Greetings. Welcome to the Fourth Quarter and Fiscal Year 2025 Cummins Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Note this conference is being recorded. I will now turn the conference over to Nicholas Arens, Executive Director of Investor Relations. 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 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 in 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 will 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 am 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, 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 B 7.2 diesel engine that brings the…

Thanks, Jen, and good morning, everyone. We delivered strong operational results in 2025, achieving record EBITDA and earnings per share, excluding one-time 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, our strategic review of the electrolyzer business and Accelera resulted in charges of $218 million. This compares to 2024, which included $312 million of costs related to the reorganization of Accelera. Stripping those out, 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 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.…

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.

Thank you. Our first question comes from the line of Jerry Revich with Wells Fargo. Please proceed with your question.

Yes, hi. Good morning, everyone.

Hi, Jerry. Good morning.

Can you update us on how you are thinking about potentially adding capacity in power systems for the diesel variant and also what are the updated thoughts around potential natural gas product? And can you update us on where lead times stand now as well? Thank you.

Yep. Happy to do that, Jerry. So, you know, 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 genset that we supply, which is very popular in the data center market. We have completed the launch of our Sentum product line, and we continue to see benefits of those investments as well as ongoing 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 are taking orders now well into 2028. So the demand remains very strong for diesel backup power, and we are 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 in smaller improvements and efficiency in how we leverage what we have. We will be talking more in May at our Analyst Day about where we think we may have the opportunity to continue to leverage the capacity and products that we offer and if there are any additional investments into new products. But as you would expect, we are very thoughtful and disciplined in how we think about that.

And I would just add, even with it, whilst the total of our CapEx outlook in the last three months has not really changed, we have allocated more incrementally to power systems in the last few months, Jerry. You know, and really right now, we are a low-risk weighted play on the AI boom because we are making modest incremental internal investment for which there is high and growing visibility for demand. So we feel confident about our approach.

Thank you. And I got my voice back. You are talking about power systems gets me all choked up. I am wondering, Mark, can we just talk about the guidance outlook for 2026? Really good performance this year across engine components of distributions. You are guiding for up sales, but softer margins at the midpoint. Can you expand for us on the comment you made on tariffs? What is the impact of the pass-through and any other puts and takes around guidance in light of the strong performance of '25?

It is 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, but the fourth quarter was, you know, clearly the biggest gross impact. We have done well to offset that. But as we look forward with the current regime of tariffs, that is full-year dilutive on an absolute basis, Jerry, it is about 50 basis points mostly through sales and recovery, not dollar losses. And so we will 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 two areas. Otherwise, there is nothing fundamentally changing. It is obviously a very busy period for engines and components, 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 are delighted with performance given all the combination of conditions, variations, complexities of 2025, and fundamentally, underneath what 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. Again, we will continue as the truck cycle moves off this bottom to expect results to improve not just this year, but going forwards too? More meaningful and sustained improvement as truck fundamentals improve.

Thank you. The next question will be coming from the line of Rob Wertheimer with Melius Research. Please proceed with your questions.

Just a quick question on the sequential revenue in Power Systems from 3Q to 4Q. I do not know whether that was any capacity issues, timing issues, or anything else. Obviously, you are 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 is happening? Is there more behind the meter that might demand more backup? Is there any trend in the design of data centers that either favors or not diesel backup? Thank you.

Yes. On your first question, what I would 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 impact on top-line performance. And then the other dynamic we had in Power Systems in Q4 was tariffs are still changing. Let us just acknowledge that while there may be some places where we are getting more clarity, that is still changing in the India tariff. In Q4, it had a negative impact. We are working to recover those costs, but as things change over time, there is typically a lag in how we manage through that with our customers. In terms of diesel backup, you know, there continues to be a desire for most, you know, really all data center customers to have diesel backup power available to just ensure a 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 is out there.

Thank you.

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

Hi, good morning. I guess, Mark, just two 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 are exiting the year incremental margins higher. I am just trying to understand how you think about incremental margins through this 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 or 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, and ending implied 2026 below 14% just does not make a lot of sense. Thank you.

We have had a lot of discussions about the distribution margins. And the performance over a number of years has been really good. So we are really thrilled with the distribution leadership team continuing to grow earnings and margins. The tariffs throw a little bit of a spanner in the works from a percentage basis. You know, we are in tens of basis points of dilution there. It is taken longer to work through distribution. And then the recoveries. And yet, there is a little bit of investment. Nothing underlying has fundamentally changed. So we still think the distribution business is going to be a dollar and a percent grower over time. There can be some, yeah, modest investments in a over a short period of time, but nothing fundamentally changing there. And then in the engine business, yeah, there is not a lot of pricing this year. There has been a lot of tariff recovery work and tariff mitigation work going on in 2025. But not this year. We are really in preparing for more demand whilst preparing for new product launches. All of those things are going on at the same time. Little bit of dilution from tariffs. And then there is not nothing is happening significant we do not expect on the JV income line, maybe even be down in on-highway a little bit in China, maybe up a little bit the power systems JV earnings in China. So the net guide is at close to zero for JV earnings for the company, but it may be a little bit of dilution embedded in the engine business guidance and a little bit of enhancement embedded in power systems overall, but nothing dramatic or changing. But yes, overall, I would say pricing is not a big feature of 2026.

I will just add, Jamie, on the $232 tariff. First, we are, of course, very supportive of the U.S. Administration's focus on strengthening manufacturing and some of the things that they are doing as part of February to make sure that for companies like Cummins that are manufacturing for the U.S., and the U.S. and even manufacturing in the U.S. for export, that there are incentives to do that. And they are still working through the details of the engine offset program. So we are 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 in the 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. Please proceed with your questions.

Hi, thanks for taking my question. I just wanted to start out 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? Then on the supply side, we have 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 do not quantify the size of our back order. So all I can say is we had a record in Q3, 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 are doing. So there is at this point, we see plenty of demand and, you know, 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 will 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 are doing in our own facilities.

That is helpful. And then maybe just on capital allocation a little bit here. So your net debt to EBITDA seems to be below one and you are taking some charges on Accelera reducing some investments there. I think your R&D expense, if I am not mistaken, should be coming down post EPA engines. So I think that is 2028. Can 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 you are mentioned reviewing some of these investments that you will talk about more at Investor Day. But assuming you are able to deploy some of maybe Accelera type of investments or others, into that power gen. Should we expect buybacks to come back in the order of magnitude there that we should kind of think about product capital allocation would be helpful.

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

Thank you. The next question is from the line of David Raso with Evercore ISI. Please proceed with your question.

Hi, thank you. 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 was not just gross. Is that correct?

50 bits the 50 bits 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 are 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 we think you are exiting 26% on the margins.

You are doing some kind of net drag there, I think, David, and that is not right. So the drag is really on, let us call it, inflated revenues and inflated recovering and inflated COGS. Incurring costs. It is not not just the market one would be a it is a not a dollar block.

Yeah. We are our strategy is to work to recover dollars. And that return from the end the revenue number.

If sorry. Yeah. The revenue number will move depending on what the tariff dollar is as well our recovery.

So what is it you want to know, Dave?

Well, I am curious. What is the revenue the price offset? Like, we are just trying to figure out how much is it price cost, and also more trying to figure out how we exit the year.

You are talking you are talking about less you are 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. Sure exactly what you are referring to. The tariff impact, was that something that maybe did not raise price quickly enough? I am just kind of curious how you are thinking about ability to capture about pricing ex tariffs.

Tariffs is not pricing in my mind. So I am just saying other than puts tariffs to one side, we have 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 are mostly selling out existing products, right? This current year that we have done a lot both on pricing in the past few years and the recovery on top. This is we are not anticipating this is going to be a big year for net pricing x tariffs. But we are moving towards the transition to new products, which is a whole different angle and that is for next year, not for this year.

Thank you. The next question is from the line of Steven Fisher with UBS. Thanks. Good morning. And sorry, just to clarify again, I know the message previously had been going into Q4, expect to beat 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. Give or take. A few dollars. Not exactly perfect dollar for dollar, but yes. It is 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. Since other I will send another way, if we had no tariffs if they suddenly evaporated, our EBITDA percent at the midpoint would be half a point higher, but it would be on lower revenues.

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

I mean, you are talking about India. Right? Now you are talking I mean, we are talking tens of millions of dollars related to India. And a lot of it was moving global product around because we you know, it is a more international business. Right? And the largely power generation markets where we are shipping products all around the world. So yeah, we are in the tens of millions, but we cannot go through every individual tariff by country or we will be even longer than we would enjoy.

I think, Steve, just to add to that, this is Nick. What I would 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 to hit our Q4.

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

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

Thanks for taking the question, guys. I did want to ask on EPA 27 now that we have gotten more clarity on that and we have heard from various others in the industry that it could lead to a 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?

Yeah. Great. Let me break this down in a couple of things. You know, first, we are committed to always delivering innovative efficient solutions to our customers to meet their needs and with the regulation. And for those of you that have been around the industry for some time, it is 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 will move forward with the 27 NOx rule was an important step to give more regulatory certainty. And I think the EPA has worked hard to balance with 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 have given some indication of what that looks like. We think we are very well positioned with our Helm engine platforms and the new products that we are going to be launching around those regulations. There is still a lot of work underway that we are active in with the regulators, with our customers, with our suppliers on the details of those changes that they are going to make and that we complete our validation and certification process in accordance with those. So we are working through that. And just will note, you know, we work with multiple OEMs. The most OEMs on our B series product, which is in a, you know, high variety of different applications. So that is one in particular that we are focused on. Net of that is we are all moving forward toward that gaining the additional clarity that we need and it will still result in content ad in engine business and in the components business after treatment. In particular, ACT is estimated $10,000 to $15,000 for a heavy-duty truck ad associated with that, and the majority of that will be in the powertrain. So it will split for us in our content ad between the engine business and the components business. And we will see that coming in with those new product launches. But again, they are also bringing more efficiency, more power, advancing our digital solutions, excited about the value we are going to bring to our customers along with that regulatory change.

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

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

Yeah. I mean, it is a big question and part of what I would say is will influence the range and how much the second half comes back. But we are assuming we will see some prebuy in the second half of next year. There is 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 are really watching to try to 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 are all cautiously optimistic is what I would say. And then, you know, 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.

Yeah. Fundamentals have improved a little bit. It has been a long dry spell. So hopefully that continues in addition to buying some product ahead of the changes.

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

Okay. And then I guess the tie into that just again around the engine margins. You mentioned the preparing for new product launches. But I know a lot of investment has gone into preparing the platform. So is it an incremental headwind to margins, the investment and the preparation costs for launch in 2026? Or are we actually starting to lap that?

We are starting to lap it to some extent, but said another way, we are essentially in some cases running with parallel operating systems. 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 would expect the margins to step up once we convert over.

Thank you. Our next question is from the line of Tim Thein with Raymond James. Please proceed with your question.

I will 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 am curious as part of that, maybe it does not factor in or not, but your joint venture partner in your AMT venture announced a potential or likely spin-off of that business. I am just curious if that impacts could that give rise to potential option for Cummins if it wanted to increase its stake there. Maybe just thoughts around that. And then I guess part two is the data center revenue in total in '25. Can you help us on that? And then what is embedded in 2026 across power systems and distribution? Thank you.

Yeah. You know, of course, we have an important partnership with Eaton, as you noted, in the Eaton Cummins joint venture. I think it is premature to say how that will happen. We would expect continued partnership with that portion of their business going forward, and 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 and $2.4 billion, $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 are at about $3.5 billion between our power systems business and then also our distribution business.

Thank you. Our last question comes from the line of Chad Dillard with Bernstein. Please proceed with your question.

Hey, good morning, guys. 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 were.

Yes. So with 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 a relook at our participation. You know, we have commitments to customers that we have made, but we will stop future commercial activity. And so what that means and even with some of the that are starting to flow through that we took a year ago is we have 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 have meaningfully reduced our participation in hydrogen. And we continue to feel like we have 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 are focused. And then, of course, we never stopped investing in the engine side of our solutions. And so, anticipate more strength there for longer.

Yeah. And I think you will see in our disclosure some of the breakdown of cost was a combination of some people actions, some inventory write-downs, some contract exits. It is a whole combination of things. Whereas the Q3 charge is really just a goodwill impairment. This was related to specific actions that lower the cost going forwards. So as Jen said, what, you know, permanently reducing the rate of participation in electrolyzers going forward, but observing commitments we have already made. So that should have a positive trend to it over time.

Got it. That is 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. But this is what I would say, like think of if you look at over the course of last year, you saw growing, especially in the second half, tariff cost 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 will 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 a dollar level our actual cost.

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

Thank you. At this time, we have reached the end of our question and answer session. I will turn the floor back to Nicholas Arens for closing remarks.

Thank you. That concludes our teleconference for the day. 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.