Financial Trends -- 4/10
Legacy organic revenue declining (-4.3% Q1'26, -6.7% FY2025). Off-Highway acquisition masks the
contraction with +83.6% reported growth. Margins compressing sharply on lower-margin acquired mix
(GAAP op margin 13.9% in Q1'26 vs 32.5% peak). FCF positive but flat/declining (-33.5% YoY in Q1'26).
Share count declining ~6%/yr (the one genuine strength). Two penalty modifiers: revenue up/op income
down (-1), debt outrunning revenue (-1). Base 6 - 2 = 4/10.
Weight: 25%
Quarterly Trends (9 Quarters, Q1 2024 -- Q1 2026)
| Quarter | Net Sales ($M) | Legacy YoY | Gross Margin | GAAP Op Margin | Adj EBITDA ($M) | Adj FCF ($M) | LT Debt ($M) |
|---|---|---|---|---|---|---|---|
| Q1 2024 | $789 | — | 46.4% | 29.7% | $289 | $162 | $2,398 |
| Q2 2024 | $816 | — | 48.3% | 32.2% | $301 | $150 | $2,397 |
| Q3 2024 | $824 | — | 48.1% | 31.6% | $305 | $210 | $2,396 |
| Q4 2024 | $796 | — | 46.9% | 29.5% | $270 | $136 | $2,395 |
| Q1 2025 | $766 | -2.9% | 49.3% | 32.5% | $287 | $155 | $2,395 |
| Q2 2025 | $814 | -0.2% | 49.4% | 31.4% | $313 | $153 | $2,394 |
| Q3 2025 | $693 | -15.9% | 47.5% | 29.4% | $256 | $184 | $2,393 |
| Q4 2025 | $737 | -7.4% | 48.0% | 23.2% | $265 | $169 | $2,885 |
| Q1 2026 | $1,406 | -4.3% organic | 28.9% | 13.9% | $362 | $103 | $4,247 |
Key Trends
- Legacy organic revenue declining 5 straight quarters. NA On-Highway -28% in Q3'25 (truck cycle trough). The Off-Highway acquisition inflates reported revenue but the core business is shrinking.
- Defense is the bright spot: +64% YoY in Q1'26 ($87M), structural multi-year tailwind from international programs (Poland, Turkey, India, Korea).
- Gross margin collapsed to 28.9% on Off-Highway mix (vs legacy ~48%). GAAP operating margin down to 13.9% from 32.5% peak -- a massive compression driven by the lower-margin acquired business.
- Share count declining ~20% over 5 years via consistent buybacks -- the one genuine strength. 84M shares vs 107M in FY2021.
- LT debt nearly doubled ($2.4B to $4.2B) to fund Off-Highway acquisition. Leverage ratio has deteriorated significantly.
Annual Financial Summary ($M, FY ends December)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Net Revenue | $2,402M | $2,769M | $3,035M | $3,225M | $3,010M |
| Rev YoY | — | +15.3% | +9.6% | +6.3% | -6.7% |
| Gross Margin | 47.7% | 46.8% | 48.4% | 47.4% | 48.6% |
| GAAP Op Margin | 27.9% | 28.3% | 30.3% | 30.8% | 29.2% |
| Adj EBITDA | $844M | $961M | $1,108M | $1,165M | $1,130M |
| Adj FCF | $460M | $490M | $659M | $658M | $661M |
| Diluted Shares (M) | 107 | 96 | 91 | 88 | 85 |
Penalty Modifiers
Penalty 1: Revenue up but operating income declining (-1).
Q1'26 reported revenue surged +83.6% on the Off-Highway acquisition, but GAAP operating income
margin collapsed from 32.5% to 13.9%. The acquisition is dilutive to profitability -- more revenue
is generating less operating income per dollar.
Penalty 2: Debt growing faster than revenue (-1).
Long-term debt nearly doubled from $2.4B to $4.2B to fund the Off-Highway acquisition.
Revenue (on a legacy basis) is declining. This is a judgment call on acquisition quarters,
but the leverage trajectory is undeniably worse.
Score calculation: Base score 6 (declining organic revenue, compressing margins,
flat/declining FCF offset by strong buyback program and solid absolute FCF levels) minus 2
penalty points = 4/10.