getting to the point of peak investment. So we're not the expenses shouldn't grow at the same way. The revenue will go up because of the content There'll be some higher warranty accruals initially expenses should be more consistent. And then that's just talking about North America. We'll see what happens. We have really strong, probably surprising at the upside this year in terms of China earnings performance. So that's -- we've got to weigh that into the overall guide. But yes, you've accurately covered the profile second half of '28.

Accelera. So we aren't giving a segment-specific 2030 target for Accelera. But the way I would think about it is we made some decisions over the past really 18 months. There's a sequence of decisions that we've announced on ways we're focusing the portfolio, namely in hydrogen, where we stepped away from some investments there and continuing to do commercial activity in the electrolyzer space. Those take some time to pull back. So we're in execution mode of commissioning some of that product, trying to complete our manufacturing. So you'll see we revised our guidance to lower losses even this year. And you'll continue to see that trajectory as we execute on that, slow down the manufacturing and get out of some of that overhead and focus our portfolio on batteries, eAxle and traction, which all is positive gross margin business that we're in and genset. We have a lot of really great positions with our partner OEMs across those technologies. It's just a volume game then. So when does that volume actually materialize and get the scale that we need, and so it's hard to predict exactly what that looks like, but you'll see a nice trajectory as we execute this over this year.

Low capital draw year-on-year, loss improvement is the trend that we're aiming for. Okay. Steve.

Great. For Jenny. How could you just talk about how you came to the 4-megawatt size of this engine? Is that just sort of the thing you could get to market fast, is there some technology limitation there or design? And then just in terms of competitive dynamics in the backup power side, can you just talk a little bit about that and how that's flowing through pricing and that -- the 2% to 3% growth assumption in the data center side.

Yes. So I'll start with the sizing of the unit up to 4 megawatts. If you look around the portfolio and the footprint, there's a couple of determining factors. One is, there is an element of the product that needs to be designed and developed versus the speed to market definitely that was a piece of the contributing factor on the choices. But also, if you look at the competitive set, that's kind of the sweet spot for the node. And so making sure that it's in building blocks that make sense for the customers and our customers give us a lot of feedback on that. And so we've consulted with a large group of them in terms of what makes sense in that area, and that's kind of where we are. In terms of pricing, I'm actually going to hand over to my friend on my right because pricing flows in a couple of places, flows in Power Systems, of course, in terms of the poor product. And then, of course, it goes into the market usually through our Distribution business in power generation. So I'll let Sean talk a little bit about that.

Yes. We think about the combination of power generation DPUs kind of almost dollar for dollar for genital to balance the plant where we do everything else be it the enclosure, the tank, the radiator from that perspective, that's how we go to the market and try to extract some more pricing. As we think about it kind of near to medium term, there's probably some ability to price more in that space, but the competition is tough in that space, but we are the 1 person that Jenny talked about earlier, we provide the integrated solution at 1 point of accountability. So that gives us an advantage in market, especially against when you think about hyperscalers like Microsoft and others prefer us in those situations.

For a chunk of our business, we're dealing with customers on long-term relationships, right? So that doesn't mean you get an extraordinary pricing 1 minute and hugely negative pricing in the next moment. So it differs by different segments. But what I would say is given our capabilities, there are very limited number of players in large engines and adding the scale, the service scale outside of any particular region, you're down to a very small number of companies that can really support some of these companies may be domiciled here or publicly listed here, but they're investing globally. And there just aren't many people. So we've got to keep that in mind team as we're delivering our performance going forward along with the value for the customers. Okay, KC.

K.C. Parker, if you talk First one was just I know that customers don't have the primary power -- product yet, but you must have a sense of the aftermarket opportunity relative to the cost. And maybe you could just help us think of other products in your portfolio where it would be comparable to that. And please don't say that you don't know yet because you must have an expectation. Caterpillar is in the records, you want to have some idea.

Yes. So on the current business, standby power gen, like that product is exercised like once a month, so it fairly runs. And so the real value of the aftermarket tail is in service, repair and rebuild. And so if you thought about like our mining business, for example, we'd rebuild an engine 4x its life, and that won't be dissimilar for prime applications. So it's all about how much it's used. So if I'm peaking, and maybe using it like 1,000 hours a year. If I'm full on prime and I'm using it all the way through until my utility power then I could be using it for like 10,000 hours a year. So by the time it gets to about 3 years old, 3, 4 years old, I'm rebuilding that particular unit and then put it back into service. So the tail is quite compelling on prime gensets in terms of where that is. And because we own our aftermarket because Sean delivers that in the business for us, the reality is we have that pipeline all the way through soup to nuts, which is different to anybody else in the market today.

Kyle Menges from Citigroup. I was hoping if you could expand on the new natural gas product. I understand maybe -- right now, it's really going after this prime power opportunity for data centers. But I'm curious just how much did other potential applications for it factor into the decision? Do you see potential in back up over time or maybe in other end markets such as oil and gas and mining? .

Yes, it's a great call out actually because first of all, as Jen mentioned, our engines go down the same line. So versatility of production easy. In terms of the product itself, we focused in on prime, but there is other use cases. It could go to standby would need battery potentially or fast-start capability to do that. That's in the future, we're not going to launch there. We're going to launch in prime in terms of the use case. And then gas compression is another obvious place in terms of the wellhead, pulling gas out of fracking sites, that type of thing. And then other applications could follow. But those would be the primary, but we really focused in on the power gen side.

Mike Feniger from Bank of America. Just on that $9 billion with data center, you guys talked a lot about on the call, China, and you talked about the growth there. I'm just kind of curious, if we think about $9 billion and some of this capacity expansion announcements. Is there a sense of how much of that is U.S. versus international? How that mix has kind of changed versus where we are today and where you think that going by 2030? And just if I could squeeze one more in on the engines. Just I'm kind of curious, obviously, this came up on the call as well with the emissions change. When we think about the medium-duty side. Is there -- there's just a lot of scenarios out there. Just how are you guys bracing for that? What should we be thinking on our side about what the scenarios are and what that would mean for you guys on engines at least in '27 were thinking about the margin ramp.

Do you want to do the medium duty first?

Sure, I can do the easy one first. We are bracing, that's exactly it, and we're actively seeking clarity. I think the entire industry is and we can't get this draft rule fast enough to be quite honest. So we are in the middle, Amy and I, a huge development for all of these platforms across components and engines. But in general, we've announced that we're launching the 7-liter in Jan 1 2028, and then we'll bring our other engines in, in 2027. We can't really go into any more detail in that scenario. What we will say is we have a huge presence in the North American market. It will be okay. We will serve this market. Our customers will have products. Now we need those draft documents to understand what are the options, how do we work through it, and then we'll come back, I think, with more defined plan. So I've continued to say this, hey, the next time we'll be able to tell you. But for sure, this next time, we should be able to tell you because -- it's coming up. We have engines being certified now. We have last testing. We're going through lots of -- and by the fourth quarter, we'll be making components and engines that will go into the market.

Safe to say, all our plans to communicate with customers and regulators even in the absence of absolute specificity. So we're clear what we're doing. We just need more details to finalize. .

Yes. On -- shall I answer the question On the China question on the data center growth, the data center growth really is dominated by those two locations. The U.S. I would say, is the largest part of the $9 billion. I think that will continue -- that's true today. I think that will continue to be true by 2030. And that's really because the U.S. infrastructure that I mentioned before, China will always be a backup market. The grid infrastructure in China is far newer than the U.S. And as a result, it's more robust and more resilient. So it will always be a standby market, I think, in China. And I think you'll see it's kind of like a 60-40 split, I'd say like between -- well, maybe -- yes, but the reality is the customers in those 2 locations are really driving where those products go and sometimes they land in Europe. For example, China will land a lot in Southeast Asia. business there is taking care of that market just like he's taken care of it in many places around the world.

And this is where the 50-year presence in China, the engineering and local manufacturing capability that we have there, lets us work closely with the customers there, build the product there for their needs as we do the same thing here in the U.S. for the U.S. market. .

Yes. sorry, you're out with line of sight.

Kristen Owen from Oppenheimer. I wanted to ask about the new mining engine launch. That's been a market that we've been sort of waiting on the come for some time to recover. So if you could speak to what you're seeing in terms of demand trends there and maybe specifically around the duty cycle, what drove that new introduction. And then just a quick follow-up on the transition from the L9 architecture to the X10, if that's unlocking any new market share opportunities for you?

Yes. So the mining engine is a 100-ton truck market, predominantly focused in on coal for sure. Indonesia is very big in coal, for example. That market has been a little soft. But they're smaller minerals also utilize those trucks, those haul trucks. It's predominantly really focused in on haul truck, duty cycles versus excavator or other industrial type of applications. Tim?

Hang on, do you want

For the 9 it definitely opens up another market. which is today, the L9 is very successful in the medium-duty market and does an incredibly good job across a variety of applications, but particularly vocational and medium duty. We're now going to be able to address the heavy duty and the low end of those vocational. So whether it be waste and refuse, a lot of city trucks a variety of others, and we're pretty happy with the announcement to be included in the Granite platform of Mack. I think it's a great application for us. So you will see market share growth in heavy-duty via the extent. .

Tim Thien. Maybe oen for Amy on components. Obviously, historically, very much a growth engine for Cummins and one where you invested quite a bit of capital between Eaton and Meritor. Can you just maybe update us in terms of where you are in that kind of growth trajectory, some of the emissions content tailwind, maybe some of those are fading. Can you just update us in terms of where relative to that kind of mid-single-digit organic growth target where components fits within that?

I'm so happy you asked. Components is a quiet but really positive story for the company. A big thesis when we started it was that content and technology driven by emissions would drive growth. And if I look in this planning period, it's still the case. So a lot of our growth in components is driven by regulatory things that are possibly move like they could move out, but they're going to happen. We know Euro 7 will happen. We know 7 will happen. EPA27 in some form is going to happen. So that content growth continues, both for our engine business, but also we do sell still and partner with our other OEMs on their engines as well. So really good underpinning there. And then now, of course, we have the largest, broadest content that we've ever had now stretching all the way into transmission breaks. Braking systems are advancing as well. So that same kind of technology component is getting some regulatory drive in breaking efficiency, regulations and some other things that's going to help us advance technology and integrate the powertrain better to give efficiency. I think Brett's number said 8% of the actual fuel efficiencies coming from those other components. So partnering with our OEMs there is also a good. And then I would say the last thing is integration and think of it as efficiency of our footprint of how we operate. We now have integrated our components business much more, combining some plant operations, looking at planning across, integrating our planning. So that drives some margin expansion over that period at a different pace, perhaps than some of the other businesses, but slow and steady.

We're going to get a step up here in the '27, '28, that's important. I think my customer long memory back was a feel like content was fading, right, with the 2010 emissions. Here we are again, there's more content to come, not just in North America, still an important theme, and not just for the revenue, but the driver of the integrated product performance, which is served as well.

One other point I would add, we haven't focused a lot on high horsepower traditionally because the volumes are niche and one-off. But this is something we are looking at. We do have Tier 4 systems developed. So we can go after that in the aftermarket. We don't need to wait for some systems. So there's some other little things that kind of come together in ways that I didn't talk about, but aftermarket is one that's also pretty a lot of potential.

Steve, then we'll go

Maybe one for you, Mark. Just I was enjoying Just on free cash flow, how are we thinking about that maybe as a percent of net income through the forecast period? And then is it still 50% return to shareholders or any change in the way you're thinking about that?

Yes. since we've given the target is EBITDA, if you look over time, probably about 2/3 of our EBITDA gets converted in the operating cash flow for CapEx, then our CapEx should be about 3% to 4% of sales. So you should see cash flow grow with earnings, that's important. Our CapEx should be, I would say, at the worst case growing at a much slower rate than it has been at the best case, start to level off in aggregate. So I think we're going to have a lot of cash flow to generate our bias, as you've seen, is to return capital to shareholders. Yes, I think we said at least 50% is the starting point, and we've done more in periods where we've had less things to invest in, in the near term. So I guess we're obviously not looking to accumulate cash. We're already in a very strong financially flexible position.

And maybe the follow-on for Jen is is there an M&A pipeline? Is there anything on your wish list in this forecast period?

We're pretty happy with the portfolio that we have, and we're always evaluating if there's things that we can do, some smaller things to add technology and capability where it makes sense, right, and it's going to generate long-term returns. But there's no big things that are really in the pipeline right now. We continue to evaluate strategy even beyond 2030 and say, what are the things we want to do organically? And are there any inorganic adds that might make sense. But it's gotten a little bit quieter than it was a few years ago on that front.

Yes. So it was a combination of other things at the moment in term you wish you had more or less of, but what's the consequence -- the financial consequence of trying to pursue those, capital discipline has been a key theme of how we've operated over time. We acquired Meritor, restored all of our financial metrics and on a really strong position going forwards. Tami, and then we'll go back to Jerry. .

This is Tami Zakaria from JPMorgan. I'm curious, do you have any sizable prime power orders already in the backlog who are taking your natural gas engine deliveries in 2028. The reason I ask that some of the suppliers are announcing deals that include delivery well into the future, 2030, '31. So do you have some of that in the backlog already? And if not, when do you expect to start bidding for some of those prime power type deals with hyperscalers.

Yes. HSK78 today addresses prime. So there are prime orders and customers in the backlog. And those customers are the ones that are familiar to you guys. And so yes, absolutely, we already do prime today.

Jerry?

Can I just follow-up, Jenny, on that point. So you mentioned the expectation is for 5% of the business to remain prime, which implies an incremental $200 million or so revenue for prime. Can you talk about where can that go on a multiyear basis? Obviously, it's going to be pretty early in the product life cycle in 2030. Can you just give us a sense for how much higher that can go. And then from an installation standpoint, is it any different than installing a backup genset for your Distribution business? What's the opportunity in Distribution of installing prime power compared to what we see for backup.

I'll take the first part of the question and then I'll hand to to Sean for the installation and even -- so yes, the planning horizon is 2030, as you noted, that we're launching in '28. So first units will go in '28. So I think the reality for us is that if we didn't feel like it was going to grow, we probably wouldn't have done it. And so we do expect that there is more opportunity there. I think time will tell. Based on all of our adoption of AI and how the market changes over time and those types of things in terms of how big or how dominant that becomes in our product portfolio. We do a little bit of prime now. So we we do understand that market. It is very different now compared to the standby side of the business. And so I'll just hand over to you for installation.

Yes. Installation gets a lot more complex because different utilities, different states have different rules and regulations around that. We're well equipped to understand that. And we have, as Jen talked about earlier, we've got 640 distributor locations, and we have satellite technicians across the world to actually do that, but the real upside for us will be if they're prime, then we'll go out and service those units on a regular basis, replacing parts along the way. So that will be the shift that we'll see from a potential expansion of growth from a installation perspective and ultimately, margin expand as well as we think about the ability to sell parts and prime versus having a standby unit.

We would expect multiples of $200 million it successful.

Yes, absolutely.

Just wanted to continue along those lines. I guess as you think about that prime product that's already in your backlog, can you break that down a little bit more into how much of that might be related to the natural gas engine that you're developing versus the diesel engine with after treatment, how you're seeing that mix? And more importantly, as you go to market with these products and talk to customers and the development of this, what makes these more attractive to them? Is it about speed to power? Is it something about the technology, even how do they think about your own solutions ultimately and choosing?

Yes. So I'll talk a little bit about what attracts the customer in terms of why would they entertain operate in their own power. It is all about speed. And so the reality is that the data center market, that's just really what that is, is us all adopting technology and utilizing that on our phones and all of those things. So cloud was like the beginning of that and then AI and models and all of the stuff that happens around that is attractive, very attractive and for those hyperscalers and colos that are producing technology. The reality is, is that the reason I would put natural gas gensets versus something else, is about where I'm able to put those data centers, do I have access to power, do I have access to cable and technology to be able to then utilize that equipment. And so the grid -- of course, the utilities are deciding always like to balance load and sharing large loads with consumers. And as a result, data centers have to get in the queue as much as anybody else in terms of where they can get access to that power. And so utilizing their own capability to do that gives them speed. It's really just a speed game.

I was just going to -- and we're a proven partner to these very same customers right? We just not sell it. We're mostly selling back that. That's the important factor.

Yes, that was the point I wanted to make let's distinguish between partnerships and conversations with partners on their power needs and how we're going to meet those over time and even where we may do some pilot in as we launch the product in '28, we're not taking firm orders. We're not at a stage of development at this point. So don't ask us every quarter for the next quarters. Our order board is developing on the new part power engine solution because we're not at that stage of development yet. We are at the stage of having conversations with these strategic customers on the needs and how we're going to meet them in the future.

Back to Tim.

Maybe one for Sean. Some of your -- when your predecessor sat in that seat, there was pressure from Jen's boss to get those margins to double digits and here you are in kind of the mid-teens. How much of that is -- obviously, power gen has exploded in the last 2 years. How much of that is just a function of just the volume leverage from that. And it's obviously been a good market and a hot market. So presumably, there's maybe a little bit more pricing. But how much of it is a function of that versus some of the initiatives through the consolidation and other things that were underway as to what's driven this uptick.

Yes. So you nailed it right. There's two pieces as data centers continue to grow that will help our underlying profitability from a Distribution business as we do these installations along the way. The other piece is we've really been on this journey of operational excellence. You talk about we've got the 640 distributor locations, part of acquisitions, joint ventures. So we've really done a good job over the site to really, one, bring those all under the Cummins umbrella. And two, now we're really working on how do we further integrate those different locations and drive operational excellence across via how we service, how we install the data center generator. So those are things that we're working on behind the background to continue to expand our margins over the cycle. I think the last piece is Brett talked about this large installed base, right? That continues to grow. So as that installed base continues to expand, just naturally gives us an annuity that we can service and we can support those engines throughout the world from an EV perspective. The last piece mining, we're 100 years of mining this year. And really, from a mining perspective, we've got our technicians embedded in mines around the world, and that's another strong source of revenue for the So as we get more efficient in all these different areas, we continue to see margin expansion within the business.

And then I think we've addressed some underperforming parts of the business and trim like our appetite in some markets, parts of Africa our strategy was successful in other parts, it didn't yield the results that we had. So that's been another leg. It's not just been we bought things and it all just magically happen. There's been a lot of work and analysis and we're excited about more margin expansion to come in Distribution.

Kyle Menges with Citigroup. I was hoping if you could talk a little bit about R&D spend over the next 5 years or so. I think it has been mentioned previously that you've been spending about $150 million per year in excess R&D to get ready for EPA 27. I'm curious with the medium-duty engine getting pushed out a year and then you're making more investments in new products in the power gen side, just how to think about that $150 million in excess R&D and how that might come down over time or maybe it will still stay a bit elevated over the next few years?

Yes. We do expect that as we get to and beyond the EPA launch that R&D as a percentage of sales is going to start to come down a little bit. As you noted, we're going to continue to invest. We're increasing some of the R&D investment in Power Systems to support both the prime platform, the new mining platform, the hybrid work, we've got the continued need to make sure we maintain a technology leadership position in the targeted investments in engines and components. So we will still be investing in R&D. And you can think about that as a percentage, though, that, that will start to step down as we get through '27. It did gone up a little bit with that really focus we had on the EPA 27 launch in the new platform.

Yes, and now accelerated growth and opportunities in Power Systems. So I just have to remember engineering is a good thing. Right -- that's what just deliver the value in the right measure. And that's what yields us the best products over time. But yes, we'll be coming off a peak in the on-highway market. Steve, I'll come back to David.

Steve Fisher, UBS again. Just one for Brett. And this may sort of incorporate a number of answers you've given already, but you made a comment that EPA 27 is the first application for the HELM line, and there's going to be others. Can you just elaborate on what you mean by others? Or is that talking about mining or other things? Or is it different things you're envisioning in the future?

No. A lot of what I was talking about is the different markets play. So as you look towards Euro 7, we'll be utilizing the HELM platforms. Likewise, BS-VII in India we'll utilize. Now we don't use that full portfolio everywhere. And then China standards of NS-7 in the future. All of those will be built off of some parts of the HELM platforms. Additionally, off-highway will go through more emissions changes as we move on. And so we'll transition those products using this base philosophy and set platforms on each of those. And then we are bullish that over time, you will still need engines, and those engines may need to run off of different fuels. So we think natural gas, biodiesel, renewable natural gas and a variety of other spark-ignited needs will happen around the world, and that's what the HELM platforms are positioned for as we can easily transition into those as we see the need in each market.

It's probably worth noting, we actually do have the HELM platform launched in the U.S. with natural gas, the 15-liter natural gas. Cummins is the only commercial vehicle engine with natural gas in the U.S., you've got your 9-liter and then the 15 liter. It's not a huge, huge market, but the economics do look favorable for certain applications and duty cycles and depending on what happens with the price of diesel versus natural gas could be more attractive to some of our customers.

Absolutely. David? .

Thank you. Brett, not asking you to call a truck cycle, a lot of macro uncertainties. But just to give us a little sense of a bogey how you're thinking about, say, nothing dramatic comes out of the final regs, right, for '27 on the heavies. Your engine will be ready for '27. How are you thinking about the magnitude of prebuy, what you've already seen in your order book? Just some sense of how much you think is being pulled forward from '27 to '26.

Yes. I think we've called the cycle. It will meet roughly to our plan. We do see an uplift, particularly in heavy duty in the second half of the year, and we're starting to see those orders come in now. So just to give you some anecdotal numbers, we started the year making 250, 240 engines a day for the North American market heavy-duty. And by the end of June, we'll be up to 400. So you are seeing that uptick in real orders going out the door, and we pretty much called that as we go. As far as next year, again, very dependent upon the standards. But if the industry philosophy of around $10,000 a truck, we've both been through enough cycles, you will see a pause or a lag in volume in the first quarter of next year. I don't think that can last an incredibly long time. The truck fleets are pretty old. And so there are some core fundamentals that will continue to drive demand. But one that's against it is, it's difficult right now for a lot of the fleets to make money. So you have these countervailing forces that we just need to watch, but I will say, clearly, Q3, Q4 are going to be stronger than what Q1 will be next year. .

And then with the launch plans, you would expect to see pretty strong demand for the engine out through next year.

When we think about the industry capacity in the back half of the year, do you hear a variety of rail frames from Mexico, whatever it may be. What are you hearing on what people are asking of you? Is there a restraint of what they're asking from you due to other supply constraints, just curious the magnitude.

Today, I don't see a supply constraint, but we have all known that typically where the worry will be as a few layers back in the supply chain. We think generally will be okay from a Cummins perspective, we don't think we will be a constraint. And so we're ready for that demand. But in general, I think one of the biggest constraints is just time. If you order a truck today, deliveries are probably 3 and 4 months out. You can't get that many more orders in, in the next couple of months.

The prebuy isn't limited by the supply chain. It's by the EPA being this late. So the overhang of how much you pull forward this year much limited to be more than other ones, 2006 was huge. Generally, more limited than this.

I mean we originally thought it would start second half of last year.

Okay. We'll go to you for the last question. Yes. But we -- remember, we've got a lot of lunches and make really exciting one. .

Data centers again. You mentioned -- Rob You mentioned at least in your slides, you had pretty much all architectures of data centers are still using diesel backup. And so we've heard about different battery chemistries, different new battery technologies, but should we think about that as pretty much being on for one for one through the end of the decade? Or there's no disruption that you see that would cause diesel backup to go away in the timeline that you see. And I don't know if you can save us from making any math mistakes, but roughly what percentage of the capacity addition is embedded as being fully used in your guide? In other words, you're adding 20, I don't know if that's fully sold or not because there's a whole pricing, you like 3% a year or 6% or 12% or whatever.

Okay. So I'll try take the first part of the question. .

It's a lot easier if we just stick to the revenue that we've given. -- happy honest with you -- that's another question. .

In terms of the flexibility will diesel remain in backup. The reality on backup diesel is the most power dense fuel. It is the fastest fuel an engine that can take load. And the reality of a backup solution for a data center is that you need to be doing that in 15 seconds. And so that can happen with natural gas, but you usually need a bridge whether that's a battery or fast-start capability, you need a bigger unit versus a smaller unit, power density don't need to store the fuel in diesel. I've always got it available all of those things. Because of that, I think the reality is that diesel will probably remain the backup of choice. And because of the 5 9s reliability requirement for data centers, I don't think we standby power going away from a data center set of requirements because of that 5 9s capability. In terms of how much is sold, we're taking orders today for '28, we're into '28 in some of the much bigger engines, we're in a little bit further out than that. So there is -- we still project to have some capacity. Hence, why we're adding capacity. That's why we're adding 450 million because we see a pipeline of orders out beyond 2030, actually.

Okay. Well, that concludes that.

All right. Thanks, everybody, for the great, great questions. And if I can, just you got a chance to see an amazing team, and there's a lot of people in the room that were a part of really helping to articulate a clear message on where we're at today and where we're going. So I want to just thank all of them for that. And we're going to take another short break as we transition out to lunch, where we will come and rotate around and give you a chance to talk to different members of the Cummins team that are here today. Mark, you want to add anything.

Yes, if you grab your lunch, we're just going to eat here quickly and then we'll go to the round table. So you've got 15 minutes or a bit less. You eat out there. We -- we'll finish here, and then we'll go to the room.

Greetings, and welcome to Cummins Inc. First Quarter 2026 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. Please go ahead.

Thank you, Donna. Good morning, everyone, and welcome to our teleconference today to discuss Cummins results for the first quarter of 2026. 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 several 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 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.

Thank you, Nick. Good morning, everyone. I'll start with a summary of our first quarter accomplishments and financial results, then discuss our sales and end market trends by region. I will finish with a discussion of our outlook for 2026. Mark will then walk you through additional detail on our first quarter performance and our full year forecast.

Before getting into the details of our performance, I want to highlight a few major events from the quarter. In February, Cummins marked a significant milestone with the deployment of the world's first Commercial Hybrid Electric Ultra-class Mining Truck, now in operation, in production at the Caserones open-pit mine in Chile. This pilot represents our first retrofit of a 300-ton Komatsu haul truck using First Mode hybrid technology in daily operations. It reflects our strategy of delivering solutions that reduce CO2 emissions today, while advancing our customers' long-term decarbonization goals.

In March, Mack Trucks announced the integration of the Cummins X10 engine into the Mack Granite Chassis. This milestone reflects the strong collaboration between the Mack and Cummins teams and our shared commitment to delivering reliable, high-performing solutions for vocational customers. The X10 is well suited for demanding work applications and its integration into the Granite platform will provide customers with a compelling option in the vocational truck segment.

Finally, during the quarter, we took targeted actions in our Accelera segment by completing the sale of our Low-pressure Fuel Cell business and related customer commitments for this business. This sale will enable continued improvement in our trajectory of our financial results in the Accelera segment. Together, these actions demonstrate how we are executing against our strategy across our businesses.

Now I will turn to our overall company performance for the first quarter of 2026 and cover some of our key markets. Sales for the first quarter were $8.4 billion, an increase of 3% compared to the first quarter of 2025. Growth was driven primarily by higher demand in power generation markets, particularly from data centers. This increase was partially offset by weaker North America heavy and medium-duty truck demand with unit volumes down 20% from a year ago. EBITDA was $1.3 billion or 15.4%, which included a net charge of $199 million related to the sale of our Low-pressure Fuel Cell business. Excluding this net charge, EBITDA was $1.5 billion or 17.7% compared to $1.5 billion or 17.9% a year ago. Lower North America truck volumes and higher compensation expenses were partially offset by higher power generation demand, favorable pricing and increased joint venture income.

In Power Systems, we delivered record EBITDA dollars, reflecting continued operational improvements and strong end market demand. Our first quarter revenues in North America decreased 6% compared to 2025. Industry production of heavy-duty trucks in the first quarter was 50,000 units, down 23% from 2025 levels. While our heavy-duty unit sales were 18,000, down 16% year-over-year. Industry production of medium-duty trucks was 27,000 units in the first quarter of 2026, a decrease of 20% from 2025 levels, while our unit sales were 25,000, down 19% year-over-year. We shipped 30,000 engines to Stellantis for use in the RAM pickups in the first quarter of 2026, up 4% from 2025 levels. Revenues for North America power generation increased by 23%, driven primarily by continued strong data center demand. Our international revenues increased by 16% in the first quarter of 2026 compared to a year ago.

First quarter revenues in China, including joint ventures, were $2.1 billion, an increase of 19% year-over-year, driven by accelerating data center demand and strong off-highway export activity by our OEM customers. Industry demand for medium- and heavy-duty trucks in China was 353,000 units, an increase of 20% from last year driven by strong export demand. Our sales in units, including joint ventures, were 55,000, an increase of 14%. Industry demand for excavators in China in the first quarter was 73,000 units, an increase of 19% from 2025 levels. We sold 14,000 units, an increase of 25%, primarily driven by strong export demand. Sales of power generation equipment in China increased 84% in the first quarter due to accelerating data center demand.

First quarter revenues in India, including joint ventures, were $814 million, an increase of 12% from the first quarter a year ago. Industry truck production increased 21% from 2025 driven by tax incentives that are accelerating underlying demand.

Now let me provide our outlook for 2026, including some comments on individual regions and end markets. We are pleased to share that our expectations for 2026 have improved since our initial guidance issued in February. We are raising our forecast for total company revenues in 2026 to a range of up 8% to 11% compared to our prior guidance of up 3% to 8%. We are raising our 2026 North America heavy-duty truck forecast to a range of 230,000 to 250,000 units, up from our prior guidance of 220,000 to 240,000 units. This increase reflects the trend of strong recent orders and improving spot rates. We now expect the first half of the year to be stronger than previously anticipated while the second half remains largely consistent with our prior outlook, including a modest prebuy ahead of the 2027 EPA regulations.

In the North America medium-duty truck market, we are increasing our forecast to 125,000 to 135,000 units in 2026 compared to our prior guide of 110,000 to 120,000 units, reflecting stronger-than-anticipated demand in the first half and momentum expected to continue into the second half of the year. Consistent with our prior guidance, our Engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 units in 2026. In China, we now expect total revenue, including joint ventures to increase 10% in 2026, an improvement from prior outlook of down 1%, driven by stronger data center demand. For heavy and medium-duty truck demand, we continue to expect a range of down 10% to flat versus prior year, consistent with our prior guidance and reflecting moderation and the benefits of scrapping policy, partially offset by continued strength in export demand.

In India, we now project total revenue, including joint ventures, to increase 2% in 2026, up from our prior guide of 5% decline. We expect industry demand for trucks to be down 5% to up 5% for the year compared to our prior guidance of down 10% to flat, supported by tax rate reductions, improving underlying demand. For global construction, we now expect demand to range from flat to up 10% year-over-year, an improvement from our prior outlook of down 10% to flat.

In China, strong export demand is expected to partially offset continued domestic weakness. While in North America, we expect demand to remain largely flat given ongoing tariffs and interest rate uncertainty. We expect our major global high horsepower market to remain strong in 2026. In global power generation, we now project revenues to increase 15% to 25%, and up from our prior guidance of 10% to 20%. This reflects accelerating data center demand supported by capacity additions we brought on in North America at the end of 2025. We are also seeing stronger-than-expected international growth, particularly in China and the broader Asia Pacific region, along with increased demand for lower output gen sets to meet customer demand amid ongoing capacity constraints and larger configurations.

In mining, Engine sales are expected to be flat to up 10%, driven by replacement demand and consistent with our prior outlook. For Aftermarket, we expect a range of 2% to 8% increase for 2026 consistent with our prior outlook, supported by aging fleets, higher part consumption and increased rebuild activity.

In summary, coming off a strong first quarter, we are raising our full year sales outlook to 8% to 11% increase and increasing our EBITDA margin guidance to a range of 17.75% to 18.5%. This reflects improving momentum in North America heavy and medium-duty truck markets, with volumes recovering from cyclical lows, faster than previously anticipated, a higher outlook for global power generation, improvement in Accelera and continued strong execution across our businesses.

Additionally, this quarter, we returned $519 million to shareholders, including $243 million in share repurchases, consistent with our long-standing commitment to return approximately 50% of operating cash flow to shareholders.

I want to thank our employees and leaders around the world for their commitment to our customers and to each other. Their focus and execution are delivering strong financial results while continuing to strengthen our ability to invest in future growth, advance sustainable solutions and create long-term value for shareholders. I look forward to discussing our long-term strategy and updated financial targets at our Analyst Day on May 21. Now let me turn it over to Mark.

Thank you, Jenn, and good morning, everyone. We delivered strong revenue and profitability in the first quarter. Let me start with some key highlights that we want you to leave with today.

First, we see stronger demand in multiple end markets, resulting in an improved outlook for Engines, Components, Distribution and Power Systems. Second, we completed the sale of the Low-pressure Fuel Cell business to Alstom, representing another step in reducing operating losses in Accelera and we raised -- or we improved our 2026 forecast in that segment for EBITDA losses. And third, we took advantage of equity market volatility in the first quarter to repurchase shares consistent with our plans to return excess capital to shareholders.

Now let's look at the first quarter in a little bit more detail, and hopefully, I can head off some of your questions with some of these comments. First quarter revenues were $8.4 billion, up 3% from a year ago. Sales in North America decreased 6%, while International revenues increased 16% and driven by China, where the data center demand is accelerating. EBITDA was $1.3 billion or 15.4% of sales compared to $1.5 billion or 17.9% a year ago. First quarter 2026 results included the net charge of $199 million related to the sale of the Low-pressure Fuel Cell business. Excluding these net charges, EBITDA was $1.5 billion or 17.7%, down 20 basis points from a year ago. Lower North American truck volumes and higher compensation expenses partially offset by higher power generation demand, favorable pricing and increased joint venture income.

The net impact of tariffs to our EBITDA dollars in the first quarter was immaterial, and although the exact amounts in total and by segment will vary quarter-to-quarter, we currently expect that the net impact of tariffs will continue to be immaterial to our EBITDA for the remainder of 2026 as we've worked hard with our supply chain partners and customers to mitigate the impacts.

Now let me go into more detail by line item. Gross margin for the quarter was $2.2 billion or 26.7% of sales compared to $2.2 billion or 26.4% last year. The improved margins were driven by favorable pricing and higher power generation sales, partially offset by lower North American heavy and medium-duty truck volumes and higher compensation expenses. Selling, administrative and research expenses were $1.2 billion or 14.3% of sales compared to $1.1 billion or 13% of sales -- 13.6% of sales a year ago, and this increase was driven primarily by higher compensation, especially variable compensation expenses. Joint venture income of $148 million increased $17 million from the prior year, primarily driven by stronger performance in our on- and off-highway joint ventures in China, benefiting the Engine and Power Systems segments.

Other income was negative $178 million compared to favorable $23 million from the prior year. This [ decrease ] was primarily driven by $199 million of net charges related to the sale of the Low Pressure Fuel Cell business. Interest expense was $76 million, a decrease of $1 million from the prior year. The all-in effective tax rate in the first quarter was 27.2%, including the unfavorable discrete tax impact related to the sale of the Low Pressure Fuel Cell business, and $7 million or $0.05 per diluted share of other favorable discrete items.

All-in net earnings for the quarter were $654 million or $4.71 per diluted share, which included $1.44 per diluted share related to the sale of the Low Pressure Cell business. Excluding the sale, net earnings were $853 million or $6.15 per share compared to $824 million or $5.96 per diluted share a year ago. Operating cash flow was an inflow of $309 million compared to an outflow of $3 million in the first quarter of 2025. Additionally, we returned over $0.5 billion of cash to shareholders in the first quarter. We executed $243 million in share repurchases at an average price of $536.97 and paid $276 million in cash dividends this quarter, consistent with our long-standing commitment to return approximately 50% of operating cash flow to shareholders.

Now let me comment a little bit more on segment performance. For the Engine segment, first quarter revenues were $2.7 billion, a decrease of 4% a year ago. EBITDA was 10.4%, a decrease from 16.5% a year ago as weaker North American truck volumes, higher compensation expenses related to overall company performance, higher research and development expenses as we approach our 2027 launches and increased [ product average ] costs were partly offset by higher joint venture income. For the full year 2026, we now project Engine business revenues to be up 7% to 12%, up from our prior guidance of flat to an increase of 5%. We've also raised our EBITDA margin projections now to be in the range of 12.5% to 13.5%, up 50 basis points at the midpoint of the guide. This improvement is primarily driven by higher expectations for North America heavy and medium-duty truck demand with demand in the first half of the year, particularly proving stronger than we'd anticipated, just 3 months ago.

Components segment revenue was $2.5 billion, a decrease of 5% from a year ago. EBITDA was 13.3% a decrease from 14.3% a year ago, as weaker North American truck volumes and higher material costs were partially offset by pricing. For Components, we expect 2026 full year revenues now to be up 5% to 10%, an increase from our prior guide of flat to 5% up due to stronger demand for heavy and medium-duty trucks in North America, and we expect EBITDA margins to be in the range of 13.5% to 14.5%, up 50 basis points from our prior guide at the low and the high end due to higher earnings in North America and China.

In the Distribution segment, revenues increased 7% from a year ago to $3.1 billion, EBITDA increased as a percent of sales to 14.2% compared to 12.9% a year ago, driven by higher power generation demand partially offset by higher variable compensation expenses. We now expect full year '26 Distribution revenues to be up 9% to 14% from our prior year guidance about 5% to 10% due to stronger demand for power generation equipment mainly. We also expect EBITDA margins to be in the range of 13.7% to 14.7% an increase from our previous forecast of 13.25% to 14.25%.

In the Power Systems segment, revenues were $2 billion, an increase of 19% and EBITDA was a record increasing from 23.6% to 29.5% of sales as increased volumes, positive pricing, net tariff recovery and higher joint venture income and some onetime cost recoveries all helped boost results. For 2026, we now expect Power Systems revenues to grow 14% to 19%, up from our prior forecast of 12% to 17%, due to stronger demand, especially in international markets. We also expect EBITDA margins in the range of approximately 25% to 26% compared to our previous guidance of 23% to 24%. The margins for the remainder of the year are expected to be strong, but a little below first quarter levels due to the uneven nature of tariff cost and recoveries and the benefit in the first quarter of some onetime modest non-tariff cost recoveries.

Accelera revenues decreased 2% to $101 million, driven by lower electrified powertrain sales, partially offset by higher electrolyzer sales, as we meet our remaining sales commitments in the electrolyzer business. EBITDA was at loss of $277 million, including a net charge of $199 million related to the sale of our Low-pressure Fuel Cell business. Excluding these charges, EBITDA was a loss of $78 million, an improvement from the loss of $86 million in the prior year reflecting the benefit of the actions that we've been taking over the last couple of years starting to gain traction across the segment. In 2026, we anticipate Accelera revenues to be in the range of $300 million to $350 million, unchanged from 3 months ago. We now expect net losses excluding the charge related to the Fuel Cell sale to improve to a range of $270 million to $300 million better than our previous projection of EBITDA losses of $325 to $355 million. This improvement reflects actions previously taken to reduce losses in existing operations as well as the benefits of the targeted decisions taken in the first quarter.

In summary, we now expect stronger full year top and bottom line. We expect total company revenues to increase between 8% and 11% and EBITDA to be in the range of 17.75% to 18.5%. And whilst Power Systems and Distribution naturally have been gaining the headlines over recent quarters, I hope you take away from these comments that we're seeing an improved profit outlook for all of our segments for the remainder of this year. Our effective tax rate is expected to be approximately 23% in 2026, excluding any discrete items. Total investment is expected to be in the range of $1.35 billion to $1.45 billion as we continue to make critical investments to support future growth.

In summary, we delivered strong profitability in the first quarter despite weaker production levels in North America on-highway markets, as those markets improve through the year, along with the continued robust global demand for power generation equipment, we are well positioned to further improve our financial performance yet this year. The actions we have taken in Accelera are improving the cost structure and reducing ongoing losses while we continue to invest in the products, which we believe have stronger prospects for adoption and future profitable growth. Cash generation remains a clear priority, enabling continued investment in our portfolio, returning excess cash to shareholders and maintaining a strong balance sheet that allows us to weather any economic volatility and continue investing for the long run. We look forward to seeing some of you in person when we provide an update on our medium-term financial targets at our Analyst Day on May 21. That's enough for me. Let me turn it over to Nick.

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 Instructions] Today's first question is coming from Angel Castillo of Morgan Stanley.

Congratulations on the strong quarter here. So just wanted to, Mark, go back to the point on Power Systems. Can you just, I guess, unpack how much the onetime was in the first quarter here? The non-repeating I guess, yes, just onetime cost there benefit. And then as you think about the cadence of the rest of the year, just curious if you could kind of help us understand, is it just kind of normal seasonality absent that onetime? Or how we should think about kind of the cadence of the margin for that segment?

Yes. So I don't want to diminish the extraordinary achievements of the Power Systems business into a really short answer because they're doing incredibly well and investing and raising capacities to meet even stronger demand as we'll talk more about in May. But yes, if you look at the guidance, you can back normal seasonality for the rest of the year, we should expect Q4 is usually just a short of production quarter generally. But otherwise, there shouldn't be enormous variation in the margins quarter-to-quarter. As I mentioned, there were a number of factors that contributed to margin performance above our expectations. You've got stronger demand in China, which is usually weighted more to the first half of the year. That will -- that line item will probably be weaker in the second half of the year. It's just the way that buying patents tend to have in China.

You've got net tariff recoveries, which you heard me say at the start for the company were immaterial. They've really been immaterial to several quarters and will remain immaterial, but it were a net boost at Power Systems, and then we had some onetime cost recovery. So if you factor -- if you just factor in a slightly slower Q4 because of the lower production days, the rest of the quarter should look pretty even for the remainder.

The next question is coming from Kyle Menges of Citigroup.

Great. It would be good to hear just an update on the EPA '27 Engines and number one, curious if there could actually be some meaningful fuel efficiency gains with the new heavy-duty engine based on what you're seeing and hearing thus far? And then number two, just would be great to get an update on the medium-duty engine and when it might be ready? And any potential ramifications if it might not be ready, say, until later in 2027?

Yes. Great. Thanks, Kyle. Well, we remain very excited about launching our HELM platform. The diesel variant of those, along with the EPA '27 Regulation and do anticipate bringing a lot of performance value to our customers, including fuel efficiency improvements and other service and performance optimization. And as I've talked about in the past, it's really unusual at this stage in the development cycle for regulations to be uncertain. We have been working very closely with EPA over the last year, as they've been evaluating ways to move forward with the regulation, as I've said, they will, while taking some of the cost associated with that regulation out, and we anticipate changes in the longer emissions, warranty and emissions useful life, that were in the the previous version of that regulation.

Based on kind of the late changes, we have made the decision to delay the launch of our B platform to January '28, that will be the final launch of our Diesel HELM platform. We continue to plan to move forward with X15 and X10 in '27. And as I've shared previously, the B platform, in particular, is the one that we sell that the most number of customers and diversity of applications we've been transparent with EPA about our our plans on the launch and are looking forward to seeing the draft out of their revised rule anticipated this quarter and getting the final version of that before we start launching our new platforms next year. So excited about the value we're bringing to the customer and just continue to work closely with the EPA as they finalize their plans.

Got it. And I'm just curious what the ramifications could be or maybe a range of outcomes for next year if that medium-duty engine is not ready until 2028?

So we'll continue to offer the current version of the B Series platform through '27, and this will allow us to kind of phase out the launch of our products to our customers and through our plants. And we are, as we said, continuing to anticipate some amount of prebuy in the second half of the year, in particular in the heavy-duty market.

The next question is coming from Jerry Revich of Wells Fargo Securities.

Good morning, everyone. I'm wondering if you folks can comment on how far out lead times extend for your 95-liter engines. We're hearing that for some folks into the back half of '28, even at higher production levels. Can you comment how far you folks are?

And then, Mark, you folks have consistently put up really attractive incremental margins in that line of business for a number of years now as we think about production continuing to ramp higher, anything that we should keep in mind as we think what incremental margins might look like in the medium term compared to the 45% incrementals that you folks have consistently delivered here?

Thanks, Jerry. Well, as you know, we doubled the capacity of the 95-liter, finished that investment last year, really taking advantage of that and continuing to see strong demand, multiyear discussions with our customers around their needs, and that's underpinning the stronger guidance this year. And we've been continuing to look closely at longer-term demand expectations and if there are additional capacity investments we want to make across our plants and supply chain and Jenny will be sharing more with you at our upcoming Analyst Day on how we're thinking about those investments in the capacity.

Right. But I think yes, I think we're going to have -- you're going to see a strong presentation in the next couple of weeks about Power Systems. We're very enthusiastic about the prospects going forward. And quite frankly, they've only strengthened, Jerry, even in in the last few months. So we are very optimistic, confident, maybe optimistic, is not the right word, confident in the performance in the Power Systems business. Right now, we're focusing -- whilst we are ramping up production. We have been increasing margins. We'll also continue to invest going forward, and you'll hear more about those plans here coming up. But certainly, as revenues grow, obviously, we have the goal of expanding margins.

Super. And can I ask in Engine it's nice to see the positive margin revision for the year? It looks like you're going to exit potentially in the 14% plus EBITDA margin range. Every time a new regulation, you folks tend to drive margins higher. Can you just talk about the puts and takes as we think about EPA '27 and the EBITDA margin opportunity for you folks on the new platforms? Considering its been a while since we've had a new platform in the U.S.

Yes. It's been a while since we've had this many new platforms at the same time. So yes, obviously, there's going to be -- there are going to be significant content adds primarily on the powertrain for the new trucks. So that's going to benefit not only the Engine business but also Component story. We're expecting -- we're not here to give guidance for next year, but we expect some volatility in demand between the second half of this year and the first half of next year. But yes, I think you're going to hear a positive story from Brett, coming up in the next couple of weeks. We've been through a peak investment period because all the platforms, not just the current ones, we've launched other platforms in the past couple of years that have gone well. And we are moving beyond this peak investment period. So yes, you're going to hear from us that we expect our performance to improve over time.

The next question is coming from Stephen Volkmann of Jefferies.

Can I just continue on that thread, if possible here? The Engine incrementals this year are sort of low teens, I guess, if I'm doing my math right, Mark, you talked about some of your spending on new platforms rolling off as we go forward. But I assume warranty tends to be higher when you launch these new platforms. So just trying to think about like what's the fair kind of value for incremental margins in Engines?

Yes. I think over an extended -- first of all, you're exactly right. So when we launch a brand-new platform, we start with a new warranty accrual rate, and that's usually fixed for the first 6 quarters until we get enough field experience, and then history has shown overtime, that we've been able to bring down those accrual rates quite significantly. Certainly, over, it's one of the highlights of my time as CFO was seeing that improvement -- significant improvement over time and quality. So yes, we'll start next year with our new Engine platforms that are launched with higher accrual rates. That will be a portion of all this demand may be lighter in the first half of the year as -- to the extent there is some prebuy, it's always hard to know exactly what's prebuy versus slightly improving freight conditions. Demand could be weaker, yes, over let's say, we get through the first half of next year and into '28, we should be seeing improved incremental margins for the Engine business.

The tariffs, of course, probably the biggest single burden for the company has fallen on the Engine business, not only. So that even though we've done a great job in trying to mitigate those and minimize the dollar impact that's been somewhat dilutive last year and this year on top of the peak investment period. So yes, I would expect the incremental margins to improve from what we're seeing this year as we get through the next 18 months.

The next question is coming from David Raso of Evercore ISI.

The rest of the year, the top line for the 4 major segments were all up 12% to 16%. So solid breadth there with incrementals in Engines and Power both above 30% for the rest of the year. But I was curious why Distribution, the incremental for the rest of the year are only 7% and Component are 19%. I'm just curious, particularly in Distribution, but also as Components may be bearing more of those investment dollars. Just trying to understand why the incremental is that low on those 2 businesses, the rest of the year?

Yes. I think the -- one of the factors in the Distribution business is we're seeing more growth -- I'd say, the rate of growth at parts is not keeping pace with the rate of growth in whole goods, as we refer to them, or power generation equipment. So that's one factor. And then I would say we had -- last year, we had more pricing in the middle of -- particularly in the middle of the year, and that's why one of the factors why the margins stepped up so well in the second.

So I think you're getting into tough comparisons, Q2 and Q3 in particular, long term, medium term, we're bullish on Distribution growth and margin expansion. But those are some of the factors. We did pretty well in Q1. So we just got to keep doing more of the same and over time, differences in mix and other factors will take care of themselves, and I think the prospects are very encouraging. But that's probably the main factor that there's no other onetime special item or anything like that, David.

And a follow-up on the availability of the '27 heavies. What are your customers telling you for '26 build slots? And when would they expect to be sold out and then have to ask you to introduce your '27 engine?

Yes. Thanks, David. And we've seen -- I'm sure you've been paying attention like we have to truck orders that have gone up over the last several months. Spot rates have improved. So you've got a combination of improved economics for the truck customers along with anticipation of EPA 27 regulation and the industry, of course, was at a cyclical low. So what we're seeing is things starting to step back up. In fact, right now, we're adding a third shift at Rocky Mount, so we really saw medium-duty demand improving starting in Q1 and quite strong here as we go to the second quarter, and then we're seeing heavy-duty stepping up.

And we do think that we're watching the supply base to see if there's going to be some constraints we're getting to the point where you -- part of our top end guide is how much can everybody take up build rates and supply to meet that ahead of the '27 regulatory changeover. And then we're really focused on making sure that we can execute to meet our customer commitments as we do that. In fact, we had a a big supplier conference last week with all of our key suppliers to make sure that they're ready just for all of our businesses, we're ramping up capacity at our plants and investing in new products.

The next question is coming from Jamie Cook of Truist Securities.

A nice quarter. I guess one question for you, Mark, as we think about the second half and I guess sort of I guess, longer term, we're getting lots of questions on your ability to put up the incremental 25% margin with some of the concerns on tariffs perhaps are actually are potentially R&D not being as big of a tailwind as we would have thought if the medium-duty engine doesn't meet the 2027 emissions, maybe that's higher? Puts and takes with the seller losses. So just sort of your confidence level there?

And then I guess, second question. pace of a seller loss is decelerating. Obviously, we saw some nice progress in the quarter and what's implied in the guide, just how we're thinking about that as a potential again, offset into losses in 2027 and beyond?

Good. Well, I think we'll address probably very specifically, incremental margins here in a couple of weeks over -- through 2030, we'll give you an update and compare that to what we said a couple of years ago, so that should be fairly clear in aggregate. I think there are a lot of moving parts right now. That's true. Obviously, we've raised the guide for this year. So our confidence is improving. It's going to be a little bit bumpy probably in the first half of next year.

But I think overall, we feel like we've taken the tough actions in Accelera. We are seeing-out some remaining commitments on electrolyzer. We expect that those losses get the converse quarter-to-quarter, but on a clear downward trajectory right now. So that's positive for our underlying performance. And then yes, I think the theme is still we've been through peak investment period. Yes, the odd program, costs could extend through next year, but I think the theme is still going to be primarily the same. And I think we should be able to answer all of those questions pretty well without spoiling what's going to happen in a couple of weeks.

And I'll just add on the Accelera business, Jamie, I think that team has really done a remarkable job through a rapidly changing landscape for adoption of zero emissions technology and green hydrogen, and we've really been able to focus that business now. The actions we took at the end of the year on the electrolyzer business, as Mark noted, we're still meeting some customer commitments there. And over time, that will continue to ramp down a big action in the first quarter with a Low-pressure Fuel Cell sale and the associated customer commitment to that. So we're really focused now on battery-electric powertrain pacing investments as that market evolves and we've got some good customer wins in that space. And so we'll focus on that part of the Accelera business going forward.

The next question is coming from Steven Fisher of UBS.

Just wanted to ask about the heavy-duty truck market, as a follow-up. I think you said there's no change to your second half expectation at this point. I'm just curious how you're thinking about that because it seems like you cited an improving market and orders are good. It may just be the answer that you gave David Raso about concerns about supply chain, being able to to meet that, but curious how you're thinking about the potential upside for the second half of the year on the trucks?

Yes. If you recall back to our original guidance, we kind of projected this year kind of the inverse of last year with weak first half and then improving in the second half. And now what we're seeing is that improvement is coming sooner. So going up and then still, we think that as you get into the second half, that the build rates that we had projected are probably still accurate because of some of those supply constraints, potential supply disruption risk. So we'll certainly do everything we can to meet the demand that comes into us and think it will be a good second half of the year, but probably some -- just constraint in days in the year to the upside.

And without getting too much [indiscernible] a strong Q2 ahead, right? The first half is just -- underpin that the first half better than we anticipated, and that's what's primarily driving the guide. So Q2 should be good.

Okay. Great. And then I know you said the net tariff impact was pretty unchanged and still immaterial, and you got some supply chain benefits that were part of that. Is it possible to talk about some of the underlying kind of dynamics that netted out there in terms of the different rules and kind of where you saw benefits and where you saw incremental headwinds and how you offset those various things?

Well, if we start doing that by segment, we'll be on all night. What I would -- I'd just take you back to, yes, Power Systems had a net improvement that's not going to persist the company has had -- when I say immaterial very, very small net impact to EBITDA. So we could do a whole lot of talking and come back to a very small dollar impact. I think the main thing is the tariffs are changing. Right, probably the gross impact to Cummins because if you recall last quarter, I tried to simplify as much as possible. We were expecting to get to net neutral and we thought that would take about 0.5% of our EBITDA for the full year just because of recovering a large number for tariffs. That large number is still large, is probably just a little bit less now, 20 to 30 basis points full year impact. So lots of moving parts, but a little bit lower outlook overall.

I'll just add a little. The change in tariff policy continues to happen. And we continue to be really focused on managing it with our suppliers and our customers. Remember, we predominantly make and source in the U.S. We're making engines in the U.S. for the U.S. market. We're making gen sets in the U.S. for the U.S. market, much of our supply comes from the U.S. And what I will say is as we've come into this year, at least in the truck space, with the 232 tariffs, we're working really closely with the Department of Commerce to make sure they understand how do we meet our mutual goal of encouraging U.S. manufacturing and how the engine offset program is going to work. That has not been finalized yet, but our guidance does reflect our assumptions of what that will look like for our Engine and Components business. And that's kind of a key change to make sure that we're getting the appropriate credit, if you will, for manufacturing and sourcing and work that we're doing in the U.S.

Yes, we've really just been battling to mitigate and recover, right? There's no windfalls to Cummins that we're not trying to make money out of tariffs. We're just trying to collaborate across the supply chain to mitigate the impact and we've done well on that. And yes, there's some little bit of variation quarter-to-quarter in segment, but really pleased with the net impact, better than I would have anticipated from this time last year when when this really became a big deal.

The next question is coming from Tim Thein of Raymond James.

I just wanted to circle back and Jenn, to an earlier comment about the delayed launch of the B Series engine. Is it fair to assume that through the use of credits or other means that Cummins would be able to defray or potentially offset any potential penalties that may arise in that situation?

Yes. So as I said, we've been working closely with the EPA as they're kind of working on a revision to the regulation. We've been transparent on what we're planning. We're waiting to see the final rule and the details of that in terms of the exact implications, but we anticipate being able to continue to offer our current product through '27 on the B Series and launch, the new 7-liter at the beginning of '28 and the details of the pricing and all of that, we won't be able to finalize until that [indiscernible] itself is finalized.

All right. And then maybe just we used to talk a lot about in the Cummins call, just the role of China and there's a pretty big change in terms of the full year growth expectations from what you were thinking earlier from a top line perspective. I'm just curious about the kind of the underlying profit dynamics in China that's -- we've obviously been in a pretty long deflationary cycle in that economy. So I'm just curious just how the underlying kind of pull-through dynamics may exist in for Cummins in China today versus years ago?

Yes. So just from a market perspective, the big change in China has been this dramatic increase in power generation to support data centers and you, like all of us are reading this strong investment in data centers in the U.S. and China. And we have a strong position in both of those markets with the products that we're offering and really saw an increase over a year ago in China for that data center demand as well as Asia Pacific more broadly. And we've -- our team has done an excellent job of positioning Cummins in the market with very favorable business, but I'll let Mark...

I think the things that have helped us even though top line growth in the traditional truck market and construction equipment has not been as dynamic upwards as it was in a 5 to 10 years ago, the themes that have been helping us are commitment to tighter emissions regulations, that's continued to drive content when we were first talking about new emissions regulations in China. And I think there was some investor skepticism as to what China would follow through on those regulations. And in fact, they have. So that's continued to drive significant content adds.

We are very successful at localizing content. That's a big advantage of what we do, and that's a big strength of being such a significant player in China. And then you see in rising displacement, right? In power generation needs that tends to help overall. So I think those combination of factors combined, of course, with our leading position in partnerships that have been there for a long period of time. Those are all helping. So yes, China is definitely more of a tailwind than a headwind right now, and it looks like the enthusiasm for data centers there is very robust, and we are very well positioned to benefit from that or support the customers and what they need. So we're excited about that.

The next question is coming from Rob Wertheimer of Melius Research.

First just on electrification. Obviously, China has had surge maybe for their own reasons. And then I think Tesla has taken a few orders for the semi. Can you just kind of talk about -- I think you touched on it China for a little bit. you talk about what the demand pull from your customers is in North America right now? And what do you think the shape of that market looks like over the next 2 or 3 years?

Yes. I mean the demand pull in North America, with the change in greenhouse gas regulations has outside of bus, gone to very low levels, very low levels. Interest in diesel remains very high, and we are continuing to sell electric school buses. But really, the demand in trucks is very low and not projected to improve anytime soon. And so that's why we're really focusing on some of the global opportunities we have, being ready for the market here, developing in the school bus markets that we have and monitoring signposts that say there's going to be a shift here.

Yes. And if you track our recent earnings calls, you can see, generally, our demand has been outpacing the market, and not demand, demand for our existing combustion engine products has been outpacing the market. Things can change, but that's what we're seeing right now.

The next question is coming from Tami Zakaria of JPMorgan.

A couple of questions. First, could you share what was the price realization in the quarter?

Yes. I mean price/cost was a very modest positive overall, I would say, not significant.

Understood. Okay. And Mark, maybe I wanted to get some color. You said 2Q would be great, good in terms of builds -- sorry, I didn't catch that. I apologize. So I think 2Q builds, you're expecting to be better than 1Q. And so sequentially, are we talking about maybe 20%, 30% growth and then another step up in 3Q. So is 3Q sort of the peak of builds and Engine segment margins? Is that how we should be modeling?

Well, I hope the margins keep growing long beyond Q3. But yes, usually, Q4 is not the strongest because of the holiday periods and then you're going into product transitions. It may be strong right through till the end. But you're right, we should see a step-up in Q2 and then remaining strong in Q3. There are just usually less production days by the OEMs because the holiday periods in Q4, and that's why it tends to be a little bit lower. I mean there's many factors that go into our EBITDA margins, but of course, demand is one of the biggest. But certainly, we're expecting the rest of the year to be as good or better than the first quarter. That's the simplest way to put it.

But yes, as you said, trucks or Engines and Components will step up in Q2, step up again in Q3. And then as Mark said, that year-end dynamic in Q4 seasonally.

Right. We've even been adding a production shift in medium duty in our plant in Rocky Mountain, North Carolina, here to deal with extra demand that just went down the slippery slope and now we're climbing back up again rapidly. So we're excited about that. And so always managing those downturns gives us the platform to really capitalize on the way back up. So overall, looking up, yes, a strong quarter.

The next question is coming from Cole [indiscernible] of Wolfe Research.

Implied engine pricing is down year-over-year and sequentially in 1Q. What's driving this in the context of an improving demand backdrop and visibility to higher engine prices next year, when do you think we can start to see engine pricing start to move higher this year?

Well, I think there's a number of things. There's no significant change on a per unit basis to most -- what you've really got is a mix going on between what's being sold in the quarter, whether that's on-highway versus off-Highway, North America versus international, parts are in the revenue numbers, but not in the unit's numbers. So there is no significant decline in prices per unit. There's some variation between content is going up for the 2027 emissions regulations in North America, but the trucks and our understanding is most of that's going to be related to the powertrain going forward, but that's going to be content driven.

Okay. And maybe just a follow-up on the EPA '27 rule. If they do decide to introduce noncompliance penalties. Can you confirm that this should impact your competitive position in the Class 8 market as it seems like every OEM has a compliant engine ready at this point?

Yes, I'm not going to speculate on what the EPA is going to do and how we respond to that. But as I said, we've been having a lot of conversations to make sure they're revisiting the rule-making, they understand our business and that they're developing a fair rule that makes sense for our customers.

Thank you. This brings us to the end of today's time for questions and answers. I would like to turn the floor back over to Mr. Arens for closing comments.

Thank you. That concludes our call today. Thank you very much for your continued interest in Cummins. We're excited to continue the conversation at our Analyst Day on May 21, where the leadership team will share how the business has strengthened and what's next, having achieved our 2030 profitability targets early, you should expect updates on our targets, capital deployment and the growth opportunities ahead, including data centers. We look forward to seeing you there. Thank you very much.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

All right. Great. I think we'll get going today for what is day 3 of the Barclays Industrial Select Conference. My name is Adam Seiden. I lead the U.S. machinery and construction effort at Barclays. Glad to meet you. We're pleased to have at this session the folks from Cummins. We got both Jeff as well as Nick and Colin from the IR team is out in the audience as well.

So the format of the session here is going to be fireside chat, myself and the fellows to my left. We will invite your participation through the event through the touchpads on your table there. So look out for that as we get to it.

So with that, team Cummins, welcome back to Miami.

Thanks, Adam. Thanks for having us.

You got it. So I guess I wanted to start off by something more theoretical, but on your last call, I think you guys said publicly that you described yourself as a low-risk way to play the AI boom. So a lot of conversations around AI clearly in the hallways here in Miami.

So my first question to you guys is going to be how durable do you believe this AI boom really data center-driven demand would be for power gen, et cetera?

Yes. Great question. And I think we look at this and with all humility, say it's very difficult to answer that with certainty. Most folks didn't see this coming anywhere near the magnitude and pace at which it has come at us over the last couple of years. And so as such, it's also worth understanding and noting that I don't have a perfect answer to just how durable it is. What I would say is as we do our own perspective and work and understand the space as we talk directly to the big customers that we serve, we certainly believe there's no signals to suggest that there's any breaks or pauses happening anytime soon.

So as we think about our own investments and planning and preparing to take advantage of this opportunity and serve it well, we certainly see what we would suggest as being very strong ongoing visibility of demand certainly out through this decade.

My view is when you think into the next decade, then just the inherent underlying dynamics of the pace and the power dynamics around this data center build-out and AI build-out, I think there are various -- the scenarios start to diverge from there, and that's what we're spending a lot of time to work to make sure we understand as clearly as possible. So certainly feel like the next 5 years, very difficult to envision much scenarios that meaningfully change the trajectory. Beyond that, I think it gets a little bit less clear.

Great. And you talked about that visibility out to the end of the decade. And certainly, it seems like your orders reflect some of that. So what guardrails are in place to avoid overbuilding if demand evolves differently than expected for the broader industry?

Yes. Obviously, it's something we're trying to be very cognizant of, sensitive to, to react, build, grow and enable and underpin some of the story we've been able to achieve over the last couple of years. So the way we think about it is to characterize the potential investments we could make and to nest them against those scenarios I just talked about.

And there are several we feel like we can make and feel confident in generating returns, building revenue growth, profitable revenue growth in that window where we have higher conviction around the durability of the demand and the trends. And those we want to move, and we want to execute quickly. And I think that's what we've done through our doubling of power gen capacity over the last couple of years.

And then we're going to continue to evaluate next tranches of capacity and other product investments we want to make to kind of broaden and extend our participation there. But all that's done with the main guardrails just being how do we envision scenarios because many of our bigger investments, the more significant extensions and things like that would require longer-term conviction on the durability of the power space.

You would need more of a 10- to 15-year visibility. And that's where you get into some of the more challenging decisions that we'll continue to evaluate. We're equipped and prepared to take risk, and we think it's the right risk with a high probability of returns, but we're not going to do that without doing our homework and being pragmatic and disciplined about it.

That's practically all makes sense. So if we think about some of the orders that you do have within the backlog and so forth, as far as how do you guys go about protecting pricing and margin on that backlog that, of course, just won't ship for a number of years here?

Yes. So just structurally, I'd say that it varies by customer to start there. But generally, there's 3 elements that we look at. You're going to have inflation adjustor on there to make sure we mitigate that. You're then going to have a pricing adjustor as well to take advantage of the pricing opportunity. And you're also going to have other elements within those tariff surcharges, whatever it might be that gives us flexibility for how the world may evolve over the next couple of years here.

Got it. And thinking through the backlog a bit, you may notice the team. It's just trying to get a sense of how concentrated is the backlog when you think of it from a customer standpoint? Is there any -- are there a handful of hyperscalers more diversified? Just how should we be thinking about that?

Yes. I would step back and say if you just looked at the pareto of where broader CapEx is being spent, I would say that, that mirrors largely if you looked at our backlog. So we're -- for the most part, all of the large hyperscalers are our customers. It's not like we're only with one, but you would have a concentration in our backlog across those hyperscalers and then you have a long tail of all the other people participating in the space.

Got it. Now I think, Jeff, you mentioned earlier as far as that you guys will be thoughtful as far as the next tranche of decisions and so forth that you make on capacity. So just trying to get into your guys' head a little bit about how do you guys underwrite those organic investments in Power Systems. Is there a targeted return or a payback that you're looking for if and when you would make those decisions?

Yes. So yes, obviously, I mean, I think what we would say is, yes, we have start with, as anybody does, our own kind of internal hurdle rate that we have to make sure that any investments we're making, whether it be in Power Systems or elsewhere hits that hurdle rate. Of course, we look to make sure as we're doing that, we're driving into growth, driving into profitable and accretive growth wherever we possibly can.

So I would say the pretty simple blocking and tackling of making new investments. Within some of these dynamics, in particular, then again, what we do ask ourselves is -- but while we don't inherently rely totally on payback, we do give a sense for kind of when do those returns manifest itself? How quickly can we translate investment into real profitable returns given some of the dynamics we just talked about of just how significant this uptick is and the fact that, that just simply cannot go on forever. And so we want to make sure that we are able as much as possible to have a higher -- that enables higher confidence returns. The more you can feel pace, the timing which you're going to be able to generate the returns on that.

So when we think specifically around things like capacity, that's one, by and large. Of course, we need to work with suppliers and things like that. It's somewhat controllable to put it that way. So we can have a pretty clear understanding of what it's going to cost to invest to do that, how quickly we can enable it and working with our customers to, as much as we can risk adjust the weight of demand that we can then use to fulfill against that capacity.

So that's the inputs we're using to do that calculus and really make sure we're confident that we're going to have investments that pay off. And then you balance that against, okay, if it begins to slow, right, or come off this very significant growth cycle, we, of course, ask ourselves so what footprint and capacity and fixed cost structure do we have then and what, if any, things are -- how do we make sure we're not overexposed if and when things do change trajectory. So that's a harder one to calculate as to do that right, but that's the considerations we take as we execute and evaluate those investments.

That's helpful. And it's clearly it's been a very strong market for yourselves, for others in the space. So a lot of times in broader industrials when things are very strong, that catch a lot of folks' attention and they may want to come in and compete. So just curious on the competitive environment that you see out there, if you've noticed any reasonable shifts at all in the last year or 2 and so forth.

You take that?

Yes, go forward.

Yes. So what I would say is this diesel standby gen set market for the data center space has been largely comprised of a handful of players, obviously, ourselves, Caterpillar is an obvious one and Rolls-Royce and others. Not shockingly, given the growth trajectory and what we see happening, there are people more aggressively entering this space.

And I think they are credible competitors, and they will certainly enter. We believe -- so one, the first thing I'd say, to date, we haven't seen meaningful shifts in market share. They're all relatively new entrants, and they're all right now betting and getting lead times putting together and seems like. So to date, I would say those have been modest. The question is going forward. And our view is if we continue to deliver on the strategy we have and the capabilities we have, which to reiterate are, one, we're one of a handful of large diesel engine manufacturers. There are not very many of those, right?

So if we continue to do that well, do right, that's the core of the ultimate gen set. Secondly is remember that we've also made investments to be an effective Tier 1 supplier beyond just engines into gen sets. They're one of the largest alternator companies, the second largest bill of materials into the gen set that we sell both internally and to other gen set manufacturers. We made an acquisition in the radiator space, the third largest bill of materials in the gen set that we sell internally into our competitors.

And so we like that posture and positioning that we can play that effectively. And we have a global credible distribution channel. And so the sales, the installation, the commissioning, the responsiveness if and when our customers need reaction, we do that well. We do it consistently across the country and the globe, and that's a difficult thing to replicate.

So what we believe is that, that set of ingredients if we continue to execute well and we continue to treat our customers right and make sure they're happy, we feel like we're going to win our fair share in the competitive market share space. So we're going to concentrate more on us and what we're doing than what others are doing. There are credible entrants, but we like where we stand and we like the strategy we're executing.

Got it. And that's it from -- that was a good discussion about Cummins and the broader competitive landscape from a company level and folks looking at the space. Now I think about on the product side, just a bit, does battery backup meaningfully grow in data centers is, I guess, the essence of the question here.

Yes. I think what you'll no doubt continue to see, as you have seen for the last decade, as we talk to these companies, they continue to evaluate and find different ways to achieve the base goal of, of course, prime power consistency and a very high degree of power redundancy to ensure that they're protecting their investments, the chips and the work that they're doing.

Diesel standby gen sets are a pretty elegant solution to that need in terms of effectiveness, costs, operational viability and all the rest. They will continue to test and understand and there will be some adoption of different technologies. BES has some trade-off. It can turn on very quickly. It has some limitations. As a general, it doesn't last very long. And so once you get beyond a certain amount of hours of backup power to achieve days' worth of backup with batteries becomes economically very, very challenging to achieve.

So it will have a role to play. There's a lot of conversations around how natural gas gen sets will have a role to play. And so we fully expect our customers and understandably and rightfully so to continue to evaluate those options. We sell battery energy storage systems in our portfolio. We do have natural gas gen sets that we're continuing to evaluate our options to continue to participate there. So we would hope and intend to play a very effective role with our customers as they continue to evaluate the best alternatives to provide that redundant, resilient standby power behind their systems.

Very helpful. Well, it's pretty amazing. We're here about 15 minutes in or so, and we've talked all about Power Systems. I think the first time you and I were on stage, I think my first question to you was does Power Systems get in the airplane.

I think I remember that's right. Can you hear me?

The answer was no.

So maybe shifting a little bit, but like if you think about the X10 and the Home platform rollouts here, how should we be thinking about life cycle margin benefits versus prior platforms?

Yes, I can take that one. If you step back and you think about what's involved in launching a new product, we've got a lot of capital that we're deploying this year. It's going to be building some overheads that starts to depress our gross margin space a bit. And then we're also looking at the life cycle of that product. Early-stage launch, you're going to have -- you're going to be less mature supply chain, so likely a little bit higher cost. And then also the other element that I called is quality, right?

So any time that we launch a new product, we tend to build in a higher warranty accrual until we can build a larger population and see how it performs in the field. We do a lot of testing in our development. We have a high degree of confidence on how we think it will perform. But from a conservative perspective, we like to build in a higher accrual in that first 12 months or so, see how the population performs and then draw that down.

So if you think about life cycle, you're going to have some margin compression naturally when you launch. But over the life cycle of this product, if you were to look at our current product, we would anticipate that it's at equivalent levels or higher over time with the nuance of '27 launch will be a little bit more compressed.

Got it. And '27 launch, a bit more compressed there. But now thinking about from the cost side, too. So in R&D. And I know there's a lot of folks paying attention to when we get to peak there. So just curious, when is a proper peak in R&D for this platform? And how soon does that step down thereafter?

Yes, I can start on that and then Jeff may add a little bit to it. If you step back and look at our primary investments for this helm platform have been in our components and our engine business. If you went back to 2023 time frame and just a run rate here, our run rate in R&D stepped up about $150 million a year across both of those businesses because this is a once every couple of decades investment in a core platform that we can build on subsequently there.

So over the last few years, we've had that step up. Going into launch January of '27, you would see that sustain for at least the first 6 months as we support that product in the field. We would anticipate in a stable regulatory environment that, that starts to trail off in the second half of '27. The key elements we've got to keep in front of us, that's in a stable regulatory environment. And we've had far from that the last 12 to 18 months here. So that's the conversation we need to keep in front of us.

If regulations are stable, that's what we can expect. If not, then we're going to have to continue to invest to enhance and make sure that our products are positioned to provide value to our customers.

Got it. Well, you talked about regulation a little bit.

Yes.

So EPA '27, right? Just a reminder for what your guys' base case assumption is on that. And I think maybe March, we were supposed to hear a little more soon. We're sitting here in the middle end of February. So...

Yes. So the biggest thing there is if we step back and look at the engine architecture, that is largely aimed at 35-milligram NOx, and we've been aimed at that. That's where we anticipate the regulation is going to land and we're close in talking with regulators and our OEM partners around that.

I think there's broadly consensus around that, even though we are still waiting for that to be finalized. The element that has changed, which is less of an issue from a development perspective, but it's meaningful for fleet customers, which is what the administration is trying to do, we understand. It's the extended warranty piece. And that would have driven probably a 10-year extended warranty, a much higher upfront price from us to the OEMs and to the fleets. That was an easy compromise by taking that off, you achieved the administration's goals of lowering that price for fleets. And for us, it's sort of business as usual.

So the warranty would be similar to what we've had prior. So not a substantial change for us. Those would be the key elements I'd talk through. And then if we step back and look at the challenges that we face, these development programs are multiyear, and we're now 10 months out from launching. The challenges that we face are by throwing all of this uncertainty around the regulatory environment, you think about launching the platform, suppliers, you think about customers, you think about OEMs educating fleets, that's now the challenge over the next 10 months that we're working through as a company to make sure we're well positioned across all those elements.

Yes, tons of investment, tons of prep and things like that needs to be made for this. So when we think about how this all plays out from a regulatory side, there's always a question around prebuy and if customers will want to come out and make sure they can secure supply ahead of some of these regulatory changes. So curious on your guys' view there. And then as that gets to '27, just what do you see in the market are the demand trends strong enough that if there is some push forward this year that, that can still be -- still grow into next year?

Yes. I'll talk through that one. So yes, just to take a step back and talk to just kind of the truck cycle and where we obviously came off a very, very weak second half of 2025, worst we've seen in 20 years, basically, barring COVID. And so we've started to now see some early signals of as you just think about the general cyclical trends of fleets being a little bit stronger, spot rates starting to recover, some of the inherent things that certainly were contributing to that weakness are beginning to show signs of light. And you've seen, while December was anomalous even in January, you started to see at least trends heading in the right direction. But those are not yet at what we would consider to be kind of replacement value in the heavy-duty truck cycle.

So better than a very poor second half of the year, heading in the right direction, but not some massive uptick. So that's good. This is how these cycles go. We like to see green shoots headed in the right direction. And all things considered, before I get into the prebuy, we would expect that to continue through the first half of this year and begin to march towards that replacement level demand, which for us, we would consider in the heavy-duty space to be 220,000 to 240,000 units annually. And so that's what we kind of expect to see, barring any unforeseen economic hiccups that was what we expect to see.

You then add into the consideration of the potential prebuy activity, which, in effect, the way we think about it is you are a little -- every unit you sell early, you take -- you subtract the unit in 2027. You are artificially changing the order pattern around a very discrete date. For an emissions change of this magnitude, we would typically by now, certainly be, if not already into the prebuy quite close to it. We are not really, as best we can tell, seeing much of any of that activity.

We do expect second half to not only have some of that cyclical relative uptick, we will see some prebuy activity. Very hard to believe there will be none. But likely not -- our prediction is not the magnitude of what you might have expected to see in similar magnitude emission cycles in the past. And remember, the industry decapacitized for a very weak second half of 2025, and that is not an overnight process to recapacitize. And so there is just inherent limitations to throughout the value chain, capacity to respond to a massive uptick in prebuy activity.

So it would need to be happening with visibility quite soon for just folks to actually be able to build trucks to the extent that, that might be required. So we expect what I would describe as a prebuy, a relatively modest one. And then 2027 becomes potentially in that case, a little bit more stable than it otherwise would have been with a higher prebuy and as such, a lower 2027. And with our hope and optimism that eventually you're going to get to a place where the cyclical dynamics begin to further recover, you get to replacement value or beyond and that '27, '28 become hopefully strong years. That's what, of course, we'd love to see.

Okay. So maybe shifting gears just on Accelera, right? There's been a year of resizing a bit of that business. Just how would you guys characterize the role of Accelera and Cummins today?

Yes. Speaking of things we talked about 2 or 3 years ago. So Accelera for those is our zero emissions portfolio that we made a series of investments in over the course of the last decade. Simplistically, we think about that in two big chunks. One is hydrogen portfolio, which we invested heavily in. And as we have announced, we've now made some strategic decisions to pretty significantly change course in terms of actively pursuing commercial wins in the hydrogen space.

It just is not showing up at the levels of volumes and demands that we had predicted. And that said, we're pretty meaningfully changing course there. And the actions we're taking are now to, frankly, fulfill the contractual obligations that we had signed up to, to do so effectively, but also to now meaningfully and significantly reduce the loss rate associated with that hydrogen investment. So that's kind of -- we moved past the strategic decision-making and now we're into execution.

We do retain what we think is a strong position in the e-mobility space, batteries and eAxles and things like that and candidly and admittedly in a very low-volume environment. So the art and the work that we're doing is to make sure we actually think that's a strong, viable, protectable position and potentially even more so in scenarios now where the inverse of 5 years ago, where people were prioritizing battery electric and deprioritizing engines, we leaned against that a little bit, invested in engines.

Now maybe the opportunity for us to sustain some medium- to long-term positioning improvements if we're thoughtful in how we invest in the e-mobility space. And so that's how we're thinking about it. We still like the investments we made, our position in Accelera. Of course, it's making more significant losses for a longer period of time than we and anyone else hoped. We will manage that, and we will reduce those losses. But we will not necessarily inherently totally zero everything out because we still do think there's a future in some of those technology spaces that will be important for us as we go forward.

Great. Maybe we'll shift to the audience response questions here, guys.

Forgot about this...

So first is, do you currently own the stock? Yes, overweight, market weight or underweight or no?

Reminder for the audience when the time goes on, that's the best time to look...

All right. It's about 70% no. Next question, please.

What is your general bias towards the stock right now, positive, negative or neutral?

About 60% of the room is positive, 40% neutral. Next question, please.

In your opinion, through cycle EPS growth for Cummins will be above peers, in line with peers or below peers.

Split half and half between above and in line, slightly more above.

Next question, please.

In your opinion, what should Cummins do with excess cash, bolt-on M&A, larger M&A, repos, duties, debt paydown or internal investment?

This is always my favorite one. Strategy guy likes this. Makes my job easier.

Take this back to [indiscernible]. All right. Buy back some shares, Jeff.

About a little over half in the room says repos, a little split on internal investment and M&A. And then next question.

In your opinion on what multiple of '26 earnings should come and trade.

And it stands from less than 10x to over 21x standard for conference.

All right. Kind of in that like 16x to 21x band, it seems like.

All right. So really actually on to the question beforehand, which like you said, it's one of your favorites. So when I think about that investment split between organic and M&A, curious how you guys balance that internally because there's a lot of folks that you meet at these conferences that all have expectations and ideas of what to do. But I think you guys have been pretty smart and thoughtful about it. So curious around organic and M&A.

Yes. We like to be engaged. We like to look at a lot. We like to be -- you hear us use the word disciplined a lot when we think about organic investments and inorganic investments. So when we go through and evaluate we, like any company, are searching to make sure we have a credible story for not only near term but also medium and long-term profitable growth, right?

So if you even think about the last decade, if you highlight the big investments we made, obviously, we leaned into the big organic engine investment platforms, right. We made -- we built Accelera based largely off of inorganic investments through investments in battery and hydrogen technologies. We bought Meritor, which was kind of an extension of various things that had a little bit core and a little bit of Accelera. All those investments had different kind of risk return profiles, but we're all anchored in this view of our belief. We view this very much in terms of 10-plus year, especially inorganic investments.

We need to be have a credible 10- to 20-year thesis and how that fits into either capability building into expansion into adjacent growth opportunities, market presence and extensions and things like that. For us, that's about underpinning a 10- to 20-year profitable growth story is how we're thinking about that. And so then we think about individual assets or opportunities, we do the same logic I walked through what the organic investment is what are the scenarios we're looking at, where do we feel like there's pretty low-risk investments where there's actions largely within our control that we can go execute and generate a return case as quickly as possible and where are there higher risk, higher amplitude and higher reward.

I think Meritor is a good test case where the base case scenario is we were going to have a nice profitable business. We could go deliver synergies, right, which we've delivered on. And that was a pretty solid investment case, a good deal. It becomes a great deal over the course of 10-plus years to the extent you're in the broader powertrain value creation, you're into the eAxle portfolio and things like that.

And you'd say the first 3 or 4 years, probably we would have ideally, but we still believe that, that could be quite attractive, viable over the 10-, 15-, 20-year time horizon. We're happy we did the Meritor deal. And the balance of whether or not that's a good deal or a really, really good deal will actually play itself out more over a 10- to 15-year time horizon than a 3 to 5. So that's the rough logic we kind of go through as we think through big, especially big, large M&A and inorganic activities.

Well, that's fair. And you've been consistent, I think, from day 1 when you announced the acquisition that was your thought process.

So with that, let's join me in thanking the Cummins folks for being here on stage with us.

Appreciate it. Thanks Adam.

Thank you. Appreciate it.

I'm Kyle Menges. I'm the U.S. machinery analyst at Citi, and I'm joined by the Cummins team to my immediate right, I've got Jeff Wiltrout from Corporate Strategy, and then Nick Arens from IR.

Maybe to start, let's dig into just where the Cummins portfolio stands today, maybe Jeff, Nick, you guys can talk a little bit about the investments you guys have made in the fuel agnostic engine platform, gearing up for EPA27 and really these investments you've made to align with your Destination Zero strategy.

Yes, I'll take that one. We made the decision going back several years ago, 4 or 5 years ago that certainly from an Engine and Components business perspective or the on-highway business, we wanted to do a couple of things. One was very clearly signal intent that we thought engines, diesel engines had a long runway in that we had an opportunity to deliver effective technology in that space and ideally to win share and be effective. And so we started these platforms that we're talking -- these HELM engine platforms back 4 or 5 years ago and have invested heavily. It's relatively unprecedented for us to launch 3 new engine platforms at the same time, which is what we'll be doing when we get to the EPA rigs in the coming year.

And so that's exciting. We think it's going to be next-generation technology really sets us up well for the future in terms of power density, fuel efficiency, having some fuel agnostic capabilities to run natural gas and other fuels as needed. And so that's exciting to see the manifestation of, like I said, a strategy we set out several years ago kind of come to fruition and begin to launch. And it's now in the midst of a big execution exercise that we have to get right and get launched effectively, but we feel excited to be able to do that.

Awesome. Maybe how are you now just thinking about the push towards EV in some of your end markets? And how are you positioning yourselves for that? And maybe to go along with that, the first part of my question, how real do you think the threat is of Tesla and they're supposed to be ramping production of their semi. So how real is that threat as well do you think?

Great question. So yes, obviously, in parallel to that engine strategy I just articulated, we also felt the need and started to make investments over the last decade in zero emissions technologies, battery electric, eAxle and the like. And obviously, while all the story on the Engine, one has been one of strength, the battery electric zero emissions trend has changed pretty dramatically, certainly in the last 12 months as the regulatory dynamics have shifted. So we still, by the way, feel like we have a good technology portfolio. We feel well positioned the volume dynamics are fundamentally different than we and many others predicted over the last few years in terms of what that looks like.

So for us, that's now about balancing the right pace of investment actually ensuring while others are -- OEMs and other competitors are working through their own prioritization initiatives that we actually potentially use this as a way to reassert ourselves as a really effective player in that space.

Tesla specifically is, of course, a really, really good company, has proven to be disruptive, has proven to deliver compelling technology that customers value and buy. So I would view them as certainly not something we would take lightly. As a general rule, battery electric heavy-duty trucks are a difficult economic total cost of ownership proposition and the absence of regulatory drivers. And so I suspect they will sell trucks. I suspect they'll be good competitor. I think the extent to which there'll be a big, broad scale player in the market likely requires some economic dynamics to change to enable that to happen.

But again, we watch very closely, and I know we have end-use customers that are using the technology and something we'll, of course, pay close attention to.

Got it. And maybe sticking on the EV topic. Just turning to the China truck market, it does seem like there's maybe been some push to EV trucks there. I am curious how real that is from your perspective and how Cummins is positioned. I mean, in China and for EV adoption in China. Is there an opportunity to compete with the eAxle there as well?

Yes. Yes, I'll take that one as well. So again, just I'm sure folks know, we have a long history in China. In fact, 2025, we celebrated 50 years of our business and operations in China. So I have been proud to run that and be an effective competitor across engines, across the on-highway business, across power generation and other markets. You are right that there was a significant push in mandate, especially in the heavy-duty truck market in China, which drove significant adoption, increases for battery electric trucks in China in 2025. That was aimed largely at some pretty specific discrete kind of subsets of the heavy-duty market. For us, those are subsites that we're a little less exposed to than some of the other markets, but it was real to the tune of over 20% trucks in China moving towards battery electric.

Also a really good opportunity for us to observe very closely the operational dynamics and the economic dynamics. Telematics is required in China. So you get a lot of information even if it's not your own equipment around the economics behind the operation of battery electric trucks. So that's been insightful for us. So we've been spending a lot of time paying very close attention to the fleet experience, the technology readiness and the economic viability of those operations in a market where you have relatively low electricity and relatively low battery prices. So many lessons we are observing and taking from that.

Can we participate? I think you need to think about that in a couple of different ways, competing directly in the battery space of a battery electric vehicle in China is, of course, quite challenging, quite difficult. You are there with CATL and several other folks. And so for us, that feels like a stretch to play on the battery part. We are investing in e-axle capabilities, some of the balance of the electrified powertrain system because we do think we can compete. It's, of course, highly competitive. The return profile competing in that space in China is challenging. There's no doubt about that.

But to the whole point of kind of being in a space where this technology is truly being matured is developing. We think it potentially helps to inform our investments not only in China, but beyond to be kind of playing in that competitive crucible that is China and that's required. So we are investing. We think we can compete effectively but we're doing that not only so we can compete in China, but also so we can feel like we can be a better competitor elsewhere as we go through the maturity stages of hybrid and battery electric technology elsewhere around the world.

I am curious just any early insights you could share as you've seen that adoption in China.

Let say it needs to be mandated for [indiscernible] to buy it, right? There are things that make it economically viable, but there's a reason why those mandates exist to push the adoption at those levels. That's certainly one takeaway.

Yes. Got it. And then let's talk about EPA27 a little bit, too. I mean it sounds like the 35-milligram standard is going to go into place and then there might be some changes, I suppose, around the edges with warranty, useful life requirements. Maybe how are you thinking about that? And what surety do you feel like you have ahead of EPA27 in just 10 months. And really, what does Cummins need to do to position themselves for a successful launch of the new engine and to have success with the customers and adoption come January 2027.

Yes. I'll take that one. So if you step back and we just look at what EPA27 originally had contemplated years ago was 35-milligram NOx and then also an extended warranty. So full circle, we do have confidence that we're moving forward with the 35-milligram NOx criteria, but we do anticipate that, that extended warranty comes off. When the administration reviewed this last year, what they were looking at was trying to reduce the upfront price and cost to the fleets. And the balance of that was the industry had been investing towards that 35-milligram NOx. So the natural compromise was to pull back on that extended warranty, reduce the upfront price of the truck, while we also continue with that 35-milligram NOx architecture.

So we feel very well positioned with our architecture. Like we said, we've been designing and developing towards that for years now. And now the real challenge that we face is we're 10 months out from launch. And with all of the uncertainty, we were going to be launching 3 platforms here. You talk about suppliers, you talk about working with regulars, you talk about working with customers. Now our time window has been shrunk. So we're full out on execution. It's really the primary focus. So it is helpful to have the clarity. It's just a challenging environment and a relatively short order to launch that many platforms in the short time period.

Got it. And do you guys think that the technology that you'll be coming out with is competitive and well positioned in the market?

We do. We do. We feel very confident. So if we step back and look at what we've done, Jeff alluded to it in his opening remarks, we've made that platform investment in this home platform. And we really feel confident that, that positions us with the right architecture for the coming decades and something that we can continue to iterate on. So with that architecture, we feel technologically, it's the right choice. But more importantly, we can also deliver value to our customers. So when we talk about performance, we talk about weight, we talk about packaging and we talk about actual operating costs. We feel well positioned to actually deliver that to our customers and provide value as well as meet the regulations.

Great. And I mean I think it should be a nice catalyst for the Engine and Components segments. Maybe talk about that, just how you think it could lift, I guess, segment pricing, margin, what potential do you see there? Maybe not just in 2027, but also just as this engine platform matures and you get beyond 12 months.

Yes. Maybe I'll take the upfront on the dollar side of it, and if you want to talk to the product life cycle side. So ACT has a number out there, excluding the warranty, the price of a truck going up about $10,000, and we think that's reasonable. Most of that is going to be in the powertrain space. So when we step back and look at that, we think that there's an average selling price uplift that we can recognize for our X15. We also see an average selling price uplift for our B Series, but it's going to be less than that $10,000 because it's a smaller engine. And about 2/3 of that, we think, comes through the Engine business and about 1/3 through the Components where we sell after -- the after treatment.

Maybe you can talk a little about product life cycle.

Yes. So that talks to do a little bit about the content and the selling price for vehicle that we would intend to see. The question is, of course, now on margin dynamics. And for us, what we, of course, aim to do is, as we have done in the past is drive this content through it certainly at margin levels that are at very least neutral in moving towards accretive. Now we think about this again through more like a multiyear time horizon. So year 1 of any new product launches, as I'm sure everyone knows, it tends to be a little bit more high from a cost to serve perspective. You're dealing with infant care, you're dealing with new warranty accrual accounting that is a little bit more conservative in nature, you're, of course, dealing with any issues you may experience.

And so out of the box that may not show up as inherently margin accretive, but over time as production stabilizes, supply chain stabilize as we get to the warranty accrual, and that begins to stabilize. We would fully intend for that to be a nice margin opportunity and accretive one for the Engine and Components business as that content comes through as you think through '27, '28, '29 through the balance of the decade.

Got it. And maybe on R&D as well. Just can you walk through just how much more R&D spend there's been over the last several years as you're investing in this platform at what point does it maybe taper down as you release the new engine? Just how to think about that?

Yes. The way we've been talking about that is if you were to step back to 2023 time frame, you would have seen our R&D largely in the Engine and Components business step up about $150 million a year for these platform investments, and we've worked our way through that. So when we launch into the beginning of '27. We really anticipate the first half of '27, you would still see some elevated levels just to support that product. But really on the back half of '27, you would expect that to come back off since we've digested that platform investment.

And then the key element that we need to keep in front of us is that is in a stable regulatory environment. As and when regulation shifts, that would be the one thing that could cause us to have to keep that at elevated levels but we do see the entitlement being there that we would drop that back down.

Great. That's helpful color. Maybe we can move on to power gen. I mean we've gone 15 minutes without talking about power gen or data centers.

So yes, maybe just remind us what you're doing in that area? The demand you've experienced? I mean, you're already smashing your Investor Day targets that you set in 2024 as it relates to the power gen and data center revenue. So would be helpful to hear just yet demand backdrop, how you're thinking about supply and demand as you're contemplating new capacity as well. How far is the backlog extending?

Yes. Yes. So our role in the power generation data center space is, again, build off our traditional core diesel engine technology. We are an OEM in the genset space and provide those gensets to not only data centers, other backup standby power applications of many forms. Of course, the last couple of years, we have seen a huge growth in the power requirements for data centers. And an important remind us data center customers have a huge need for redundant power beyond what you would traditionally see in a more standard backup power applications. So they want to make sure that they are protecting their investments in servers and chips and all the rest and to make sure that their customers are not seeing any downtime.

So that has been the model we've served for the last many years, decades. The shift over the last couple of years has just simply been the magnitude of growth that we've seen that I don't think many of you saw coming certainly at this level of magnitude driven by AI and some of those dynamics.

So what that means for us is the opportunity to kind of take a strong leadership position in this market and sell more and do so quite profitably. And with us as with many others serving this market to then engage how we invest in capacity to serve more of it and to build that out. So we I will note before I get a little bit more to the capacity expansion. It's also important to remember, we come at this somewhat uniquely in the sense that we, of course, make the gensets. We provide all the major subcomponents that go into those gensets. The engine, of course, being the largest, but also we sell, we're one of the biggest suppliers of alternators which is a big item in the bill of material, the genset both to Cummins gensets and to others. We sell radiators, which is a big bill of material component into Cummins gensets and others.

So similar to what we've done in the on-highway space where we have engines and components, we have a similar exposure into the power gen space, which we find quite helpful. And then, of course, we also have our own owned distribution channel, which is really important to make sure we have global consistency of service of installation of commissioning of customer experience, through to some pretty challenging discerning customers and rightfully so. So we think in combination that provides us a pretty unique offering that's somewhat difficult to replicate.

So from that basis, of course, what we want to do is continue to expand our presence. And what we've done over the last couple of years is to effectively double the capacity that we can offer into this market. the largest constraint being engine capacity to be able to assemble large diesel high-speed engines. So we've been able to do that, and that exercise has been largely happening through line optimization line balancing, basically within the existing 4 walls of our manufacturing footprint in the United States, in the U.K., in China and in India, to expand and double in conjunction with heavy work with our supply base to enable that to happen.

Going forward now is the next set of potential investments is to ask ourselves like what is that next tranche of potential growth and capacity investments, which would require now moving beyond into kind of either brownfield or other types of expansions for us to kind of now unlock the next kind of tranche of growth, and that's work we're undergoing and evaluating and intend to have more to say as we work through the course of this year in our Investor Day in May, around what we think that could offer.

But excited about the growth opportunity through the decade that this has offered for us, and I think we're quite a viable competitor and one we continue to grow in.

And maybe talk about just the backlog as well. How far are you taking orders, or could you also if you wanted to.

So right now, our order board, our is booked certainly out to this year and through 2027. So we are now actively kind of talking to our customers to start to think about sequencing and prioritizing and taking orders out into 2028. So that's a pretty unique position. We haven't found ourselves in that spot in many of our markets in many places. So that's helping us one plan. It's helping us underpin the logic between the right investments for capacity and other things to extend and expand that.

Once you get beyond that, of course, we do have conversations for multiyear kind of growth plans for some of the big customers we serve there. but those tend to be a little bit more directional, conceptual as opposed to specific kind of order board conversations. But we value the longer-term conversations we can have to enable us to underpin our own growth plans and investments that we intend to make.

Got it. And maybe following up on that, how would you characterize the long-term outlook for backup power? And when do we hit peak demand? I mean I guess that's the million dollar question.

Yes. If I knew the last question. The short answer is I don't know. Certainly, what we would say is there has been no visible indication that is very kind of exciting train that's picking up speed is going to stop anytime soon. But of course, we have to be appropriately pragmatic and cautious and understand that these things never last forever. So we will hit peak demand. When is a debate.

So the way we think about this is to try and not be too prescriptive and pretend that we're going to be able to pick that perfectly. But instead, to think through various scenarios for what these opportunities and growth rates could look like for how long to help us then inform lower risk and higher risk investments we could make into this space.

But by and large, it looks for all intents and purposes, certainly, through this decade, very strong power demand and appetite no real change in the appetite to have the level of redundancy required that drives our demand for backup power. And diesel backup genset is a pretty elegant economic and operational solution to meet that need. So the ingredients for us feel quite strong, quite stable, certainly through this decade. Obviously, as you get out of the 2030s, things get a little bit more opaque in terms of predicting what's going to happen.

So I don't know when it's going to peak working to make sure our investments are aligned to a few different scenarios of what it could look like to make sure we're taking advantage of the growth and not getting overly exposed to changing market conditions.

Yes. And you touched on it, you are thinking about other capacity investments. Maybe touch on how you're thinking about that, not just on the backup side, but I mean, potentially, making more of a play in the prime power space as well and just how you're thinking through all of that.

Yes. So build on that fundamentally, our valuation of that and the investments and actions are anchored in our view of the market dynamics we just talked about, which is what is our perspective on that data center underlying growth rates. And we're doing this, of course, in close conjunction with the big hyperscaler and other big data center players. We're fortunate to have as customers to be able to have as clear a sense as we possibly can. So again, as we think about ultimately what you have to believe for us, we tend to operate in a fairly big industrial level of investments that tend to require 5 to 10 years of solid perspective on volume and growth rates to see the payback for the investments you're making.

So we really think through both big capacity extensions, big product extensions and to prime power other things as requiring kind of conviction looking out 10 years, right, to kind of help us underpin and underwrite that. And that's the work we're very actively doing to then understand where do we feel like we have that conviction, that confidence? And then how do we think about risk-weighted adjustments and investments we could make, capacity investments are a relatively low-risk investment we can make. We know how to do that. We know what that looks like. New product extensions is a different level, and then there's more ambitious things as well that you could consider.

So I would say we look and evaluate all those things. And then we continue as a leadership team to try and make the right decisions on a sequential basis. But -- so that being said, I always like to reinforce our team and others like our base case scenario of continuing to do what we do really well and building out some of that capacity is an attractive one and one we're going to have our hands full to deliver and deliver effectively. So we'll continue to evaluate those extensions, but that will be anchored in our view of what truly the sustained demand for power is and how we could deliver effectively into it.

And I guess we'll hear more at the Investor Day in May.

Indeed, yes, that's right.

Maybe one more question on this topic. Just how are you seeing an experience -- what are you seeing and experiencing in the market and data center backup power from more of a competitive perspective? It seems like there's a lot of players trying to target this market. Just how concerned should we be on overcapacitization? And do you notice the market becoming more competitive?

Yes, I can take that one. So I think if you step back, obviously, there's a nice profit pool here that's growing. And we're obviously seeing everyone try to move into this with competing solutions similar to dollars, but also other technologies as well. The way we like to talk to it and Jeff alluded to this earlier, is if you look at, there's 3 elements we feel uniquely positioned. I think Caterpillar is a similar offering as well. A large high-speed diesel engine, there's only a handful of folks that have those globally, start there.

Second develop -- second area is then going to be the relationships and the reputation in this space, right? We've been in this space for decades now. So the hyperscalers know us. They trust us. They know that our equipment is going to show up to their project on time that it's going to run.

And then the third element is also that we have our distribution channel that Jeff alluded to earlier. That is going to both get that commissioned on time, but also be able to support that product if and when there were ever an issue.

So we feel that, that's a very compelling competitive offering that is very difficult for others to replicate. So we feel well positioned with that, but we are watching the competitive landscape and staying very up-to-date with how that's evolving. And naturally, the hyperscalers are going to use that. to their advantage. They're going to test edge cases, and they're going to keep us honest when it comes to things like pricing. But at the end of the day, all of the noise in the market, if it comes back to it and you think about our growth profile, we are supply constrained. And our ability to recognize the growth that we see is really going to be on our ability to continue to expand capacity and realize the opportunity that Jeff talked about earlier.

Awesome. I think now it's a good place to stop, open it up to see if there's any audience queue, questions?

Jeff, you mentioned that BEV trucks travel with DCO without regulatory pull, given that Cummins already operates with data centers and you already have the battery energy storage business operating in the company? Is there an opportunity to pull some of that amplify JV LFP cells into a larger data center-centric offering over time?

Yes. Yes, there is. So again, for those folks Amplify is the joint venture we launched the primary intent to be aimed at on-highway LFP cells. We did that in conjunction with PACCAR and Daimler and BEV. And so obviously, the volume profile that we built that business case on has changed somewhat since when we initially did that. And so we do participate. We have battery energy storage solutions for power generation kind of not the grid scale level front of the meter stuff, but behind-the-meter solutions that we offer both around the world and in the U.S. And there is the opportunity that we could potentially utilize some of the cells out of the Amplify joint venture to continue to do that.

The scale that we would be talking in our behind-the-meter space is certainly big and interesting, but those 21 gigawatt hours of cell plant would continue to require not only on-highway cells and other market dynamics for us to sustain that. So it would be a nice contributor to that, but in and of itself doesn't inherently kind of solve what we're trying to do is get the volume right out of that plant, which we continue to evaluate how best to do. Yes, it does offer an opportunity for us.

Just curious what -- how far in advance are your Engines ordered before a data center project kind of breaks ground or is sort of in construction? And then do you have visibility into which specific projects the engines are being ordered for? Or do you just kind of have customer level visibility?

I would say how far -- I mean, right now, again, we're getting things well, like years in advance from how they're thinking about these various projects they have and how they're sequencing the project management of their various data center projects. So we are seeing visibility to how they're thinking about demand. And so the orders right now come years in advance because they know the lead times are that long, in terms of when they want to have things on site to enable that construction to happen, '28, 2 years, I'm thinking of that effect. That's an inherent of this capacity that obviously is in the normal operating rhythm before 2 years ago. that it wasn't that long. It was a pretty traditional kind of 3 months out, they would start to call us and start to tee that up. So that's a function of the capacity dynamics we're seeing play out.

Your second question was, do we get kind of project level specificity? I'll be totally honest. As we look at that far out, we certainly do it in some places because again, we -- it will be our -- in many cases, our technicians, our distributors that are going out to literally install the gensets to commission them. So very clearly, we need to be sequencing folks to do that. I'll be honest with you, I don't know exactly how much in advance, it isn't necessarily that 2 years in advance. They say this gensets going to whatever state X, project Y versus that one. they might, but I don't think it's quite that specific. It gets a little bit closer in before they kind of tell us, hey, let's aim this towards this project where we need it, first, second or third.

So I'm not an expert on exactly the timing for how that works just to be totally honest with you, but we definitely know where it's going as you get closer in because we not only deliver the genset, we go install it and commission it. So we need to be preparing resources to help do that.

And just to reiterate an earlier point, that's where having a global distribution network really provides a unique solution to these hyperscalers because if they don't know where that genset is going, we do have that global distribution technicians that can install and commission that independent of where that site might be located, which is difficult to replicate.

Any other questions? All right. Maybe we can switch gears a little bit, talk about the 2026 guide. Maybe starting with the margin guidance. Just could we walk through how tariffs are impacting the margin guide? And what segments are being the most impacted as well?

Yes. I mean, hopefully, many of you listened to the earnings call recently, and we alluded to it on there. fundamentally, from a price cost EBITDA dollars perspective in 2026, we are price cost neutral and EBITDA dollars. So we want to start there and be very clear on that. we are being impacted by tariffs. So they're coming through as costs. Our mechanism is a tariff surcharge. So we're essentially getting 0% margin revenue that is dilutive to our overall margin is how we think about that.

And we talked about that on the earnings call. We just put a very fine point on that. That's about 50 basis points of dilution. When you look at our midpoint of our guidance, it includes 50 basis points of dilution attributed to those particular tariff surcharges. So when you step back and you ask, where do those disproportionately hit. I would say there's two areas that I would call out in particular. The Engine business, just naturally, given where its supply chain is coming from, we produce local for local, but it is a global supply chain feeding into those local production plans. So we are being impacted in that particular space.

The other areas than our Distribution space. If you think about the sheer revenue that's coming through Distribution relative to some of the other segments, it's our largest revenue segment. And it also ends up being the knock-on effect of where external sales happen. So if you have a power system genset that may have tariffs, but that then gets passed through to Distribution when we actually recognize the external sale.

So those would be the two areas that I would highlight are disproportionately getting impacted from a dilutive effect.

Got it. That's helpful. And Engine and Components, maybe we can talk about that a little more specifically. Just it seems like there's an opportunity for you to get Section 232 rebates, where are we at there, I guess, in that process. And if you do get rebates on Engine and Components, how does that impact the -- I'm assuming the surcharge will come off, margins will look better? Just maybe walk through that a little bit.

Yes. So there's the truck [ level rebate ] that came out, and it envisions two separate elements that are important to talk through. There's the truck level rebate. And then there's the engine-specific rebate. And we are actively working with our OEM partners as well as the government to better understand how they envision that working.

The key elements that I would call out when you look at a truck level rebate, that is going to be our OEM partners that are receiving that, which means we still have to negotiate it's an eAxle as an example. We still like we have to negotiate with the OEMs to get a rebate, which is likely still that tariff surcharge.

On the Engine side of things, the devil will be in the details in terms of how does that play out because we are much better positioned to get that directly, but how the accounting will work is exactly what we're working through to understand from the government, how they envision that rolling out and more to come on that as we get clarity.

Got it. But then you would -- if you do get the rebate?

That would lower the tariff surcharge.

And then, I guess, so lower top line, better margin as you get those?

It could. It's going to matter depending on how the actual mechanics come through, but -- your understanding...

Okay. Got it. And let's talk about Distribution, in particular, the margin guidance. I mean, just maybe just walk through the puts and takes there. I mean you already talked through just some of what's going on there with tariff impacts. I think you also alluded to some investments you're making in distribution. And I'm curious if there's any mix impacts to call out as well. Just maybe as you're selling more power gen, maybe parts engine, not as strong as power gen this year? And just maybe beyond 2026 as well. Just how should we think about incremental margins for that segment?

Sure. I'll talk to it. Again, we talked to the dilutive impact of tariffs, and I don't want to discount that. I just want to make sure that's front and center in terms of our guidance for the year and the impacts of distribution. Let me talk to the technology investments that we're making. If you zoom out and you think about what our Distribution business is, it is a global business with many, many locations. And with those many locations comes many bespoke IT solutions. And what we're trying to do is consolidate many of those solutions into a single platform. That shows up this year in terms of more outsized investment, but we anticipate in future years that would drive more efficiencies and payback. It just doesn't happen within the year to make it a payback to keep us neutral within the year.

Then the other element that I would call out within the Distribution segment, it is the most diverse business in our portfolio. If you think about geography, you think about all of the different end markets that we're serving, different customers that we're serving. So there's always going to naturally be a mix element within our distribution business, I would say. But really, it's just tariffs, it's this IT system and there's a natural mix just like nature of the business is what I'd call out.

And in terms of the long-term margin potential, what I would say is we will be revisiting our 2030 guidance at Analyst Day. And I think within that, you would have a better indication of kind of how we see the broader margin across the company, including Distribution setting up.

And all I'd add is I do think we get a lot of questions that especially coming out of the fourth quarter, like we're quite proud not only the strategic value of the Distribution business offers to what we deliver, which we've alluded to already several times. But that business is a pretty phenomenal margin expansion run rate over the last several years. So while we're still working through the guidance, I like to remind people that running a Distribution business at the margins we do is we're pretty proud of, and we think that team has earned a lot of credit in doing that. So we'll continue to work there. But it's a pretty big and significant, both strategic and financial positive stories for us.

All right. I'll open it up one more time for any audience questions. All right.

Just back to the data center business. In terms of the length of the contract order book, at what stage and how far through are you in terms of trying to extract favorable payment terms, long-term contracts, capital commitments from these big customers, which you typically get in these constrained capacity limited situations.

Yes. Of course, we have conversations with them about any number of different dynamics to, frankly, help us derisk or feel more comfortable in some of the investments we would want to make to kind of to serve them effectively, has not gone so far as to say that there's capital commitments associated with that or anything like that, but we, of course, think about how we -- how they can help us feel more confident in the volume and demand profile and enable us to do that. So we have driven some price over the last couple of years. We have a really solid relationship with them. And those conversations are just ongoing in terms of how we structure those contracts to make sure that we make the right investments at the right time to support them.

So that varies by customer. It varies by product. It varies by region. So there's a lot of variability to that. But we're in active conversations with all the major players on what that would look like.

All right. Maybe I can sneak in one last question. Just to wrap things up. You do have the Investor Day coming up in a few months. So is there anything you can share on just what we should look forward to at the Investor Day? What we can expect from you and the team as far as will be covered at the Investor Day?

Yes. I mean you've heard us kind of tease some of it already. I mean the big stuff that's going to drive our business through the balance of the decade. So if you remember that we've done this every couple of years the last -- starting in 2022, the last couple, we've oriented and anchored around kind of our 2030 financial targets, which we set at initially in 2022 at a time when there were, let's just say, different questions about being a diesel engine manufacturer than there are now. So we did that in 2022. We updated in them in 2024, and we would intend to update that again in 2026, and we think that's going to be a really positive story.

So within that, there's a couple of things we want to highlight. A little bit of what you were alluding to in terms of the Engine and Components kind of on-highway commercial vehicle business and how we think beyond just simply getting through these product launches in 2027, but the balance of the decade and some of the cyclical dynamics and margin profiles therein.

Part two is, of course, the power data center space and continue to tell more about how we're thinking through our investment choices and priorities and what that means in terms of unlocking growth and opportunity there.

Thirdly is just the overall margin profile of the company. And we are and have this year, we are setting guidance at the midpoint of what we set as our ambition to do in 2030. So we've been running ahead of schedule, which is, of course, a good problem to have. And for folks like you leave you wanting so what's next. So we'll want to talk a little bit about what we think the next set of things we could do from a margin profile would be.

And then lastly, not surprising, we're getting a lot of questions around capital allocation. When we think about investments inorganically and/or return to shareholders in the form of share repurchases. So we expect to address that and how we're thinking through that.

So those will be the main themes to kind of talk to the next chapter of our story through the balance of the decade.

Great. Looking forward to it.

Thanks, Kyle.

Thanks, guys. We wrap it up there.

I appreciate it.

Greetings. Welcome to the Fourth Quarter and Fiscal Year 2025 Cummins Inc. Earnings Conference Call. [Operator Instructions]

Please note, this conference is being recorded. I'll now turn the conference over to Nick Arens, Executive Director of Investor Relations. Thank you. You may now begin.

Thank you, Rob. Good morning, everyone, and welcome to our teleconference today to discuss Cummins' results for the fourth quarter and full year 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 section of our most recently filed annual report on Form 10-K and 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.

Thank you, Nick. Good morning. I'll start with a summary of 2025, discuss our fourth quarter and full year results and finish with a discussion of our outlook for 2026. 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 on 2025, I'm pleased to share that we delivered strong financial performance despite weak demand in North America truck markets, ongoing trade tariff volatility and an uncertain regulatory landscape. Our results underscore the disciplined execution of our strategy, the dedication of our employees and the commitment to deliver strong financial performance. I am proud of what Cummins accomplished for our stakeholders and remain energized by the opportunities ahead as we continue to advance our strategic priorities and deliver on our financial commitments.

Our strategy continues to be the right one, pursuing many paths forward to meet our customers' evolving needs today and in the future. Our strong and diverse position across geographies and markets and technologies continues to differentiate us and provides the flexibility to adapt in a rapidly changing environment.

In 2025, we further strengthened our position by evolving our portfolio to continue investing in innovative solutions that meet our customers' evolving priorities and long-term requirements. In our Engine business, we introduced the much anticipated X10 as a part of 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 of 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 for North America markets in Rocky Mount Engine Plant in North Carolina.

In our Power Systems business, we continue to advance hybrid solutions for mining customers through 2 significant actions this year. We acquired the assets of First Mode, a leader in retrofit hybrid solutions for mining and rail operations. This technology represents the first commercially available retrofit system for mining equipment, significantly reducing total cost of ownership while advancing decarbonization and operations.

Additionally, we announced a collaboration with Komatsu to develop hybrid powertrains for surface hauling 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. We are excited about the opportunity to bridge current operational needs with future low-carbon goals to support our customers' sustainability efforts.

Additionally, within Power Systems, expanding on the success of our claimed Centum series generator sets, we launched the new 17-liter engine platform generator that produces up to 1 megawatt of power. The S17 Centum gen set was developed to produce a large 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 gen set is designed to support a wide range of critical market segments such as commercial properties, health care facilities and water treatment plants.

Alongside completing the Centum series lineup, we also completed our capacity expansion on the 95-liter ahead of schedule, positioning us to meet rising demand and support a wide range of customer needs.

Lastly, as we navigate this long and dynamic transition with our customers, we remain committed to pacing and refocusing our investments on the most promising path as the adoption of zero emission solutions flows in some regions around the world. As we mentioned last quarter, we initiated a review of our electrolyzer business within the Accelera segment to streamline operations and focus investments amid policy-driven shifts in hydrogen demand. In the fourth quarter, this led to additional recorded charges, which you will see reflected in our results.

We remain committed to our multi-solution strategy while pacing and focusing our investments as the zero emissions landscape evolves. The actions we have taken will lower costs going forward.

Now I will comment on the overall company performance for the fourth quarter of 2025 and cover some of our key markets. Revenues for the quarter totaled $8.5 billion, an increase of 1% compared to 2024 as continued high demand in our global power generation markets, higher pickup truck volumes and improved pricing more than offset lower North America heavy and medium-duty truck volumes.

EBITDA was $1.2 billion or 13.5% compared to $1 billion or 12.1% a year ago. Fourth quarter 2025 results included $218 million of charges related to the strategic review of our electrolyzer business within our Accelera business segment. This compares to the fourth quarter 2024 result, which included $312 million of charges related to the strategic reorganization of our Accelera business segment. Excluding those items, EBITDA was $1.4 billion or 16% compared to $1.3 billion or 15.8% a year ago.

EBITDA percent improved compared to the fourth quarter of 2024 as the benefits of higher power generation and pickup truck volume, pricing, lower compensation expenses and operational efficiency more than exceeded lower North America medium and heavy-duty truck volumes, higher product coverage costs and the dilutive impact of tariffs.

2025 revenues were $33.7 billion, down 1% from prior year as lower North America heavy and medium-duty truck demand more than offset higher power generation volumes and improved pricing. EBITDA was $5.4 billion or 16% of sales compared to $6.3 billion or 18.6% of sales in 2024. The 2025 results included $458 million of charges related to our electrolyzer business within our Accelera business segment. This compares to 2024 results that included the gain related to the separation of Atmus, net of transaction costs and other expenses of $1.3 billion, charges related to the Accelera reorganization actions of $312 million and $29 million of other restructuring actions.

Excluding those items, EBITDA was a record $5.8 billion or 17.4% of sales for 2025, compared to $5.4 billion or 15.7% of sales for 2024 as the benefits of higher power generation volumes, pricing, lower compensation expenses and improved operational efficiency more than exceeded lower North America heavy and medium-duty truck volumes and the negative impact from tariffs.

EBITDA reached record levels in both our Power Systems and Distribution segments. Power Systems delivered a record full year EBITDA of 22.7% of sales, up from 18.4% in 2024. While Distribution achieved a record 14.6% of sales, up from 12.1% in the prior year. I am proud of these remarkable results with record earnings despite a down cycle for North America truck markets and the achievement of our 2030 financial commitments ahead of schedule. This reflects the strength of our strategy and our disciplined focus on execution. As you will see from our 2026 financial guidance, we are well positioned to build on this momentum.

As we look to 2026, we continue to operate in a dynamic trade and regulatory environment, but we are getting greater clarity on important areas for our industry. EPA's confirmation of the 2027 low NOx rule is an important step in advancing regulatory certainty, and we are well positioned with our product plans.

Now let me provide our overall outlook for 2026 and then comment on individual regions and end markets. We are forecasting total company revenues for 2026 to be up 3% to 8% compared to 2025, and EBITDA including the dilutive impact of tariffs to be 17% to 18% of sales compared to 17.4% in the prior year.

For our markets, we expect continued weakness in first half demand in our North America heavy and medium-duty truck markets, but anticipate other markets, particularly power generation to remain strong throughout the year. Industry production for heavy-duty trucks in North America is projected to range from 220,000 to 240,000 units in 2026, flat to up 10% year-over-year with the second half of the year higher than the first. In the medium-duty truck market, we expect market size to be between 110,000 to 120,000 units, also flat to up 10% compared to 2025. Our Engine shipments for pickup trucks in North America are expected to be 125,000 to 140,000 in 2026, down 5% to up 5% year-over-year.

In China, we project total revenue including joint ventures to decrease 1% in 2026, with weakness in heavy and medium-duty truck demand, partially offset by growth in data center demand. For China heavy and medium-duty truck demand, we project a range of down 10% to flat. While we expect export demand to remain high, we anticipate the domestic demand will decline as a result of lower impacts from NS4 scrapping policy stimulus.

In India, we project total revenues including joint ventures to decrease 5% in 2025. We expect industry demand for trucks to be down 10% to flat for the year with weak replacement demand and limited infrastructure spending. For global construction, we expect a range of down 5% to up 5% year-over-year as we anticipate domestic demand in China and North America to be roughly flat and export demand in China slightly down given geopolitical uncertainties.

We project our major global high horsepower markets to remain strong in 2026. Revenues in our global power generation markets are expected to increase 10% to 20%, driven by continued high demand in the data center market and the successful execution of our capacity expansion, which was completed in 2025. Sales of mining engines are expected to be flat to up 10% driven by replacement demand. For aftermarket, we expect a range of up 2% to 8% for 2026 with increased parts consumption from aging fleets and higher rebuild demand.

In summary, 2025 was a strong year with record earnings, excluding onetime items, despite a down cycle in North America truck markets. In 2026, we expect North America truck demand to be slightly better than 2025, particularly in the second half of the year along with continued strength in our power generation, industrial and aftermarket businesses. Cummins remains well positioned to invest in future growth and deliver strong financial returns and return cash to investors.

As I close, I would like to officially announce that our Analyst Day is now scheduled for May 21 in New York City and expect invitations to be sent out shortly. I look forward to sharing updates on our financial guidance and further discussing our strategy then.

Now let me turn it over to Mark, who will discuss our financial results in more detail.

Thanks, Jen, and good morning, everyone. We delivered strong operational results in 2025, achieving record EBITDA and earnings per share, excluding onetime items despite the down cycle in North America truck markets and ongoing tariff volatility. These results reflect the effectiveness of our strategy, our disciplined focus on financial performance and the hard work of our employees.

Now let me go into more detail on Q4 and the full year performance. Fourth quarter reported revenues were $8.5 billion, an increase of $89 million from a year ago. EBITDA was $1.2 billion or 13.5% of sales compared to $1 billion or 12.1% a year ago.

In the fourth quarter, the strategic review of the electrolyzer business in Accelera resulted in charges of $218 million. This compares to the fourth quarter of 2024, which included $312 million of costs related to the reorganization of Accelera.

Stripping those out and looking at underlying performance, we delivered EBITDA in the fourth quarter of $1.4 billion or 16% compared to $1.3 billion or 15.8% of sales a year ago, even as North America heavy and medium-duty truck engine volume declined by a combined 30%.

Fourth quarter revenues increased from 1% a year ago as continued high demand in our global power generation markets, higher pickup truck volumes and improving pricing -- improved pricing more than offset lower North American truck volumes. Sales in North America were down 2%, while international revenues increased 5%. Foreign currency movements positively impacted sales by less than 1%.

Fourth quarter EBITDA improved to 16% compared to 15.8% a year ago. Higher power generation and pickup truck volumes, pricing, lower compensation expenses, operational improvements and higher joint venture and other income, lots of things higher, all helped more than offset lower North American medium and heavy-duty trucks, higher product coverage costs primarily in Accelera and the dilutive impact of tariffs.

Now I'll summarize some of the impacts by line item in the income statement. Gross margin was $2 billion or 22.9% of sales, up compared to 24 -- gross margin was $2 billion or 22.9% of sales compared to 24.1% a year ago as lower North American truck volumes, higher product coverage and the diluted impact of tariffs more than offset stronger power generation demand, favorable pricing and operational efficiency.

Selling, admin and research expenses were $1.1 billion or 13.3% of sales compared to $1.2 billion or 13.7% last year, primarily due to strong cost control as truck markets weakened and lower compensation expenses. Joint venture income of $116 million increased $46 million, primarily driven by higher volumes in our China joint ventures on and off highway. Other income was negative $58 million compared to negative $196 million a year ago. 2025 other income included $80 million related to the electrolyzer charges, whilst 2024 included $171 million related to the Accelera reorganization costs. Excluding these items, other income increased by $50 million driven by mark-to-market gains on investments related to company-owned life insurance, modest gains this quarter compared to losses a year ago.

Interest expense was $82 million, a decrease of $7 million from the prior year driven by lower weighted average interest rates. The all-in effective tax rate in the fourth quarter was 21.6%, which included $69 million or $0.50 per diluted share of favorable discrete items.

All in net earnings for the quarter were $593 million or $4.27 per diluted share, which includes $215 million or $1.54 per diluted share of charges related to the strategic review of the electrolyzer business. Excluding these charges, EPS was $5.81 per diluted share.

Operating cash flow in the quarter was an inflow of $1.5 billion, up $112 million from a year ago. For the full year 2025, revenues were $33.7 billion, a decrease of 1% from a year ago. EBITDA was $5.4 billion or 16.0% compared to $6.3 billion or 18.6% of sales in 2024. 2025 include $458 million of charges related to the electrolyzer business within Accelera. This compares to 2024 results that included the gain related to the separation of Atmus net of transaction costs and other expenses of $1.3 billion, charges related to Accelera of $312 million and $29 million of restructured, a lot of moving parts in those comparisons. If you strip those out, the underlying EBITDA percentage improved by 170 basis points year-over-year, primarily driven by higher power generation volumes, pricing, lower compensation expenses, operational improvements, and all of which more than exceeded lower North American truck volumes and the dilutive impact from tariffs.

All in net earnings were $2.8 billion or $20.50 per diluted share compared to $3.9 billion or $28.37 per diluted share a year ago. Excluding previously mentioned onetime charges, 2025 net earnings were $3.3 billion or $23.78 per diluted share compared to 2024 net earnings of $3 billion or $21.37 per diluted share.

Capital expenditures in 2025 were $1.2 billion, flat compared to 2024 as we continue to invest in the new products and capabilities to drive growth, particularly related to the on-highway HELM platforms within our Engine and Components business in North America and also incremental capacity adds within our Power Systems business to serve the growing demand for data centers.

Our long-term goal is to deliver at least 50% of operating cash flow to shareholders in the form of share repurchases and dividends in 2025. We focused our capital allocation on organic investment, dividend growth, returning $1.1 billion to shareholders via the dividend and maintaining our A credit rating metrics.

I will now summarize the 2025 results for the operating segments that exclude the electrolyzer strategic review costs, and I will provide guidance for 2026.

For the Engine segment, 2025 revenues were $10.9 billion, down 7% from a year ago. EBITDA was 12.7% of sales compared to 14.1% of sales a year ago, primarily due to lower North American heavy and medium-duty truck volumes. In '26, we project revenues for the Engine business will be flat to up 5% with weakness continuing in North American heavy and medium-duty trucks in the first half of the year with an anticipated strengthening in the second half of the year. 2026 EBITDA is expected to be in the range of 12% to 13%.

Our Components segment revenues were $10.1 billion, down 10% from the prior year, and EBITDA was 13.8%, up compared to 13.5% in 2024 as the impact of lower truck volumes with -- more than offset with cost reduction improvements. For 2026, we expect total revenue for the Components business to be flat to up 5%, primarily driven by the expected improvement in North American heavy and medium-duty truck markets in the second half of this year. The EBITDA margins are expected to be 13% to 14%.

In the Distribution segment, revenues increased 9% from a year ago to a record $12.4 billion, and EBITDA was also a record of 14.6%, up 250 basis points from a year ago driven by higher power generation volumes and pricing. We expect 2026 distribution revenues to grow 5% to 10%, driven by continued strength in power generation markets and higher aftermarket demand. The EBITDA margins are expected to be in the range of 13.25% to 14.25%.

In the Power Systems segment, revenues were also a record $7.5 billion, up 16% from the prior year driven primarily by demand for power generation equipment especially in data center applications in North America and China. EBITDA was a record 22.7%, up 430 basis points from 2024 driven by stronger volumes, favorable pricing and a continued focus on operational performance, margin improvement whilst improving capacity for future growth in demand. In '26, we expect Power Systems revenues to be up 12% to 17% driven by continued strength in power generation, and EBITDA in the range of 23% to 24%.

Accelera revenues increased to $460 million in 2025. We had a net operating loss in the segment of $438 million compared to $452 million the prior year. Whilst we lowered costs in existing operations or restructuring actions, this was partially offset by higher product coverage costs in this segment in the fourth quarter. In 2026, we expect Accelera revenues to be in the range of $300 million to $350 million and net losses to decline to $325 million to $355 million, reflecting our ongoing efforts to streamline the business, lower costs and whilst ensuring we're set up for long-term success in those product lines where the prospects are more promising.

We currently project 2026 company revenues to be up 3% to 8%. Company EBITDA margins are expected to be approximately 17% to 18%, as the benefits are modest. Second half recovery in truck, strength in power generation are somewhat offset by the dilutive impact of tariffs. I should have added it, but in the spirit of saving time, I did not acknowledge that tariffs diluted the EBITDA percent of every single segment in 2025, and we'll continue to do so on a percent basis in 2026, even though we did well to mitigate the costs and largely recover them.

Our effective tax rate is expected to be approximately 24% in 2026, excluding discrete items. Capital investments will be in the range of $1.35 billion to $1.45 billion this year as we continue to make critical investments to support growth.

To summarize, we delivered record profitability in 2025, excluding onetime charges, even as demand in North America heavy and medium-duty truck markets declined sharply. This performance was driven by strength in execution in our core business with Power Systems and Distribution delivering record profitable growth, and the Engines and Components segments, particularly managing costs well through the trough.

In Accelera we took further actions to reduce costs going forward in light of the weaker demand, while maintaining investments where we believe more promising returns lie ahead. Cash generation has been and will continue to be a focus, enabling us to continue investing in new products for current and future markets during times of uncertainty and continuing to return cash to shareholders whilst maintaining a strong balance sheet. We look forward to updating our long-term financial targets at our upcoming Analyst Day in May.

Thank you for your interest and your patience as we got through quarters, years and full guidance outlook. Now let me turn it back to Nick.

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.

Our first question comes from the line of Jerry Revich with Wells Fargo.

I'm wondering if you folks can update us on how you're thinking about potentially adding capacity in Power Systems for the diesel variant. And also what's the updated thoughts around potential natural gas product? And can you update us on where lead times stand now as well?

Yes. Happy to do that, Jerry. So we continue to see very strong demand in our power generation business. And as noted in the comments, we completed the doubling of our capacity of the 95-liter engine and gen set that we supply very popular in the data center market. We've completed the launch of our Centum product line, and we continue to see benefits of those investments as well as ongoing just operational efficiency, performance in Power Systems and DBU, which is leading to the guide for this year.

We had record order intake in Q4 for power generation. We're taking orders now well into 2028. So the demand remains very strong for diesel backup, power, and we're well positioned with the product and channel support that we offer to provide that. We are continuing to look at opportunities to increase capacity for this year, you can expect the benefit of those things that I already outlined to come through full year and smaller improvements in efficiency and how we leverage what we have.

We'll be talking more in May at our Analyst Day about where we think we may have opportunity to continue to leverage the capacity and products that we offer and if there's any additional investments into new products. But as you would expect, we've been very thoughtful and disciplined in how we think about that.

I would just add, even with it, whilst the total of our CapEx outlook the last 3 months hasn't really changed, we've allocated more, incrementally more to Power Systems in the last few months, Jerry. And really right now, we're a low-risk weighted play on the AI boom because we're making modest incremental internal investments for which there's high and, in fact, growing visibility for demand. So we feel confident about our approach.

And I got my voice back. You, talking about Power Systems, gets me all choked up. I'm wondering, Mark, can we just talk about the guidance outlook for '26? Really good performance this year across Engine, Components and Distribution, you're guiding for up sales, but softer margins at the midpoint. Can you just expand for us on the comment you made on tariffs. What's the impact of that pass-through and any other puts and takes around guidance in light of the strong performance for '25?

Yes. It's no surprise to anyone that the gross impact of tariffs accumulated through the year, the headlines were one thing, but it took time for those costs to start filtering through the supply chain, managing, negotiating, optimizing that the fourth quarter was clearly the biggest gross impact. We've done well to offset that. But as we look forward with the current regime of tariffs, that's full year dilutive on an absolute basis, Jerry, it's about 50 basis points, mostly through sales and recovery, not dollar losses. And so we'll see more of that on a percent basis in Engines and Distribution, in particular, going into next year.

So that is a modest percentage tailwind into those 2 areas. Otherwise, there's nothing fundamentally changing. It's obviously a very busy period for Engines and Components with all the new product development going on ahead of the 2027 emissions regulations. And then in Distribution, we do have some modest investments in systems upgrades, particularly in our international regions.

So those are the things. But yes, we look at the numbers the same as you do. We're delighted with the performance given all a combination of conditions, variations and complexities of 2025. And fundamentally, underneath, what is there is a strong business with strong strategic position, high visibility to growth in Power Systems hopefully coming off the bottom of a truck market, and we'll continue as the truck cycle moves off this bottom to expect results to improve, not just this year, but going forward to more meaningful and sustained improvement as truck fundamentals improve.

[Operator Instructions] The next question will be coming from the line of Rob Wertheimer with Melius Research.

Just a quick question on the sequential revenue in Power Systems from 3Q to 4Q. I don't know whether that was any capacity issues, just timing issues or anything else. Obviously, you're growing next year. So I was just curious about the relative lack of growth.

And then more generally, you mentioned demand into 2028 for data centers, which is great. Is there any change in the shape of what's happening? Is there more behind the meter that might demand more back up? Is there any trend in design of data centers that either favors or not diesel backup?

Yes. On your first question, what I'd say is we were able to deliver the 95-liter capacity expansion ahead of schedule. So we saw more benefit of that sooner last year. And then as we went into Q4, we had a few down days that are not atypical at the end of the year and things that you do at the end of the year within plants. A little bit of softening in aftermarket. So those things had some some impact on top line performance. And then the other dynamic we had in Power Systems in Q4 was tariffs are still changing. Let's just acknowledge that while there may be some places where we're getting more clarity that's still changing, and the India tariffs in Q4 had a negative impact. We're working to recover those costs. But as things change over time, there's typically a lag in how we manage through that with our customers.

In terms of diesel backup, there continues to be a desire for most -- really all data center customers to have diesel backup power available just to ensure the level of uptime and reliability that they need and the conversations are more around, how do we use the product line that we have to meet the strong demand that's out there.

Our next question is from the line of Jamie Cook with Truist Securities.

I guess, Mark, just 2 questions. If you could just unpack the margins or implied lack of incremental margins in 2026 for the Engine business. I understand we have tariffs, but I thought we were getting pricing through and perhaps some benefit from Section 232. So is there anything else in there? Is there a first half, second half story there? We're exiting the year, incremental margins are higher. I'm just trying to understand how you think about incremental margins through the cycle relative to your 25% target that you guys laid out for Engines.

And then my last question on just distribution. Again, the implied margins are below 14%. You talked a little, I think, in the last answer about growth -- sorry, investment in that business. So how much is the investment? Where is it going to? And just again, exiting margins -- exiting 2025, the fourth quarter with a 15.1% margin ending, implied 2026 below 14% just doesn't make a lot of sense.

We've had a lot of discussions about the distribution margins. The performance over a number of years has been really good. So we're really thrilled with the distribution leadership team continuing to grow Engines in margins. The tariffs throw a little bit of a spanner in the works from a percentage basis, we're in [ tens ] of basis points of dilution there. It's taken longer to work through distribution and then the recoveries. And yes, there's a little bit of investment. But nothing underlying has fundamentally changed. So we still think the distribution business is going to be $1 and a 1% grower over time. There can be some, yes, modest investments over a short period of time, but nothing fundamentally changing there.

And then in the Engine business, yes, there's not a lot of pricing this year. There's been a lot of tariff recovery work and tariff mitigation work going on in 2025, but not this year. We're really in preparing for more demand whilst preparing for new product launches, all of those things are going on at the same time, a little bit of dilution from tariffs.

And then there's nothing -- nothing is happening significant, we don't expect on the JV income line, it maybe even be down in on-highway a little bit in China, maybe up a little bit in the Power Systems JV earnings in China. So the net guide is at close to 0 for JV earnings for the company, but maybe a little bit of dilution embedded in the Engine business guidance and a little bit of enhancement embedded in Power Systems overall. But nothing dramatically changing. But yes, overall, I would say pricing is not a big feature of 2026.

I'll just add, Jamie, on the 232 tariff. First, we're, of course, very supportive of the U.S. administration focused on strengthening manufacturing and some of the things that they're doing a part of 232 to make sure that for companies like Cummins that are manufacturing for the U.S. in the U.S. and even manufactured in the U.S. for export that there's incentives to do that. And they are still working through the details of the engine offset program. So we're waiting for clarity on how that will work as well as how they define U.S. content. So there is some uncertainty built into that range that we have on our margins and Engine business and Components that will depend on how those details work out. And we hope to have more clarity after Q1.

The next question is from the line of Angel Castillo with Morgan Stanley.

I just wanted to start off maybe on the supply side of power gen or actually the supply demand. One quick one on the demand side. You mentioned record level of orders in the fourth quarter. Can you size your backlog exactly at this point and maybe provide a little bit more color on what the growth rate was either year-over-year or sequentially to your -- in terms of orders or the backlog? And then on the supply side, we've been hearing about capacity investments from perhaps other competitors. How are you kind of thinking about what that means for the competitive environment out there and impact your decision to invest in capacity as well?

Yes. I mean we don't give -- we don't quantify the size of our backorder. So all I can say is we had a record in Q3, and we set another record in Q4 in terms of that demand intake and multiyear strength and continued discussions with our data center customers on how we can meet their multiyear needs and what they're doing.

So there's -- at this point, we see plenty of demand and some of the investment questions is just defining the plan that we think is efficient use of the capital we have as it relates to natural gas or other things having confidence in the multiyear outlook on what the market demand may be. We do feel pretty confident that we'll see strong demand continuing for diesel backup power. And so there really is that developing the detailed plan of what we think we can do and also our suppliers' abilities to invest and keep up with what we're doing in our own facilities.

That's helpful. And then maybe just on -- switching to capital allocation a little bit here. So your net debt to EBITDA seems to be below 1, and you're taking some charges here in Accelera, reducing some investments there. I think your R&D expense, if I'm not mistaken, should be coming down post EPA engines. So I think that's [ 28. ] You also have your truck market bottoming here and hopefully starting to improve.

So how should we think about capital allocation as we kind of progress into 2026? I know your -- you mentioned reviewing some of these investments, you will talk about more at Investor Day. But assuming you were able to deploy some of maybe Accelera type of investments or others into that power gen, should we expect buybacks to come back and the order of magnitude there that we should kind of think about? Just about your capital allocation would be helpful.

Yes. What I would say is we've worked hard over the last couple of years to restore our credit metrics post the drivetrain business or formerly Meritor acquisition. So we're in a strong position. We have financial flexibility most -- well, all of what we're investing in today in the current year can be funded within our current cash flow operations. So we do have that flexibility. We've talked about the kind of a minimum goal of 50% back to shareholders. And we do have that flexibility to deploy more capital to shareholders going forward if we see the right balance of opportunities.

The next question is from the line of David Raso with Evercore ISI.

On the tariff impact, can you take us through the cadence? I think you alluded to the fourth quarter was your highest gross impact. The 50 bps that you gave is the drag. I assume that was a net number. That wasn't just gross. Is that correct?

The 50 bps was the net full year drag for 2026.

So if the net drag is, call it, $175 million for the full year, can you take us through the cadence? We're just trying to get a sense of -- obviously, the margin guide is a bit disappointing, and people are just trying to figure out where, at least, where you think you're exiting '26 on the margins.

It's a different kind of drag. You're doing some kind of a net drag there, I think, David, and that's not right. So the drag is really on, let's call it, inflated revenues and inflated recovering and inflated COGS incurring costs.

It's not just the model we want to be.

[indiscernible]

Yes. Our strategy is to work to recover dollars.

And also, I'm trying to figure out a revenue number. Sorry.

Yes, the revenue number will move depending on what the tariff dollar is as will our recovery.

So what is it you want to know, the question?

Well, I'm curious what is the revenue, the price offset? Like we're just trying to figure out how much is the price cost and also more we're trying to figure out how we exit the year.

You're talking about less than 2% year-over-year revenue increase due to the annualized impact of tariff recovery.

Helpful. And the pricing comment, I think you made a comment, not much pricing in '26 or something like that. I apologize. I wasn't sure exactly what you're referring to. The tariff impact, was that something that maybe they raise price quickly enough? I'm just kind of curious how you're thinking about your ability to capture...

I'm talking about pricing ex -- tariffs is not pricing in my mind. So I'm just saying other than puts tariffs to one side, we've done a good job mitigating that. The net impact to our P&L through all the actions we took was modest. But overall pricing, given that we're mostly selling out existing products, right, this current year and that we've done a lot, both on pricing in the past few years and the [indiscernible] recovery on top, this is -- we are not anticipating this is going to be a big year for net pricing ex tariffs. We're moving towards the transition to new products, which is a whole different angle. And that's for next year, not for this year.

The next question is from the line of Steven Fisher with UBS.

I'm sorry, just to clarify. Again, I know the message previously had been going into Q4, expect to be price versus cost neutral on the prior existing tariffs and then it was going to take a little time to get the latest round. So what are we thinking? Is it sort of just a net neutral on price versus cost on the tariffs as you see them today for the year? I guess maybe to start there.

Yes, yes, give or take a few dollars, not exactly perfect dollar for dollar, but yes, it's not, but a significant dollar hit year-over-year. But the magnitude of the annualization of the sales and the cost of sales is dilutive to the EBITDA percent. So although I'll say it another way, if we have no tariffs, if they suddenly evaporated, our EBITDA percent at the midpoint would be 0.5 higher, but it would be on lower revenues.

Right. Okay. That's helpful. And then I guess, just related to this, since you mentioned India, I'm curious what you actually have baked into the guidance for India given some of the changes that we've heard about very recently.

I mean you're talking about India. Right now, you're talking -- I mean we're talking tens of millions of dollars related to India, and a lot of it was moving global product around because it's a more international business, right, in the largely power generation markets where we're shipping products all around the world. So yes, we're in the tens of millions, but we can't go through every individual tariff by country or we will be even longer than we'd enjoy.

Yes. I think, Steve, just to add to that, this is Nick. What I'd say is Q4 for Power Systems was more transitory impact of India tariffs coming through. But to Mark's point, as we move into '26, we feel well positioned on that particular element that hit our Q4.

That's where the margins would -- one of the reasons why the margin is down just a little bit in Q4. And you can see from the guide, we've got margin expansion built into the guidance there.

Our next question is from the line of Kyle Menges with Citigroup.

I did want to ask on EPA27, now that we've got more clarity on that. And we've heard from various others in the industry that it could lead to plus or minus $10,000 of increase just to the cost of a truck. So trying to think about how that would actually impact Cummins, I guess, on just engine pricing margin? And then also just how to think about the impact to components volume just given the added content as well as pricing.

Yes. Great. Let me break this down in a couple of things. First, we're committed to always delivering innovative, efficient solutions to our customers to meet their needs and comply with the regulation. And for those of you that have been around the industry for sometime, it's quite unusual to have this level of uncertainty this close to a regulatory implementation date.

So the EPA indication late last year, as you noted, that they'll move forward with the '27 NOx rule was an important step to give more regulatory uncertainty. And I think the EPA has worked hard to balance regulatory certainty and allowing those that have made big investments in products to launch in '27, not only to comply with the regulation but to bring other values to our customers to move forward while also looking at reducing the cost impact to the end customer. And so they've given some indication of what that looks like. We think we're very well positioned with our home engine platforms and the new products that we're going to be launching around those regulations. There is still a lot of work underway that we're active in with the regulators, with our customers, with our suppliers on the details of those changes that they're going to make and ensuring that we complete our validation and certification process in accordance with those. So we're working through that.

And just would note, we work with multiple OEMs. Obviously, the most OEMs on our B Series product, which is in a high variety of different applications. So that's one in particular that we're focused on. Net of that is we're all moving forward toward that, gaining the additional clarity that we need and it will still result in content add in the Engine business and in the Components business after treatment, in particular, ACT is estimated $10,000 to $15,000 for heavy-duty truck add associated with that, and the majority of that will be in the powertrain. So it will be split for us in our content add between the Engine business and the Components business, and we'll see that coming in with those new product launches. But again, they're also bringing more efficiency, more power, advancing our digital solutions. Excited about the value we're going to bring to our customers along with that regulatory change.

Our next question is from the line of Noah Kaye with Oppenheimer.

That's a perfect lead into my question, which is now that we have a little bit more certainty that is going to happen even if we're still looking for the fine points of it, what is the guide embed for any kind of prebuy for '26?

Yes. I mean this is a big question and part of what I'd say is we'll influence the range and how much the second half comes back. But we are assuming we'll see some pre-buy in the second half of next year. There's a combination of the natural coming out of the down cycle for the truck market the more stability and tariffs that will cause customers to start buying trucks again and then prebuy in the second half of the year. But we're really watching to try to understand how much will that be. You saw strong orders in December, improvement in orders last month. But how that flows over the course of the year, I think we're all watching and cautiously optimistic is what I would say. And then demand does start to strengthen how quickly can the supply base flex back up because it dropped quite dramatically last year. So those are the things to watch.

Fundamentals have improved a little bit. It's been a long dry spell. So hopefully, that continues in addition to buying some products ahead of the changes.

May mean some more even performance as you go from second half of this year into next year though.

Okay. And then I guess, the tie-in to that, just again, around the Engine margins, you mentioned you're preparing for new product launches. But I know a lot of investments has gone into preparing the platform. So is it an incremental headwind to margins, the investment in the preparation costs for launch in '26? Or are we actually starting to lap that?

We are starting to lap it to some extent. But said another way, we're, in some cases, running with parallel operating system, right? Some of the engine platforms are going to change quite significantly as we work through the introduction. So as we get through the other side of the launches, yes, we'd expect the margins to step up once we convert over.

The next question is from the line of Tim Thein with Raymond James.

I'll just kind of package these together. Question one is just on, Mark, going back to the comments earlier about the capital allocation flexibility that you have. I'm curious, as part of that, maybe it doesn't factor in or not, but your joint venture partner in your AMT venture announced the potential or likely spin-off of that business, I'm just curious if that impacts -- could that give rise to a potential option for Cummins if it wanted to increase its stake there? So maybe just thoughts around that.

And then, I guess, part 2 is the data center revenue in total in '25. Can you help us on that? And then what is embedded in '26 across Power Systems and Distribution?

Yes. Of course, we have an important partnership with Eaton, as you noted, in the Eaton-Cummins joint venture. I think it's premature to say how that will happen. We would expect continued partnership with that portion of their business going forward in that joint venture and really making sure that we have optimized powertrains for our customers.

And then specific to your question on data center revenue, we had alluded last call in 2024, $2.6 billion of total company revenue and expectations that would grow 30% to 35%. We did hit the upper bound of that. So for 2025, we're at about $3.5 billion between our Power Systems business and then also our Distribution business.

Our last question comes from the line of Chad Dillard with Bernstein.

So with the restructuring you took in Accelera, can you talk about how that changes the cost structure? Where do breakeven margins go? And then just maybe a little more color on just what the actions are?

Yes. So this -- the actions in the fourth quarter were really focused on our electrolyzer business. And just frankly, with the policy changes in green hydrogen, the demand for green hydrogen has dried up dramatically lower. And so that has had us relook at our participation. We have commitments to customers that we've made, but we'll stop future commercial activity. And so what that means and even with some of the actions that are starting to flow through that we took a year ago is we've meaningfully lowered losses for this year, but some of these things take time to fully play through just based on existing business and commitments that we have, but we've meaningfully reduced our participation in hydrogen. And we continue to feel like we've got some good capability in battery electric powertrains and pacing our investments there given the slowing in the market, but the anticipation that, that will continue to grow over time is really where we're focused. And then, of course, we never stopped investing in the Engine side of our solutions, and so anticipate more strength there for longer.

Yes. And I think you'll see in our disclosure, some of the breakdown of the cost was a combination of some people actions and inventory write-downs, some contract exits. It's a whole combination of things, whereas the Q3 charge is really just a goodwill impairment. This was related to specific actions that lower the costs going forward.

So as Jen said, we're permanently reducing the rate of participation in electrolyzers going forward, but observing commitments we've already made. So that should have a positive trend to it over time.

Got it. That's helpful. And then I wanted to revisit the gross tariff conversation. Can we just go back to talking about the seasonality of that from like first half versus second half?

Somebody else is responsible for the seasonality of that.

This is what I would say. Like I think if you look at over the course of last year, you saw growing, especially in the second half tariff costs flowing through and recovery increasing as we negotiated commercial agreements with our customers, that becomes hopefully more stable and steady this year, although there are still some new tariff announcements. And as I noted, details around engine offset and 232 that we'll need to work through. So we are continuing to spend a lot of time on how this is moving in the agreements that we have with our suppliers and customers and fundamentally maintain our goal of recovering at the dollar level of actual costs.

The degree of variation has moderated here between the quarters. We were able to deliver the net, mostly recovered in the fourth quarter that we anticipated, which contributed to the solid results overall. So that seasonal, it's more just a piecing of how long it took to work through the supply chain. And of course, there were a number of changes up and down.

At this time, we've reached the end of our question-and-answer session. I'll turn the floor back to Nick Arens to provide closing remarks.

Thank you. That concludes our teleconference for today. Thank you all for participating in your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you.

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.

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 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.

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 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. 3 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 volumes 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 in the 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 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.

Thank you, Jen, and good morning, everyone. We delivered strong results in what can be best described as a tale of two 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 three 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 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 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 the 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 five 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, take 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 $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 [ leaders ] 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 remained 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 slow down. 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 -- 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.

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.

Our first question comes from Jamie Cook with Truist Securities.

Congratulations on a nice quarter. I guess two 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?

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 [ change where ] 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 an inflated ramp up, which we're excited about on the [indiscernible] 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.

And Jamie, on the Power Gen, we've -- obviously, we've seen really strong performance from both Power Systems and Distribution business and 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 and 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.

Our next question comes from Angel Castillo with Morgan Stanley.

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 engine 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.

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 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.

And then on some of 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.

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. truck manufacturers get and what is kind of the financial impact of that as we think about potentially 2026 is getting such a rebate?

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 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 collaborative customers and suppliers. It's been a huge demand on all participants.

Our next question comes from David Raso with Evercore.

I'm 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?

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.

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?

There are different types of actions, but we are conscious -- if there's a lower demand environment, we're not -- nobody is comfortable certainly at the losses that were at when the demand environment has changed. 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.

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.

It's fair to describe the decline in revenue outlook as sharp and dramatic and merits further close review, which is ongoing right now.

Our next question comes from Rob Wertheimer with Melius Research.

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 of the last few months?

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 in our development 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 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.

Our next question comes from Kyle Menges with Citigroup.

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 also 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.

Yes. I would say most of the actual sales in e-mobility 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 has been a big shakeout even in the e-mobility industry given, I would say, lower prospects for Accelera growth, even though we're growing the overall everybody's projections for growth has come down, and that's led to a shakeout. Certainly, 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 as 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, positive and staying invested there.

On electrolyzers, it went back a couple of years, we have pretty ambitious targets for growth, and we were tracking that trajectory every quarter. It was -- we were tracking years at 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 electrolyzers 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.

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 [indiscernible] would 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...

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 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 -- 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 know 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% of the EBITDA with what I know right now.

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 in Q4 as well as the engine business has seen more than its share of the net tariff impact that impacted [indiscernible] to more full recovery in Q4 will reduce.

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. Precious 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 trucks are tough, they also give you -- you're 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, we think the trends on power generation, data centers, which benefit power systems 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.

Our next question comes from Tami Zakaria with JPMorgan.

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?

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 out. It's not the same if you think about like a mining application or a 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.

Understood. That's very helpful. And if not 2027 is not delayed after a review, how are you thinking about the cadence of any product launches in 2026 tied to that?

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 that had 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 the 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.

Our next question comes from Steven Fisher with UBS.

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?

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 really, 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 two 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.

I was going to say, obviously, in China, 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.

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.

I would say the general -- the mall. 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 -- back to somebody asking that should we raise the targets. I really like the way you think. I'm sure Jenny and her 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 the year going into next year with what we know right now.

Our next question comes from Noah Kaye with Oppenheimer.

Well, 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?

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.

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, yes, not a dramatic change for the next year. There's just natural inflation because a lot of those costs or people cost, 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 tomorrow.

Not yet.

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 five 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?

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 is 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 on 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 and standby and being disciplined in how we think about additional investments into that market.

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. [ We should ] do more going forward.

Our next question comes from [ Scott Group ] with Wolfe Research.

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 in material. How much could this positively impact margins in 1Q or throughout 2026, all that's equal?

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.

You're right. Going into Q4, we are -- it is true, we're catching up more with the recovery of the tariffs out, 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. The end user customers.

Yes, just to reiterate Mark's [indiscernible]. 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.

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.

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?

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 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.

Our final question comes from Chad Dillard with Sanford Bernstein.

So just given the market demand for standby power that you guys talked about, a 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.

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 other 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, if 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 evaluating that, certainly. And we still think that in the coming years, this demand for prime power is going to continue. Well, 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.

And then second question, just on tariffs. So can you quantify the gross tariff impact in 2025? And then what's the split between [ EPA ] versus 232? And if we do get [ EPA ] rollback, I mean, should we consider this more like a pass-through?

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, and 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's happened. 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?

There's a lot of moving parts between [ EPA ] 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 in 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.

All right. Appreciate it everybody. Thanks for joining us.

That concludes our teleconference for today. Thank you all for participating in your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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.

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.

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.

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.

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 Instructions] Our first questions come from the line of Stephen Volkmann with Jefferies.

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?

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.

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.

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?

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.

Our next questions come from the line of Angel Castillo with Morgan Stanley.

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?

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.

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?

Yes.

Yes. There's been no change in enthusiasm for demand.

Our next question has come from the line of Jamie Cook with Truist Securities.

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?

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.

Okay. And then, Jen, just on the cycle?

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.

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.

Our next questions come from the line of Rob Wertheimer with Melius Research. Rob, could you please check if yourself muted?

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.

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.

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.

Our next questions come from the line of Tim Thein with Raymond James.

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.

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.

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.

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.

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.

Our next questions come from the line of David Raso with Evercore ISI.

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?

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.

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...

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.

Our next questions come from the line of Kyle Menges with Citi.

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?

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.

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.

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.

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.

Our next question comes from the line of Tami Zakaria with JPMorgan.

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.

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.

Our next questions come from the line of Steven Fisher with UBS.

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?

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.

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.

It is not contractual. And so in most cases, we've been out actively negotiating with our customers on tariff recovery time line.

Our next questions come from the line of Noah Kaye with Oppenheimer Company.

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.

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.

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?

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.

Our next questions come from the line of Chad Dillard with Bernstein.

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.

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.

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?

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.

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.

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.

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.