Jennifer Rumsey

Thank you, Chris, and good morning. 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. High-water. Mark will then take you through more details about our third quarter financial performance and our forecast for the year. Before getting into the details on our financial performance, I want to take a moment to highlight a few major accomplishments from the third quarter. In September, we started full production of our existing natural gas engine at our Jamestown engine plant, which is the first version of our 15 liter Helm platform to launch in the U.S. x 15 and delivers performance, durability and power required in a variety of applications and as an excellent alternative for fleet looking to significantly reduce their carbon footprint. This is an important milestone and execution of our destinations, your strategy as we work to reduce the impact of our products today while investing and cleaner power solutions for the future, some of North America's largest and most demanding heavy-duty fleet are actively engaged with comments following their own test of the natural gas engine in the field. For example, UPS has purchased 250 Kenworth x 15 and powered trucks, and I move the Company highlights as an important part of decarbonizing. It's Grantley comments had the opportunity to further showcase our destinations, your strategy in action through our diverse portfolio of power solutions at the recent I a transportation event and Hannover Germany. At this event, we displayed our fully integrated powertrain concept featuring our home engine platforms and E components. I also personally had an opportunity to hear feedback from comments customers on the challenges they're experiencing with 30 carbonization strategies come and remain confident that our customers' needs will not be met with a single solution, and this event was a great opportunity to further demonstrate that comments and Acceleron have the right components in our portfolio to provide the necessary solutions for our customers and their needs as they evolve over time. In addition, in October, accelerate by common celebrated the opening of its electrolyzer manufacturing plant in Spain. The plan has a capacity to produce 500 megawatts of electrolyzers per year scalable to more than one gigawatt per year in the future. The sustainably design facility is expected to create 150 highly skilled jobs in the region with the potential to reach 200 jobs as production growth and will help scale up development manufacturing and adoption of zero emissions technologies in Europe. Lastly, I'd like to express that our hearts are with those who were impacted and are still recovering from hurricanes Helene and not on here in the US. We are grateful that our employees and the impacted areas are all accounted for and safe. While we did see minor impacts in our third quarter financial results, I'm proud of how our Cummins employees rallied together to help impacted employees, communities and facilities and respond to this strategy tragedy while minimizing disruption in our industry. Now I will comment on the overall Company performance for the third quarter of 2024 and cover some of our key markets starting with North America. Before. Moving on to our largest international market. Demand for our product remains strong across many of our key markets and regions, offset by softening in the North America heavy duty truck market that was in line with our expectations. Sales for the quarter were $8.5 billion, flat compared to the third quarter of 2023, primarily driven by continued high demand and our global power generation markets and improved pricing. This was offset by lower North America heavy-duty truck volumes and the reduction in sales from the separation of Atmos EBITDA was 1.4 billion or 16.4% compared to $1.2 billion or 14.6% a year ago. Third Quarter 2023 results included 26 million of costs related to the separation of Atmos EBITDA and gross margin dollars improved compared to the third quarter 2023 as the benefits of higher power generation volumes, pricing and operational efficiency more than exceeded the reduction in margin from the Atmos separation. Our third quarter revenues in North America declined 1% to 5.2 billion as a softening heavy duty market. Lower light duty volumes and a reduction in sales from the Atmos separation were mostly offset by strong demand in the medium duty truck and power generation market industry production of heavy-duty trucks in the third quarter was 68,000 units, down 10% from 2023 levels, while our duty unit sales were 25,000, down 14% from a year ago. Industry production of medium duty trucks was 41,000 units in the third quarter of 2024, an increase of 12% from 2023 levels, while our unit sales were 38,000, up 18%, we shipped 28,000 engines to Stellantis for use in their Ram pickups in the third quarter of 20 $24.31 percent from 2023. Revenues in North America, power generation increased by 18%, driven by continued strong data center and mission critical power demand. The impressive power generation performance in North America and across the globe helped us achieve record sales of profitability and the Power Systems segment. Our third quarter international revenues increased by 2% compared to last year. Third quarter revenues in China, including joint ventures, were 1.5 billion, a decrease of 4% as weaker domestic truck and construction volumes were partially offset with higher data center demand. Industry demand for medium and heavy-duty trucks in China was 207,000 units, a decrease of 15% from last year. Demand in the China truck market continues to run at low levels, with continued weak domestic diesel market and now softening natural gas orders as the diesel gas price differential narrowed. The light duty market in China was down 4% from 2023 levels at 424,000 units. While our units sold, including joint ventures, were 30,000, an increase of 14%. Industry demand for excavators in China and the third quarter was 44,000 units, an increase of 10% from 2023 levels. Our units sold were 8,000 units, an increase of 14% as a result of QSM. 15 penetration of both new and existing OEM partners and export growth. Sales of power generation equipment in China roughly doubled in the third quarter, primarily driven by continued growth in data center demand. Q3 revenue in India, including joint ventures, was 641 million, a decrease of 12% from the third quarter a year ago. Industry truck production decreased by 12%, while our shipments decreased by 18%, driven by a slowdown in manufacturing and government infrastructure spending. Power generations revenues increased 49% year on year, driven by pre-buy demand for stationary power added CPCB four emissions regulation change changes as well as increased data center demand. Now let me provide our outlook for 2024, including some comments on individual regions and end market. Our revenue outlook for 2024 remains consistent with our prior guidance of down 3% to flat. We are improving our overall EBITDA guidance for the year to be approximately 15.5%, top end of our prior guide, a 15% to 15.5%. We now expect higher revenue and stronger profitability in our Power Systems & Distribution segment, offsetting lower revenue and profitability expected in our component segment. We are maintaining our forecast for heavy duty trucks in North America to be 255 to 275,000 units in 2024. In the third quarter, we saw industry we continue to expect further softening in the fourth quarter in the North America medium duty truck market. We are also maintaining our forecast to be 150 to 160,000 units, flat to up 5% from 2023 as we continue to benefit from an elevated backlog and strength in vocational orders. Consistent with our prior guidance. Our interest shipments for pickup trucks in North America are expected to be 135 to 145,000 units in 2024, with a plan model year changeover likely to drive sharp but temporary production decline in the fourth quarter. In China, we project total revenue import, including joint ventures, to decreased 4% in 2024 as a continued weak domestic diesel truck market is partially offset by our higher power generation demand. While we have not yet seen a material impact from the recent stimulus actions, we are encouraged that the emphasis on demand-side policies is a positive step forward to build economic momentum in China. In India, we project total revenue, including joint ventures to increase 1% and 2024, primarily driven by strong power generation demand, which is offsetting lower on-highway demand. We expect industry demand for trucks to be down five to up 5% for the year. For global construction, we project down 10% to flat year over year, consistent with our prior guidance due to weaker demand in China, we are maintaining our guidance for global power generation markets to be up 15% to 20%, driven by continued increases in the data center and mission critical markets. Sales of mining engines are expected to be down five to up 5%, also consistent with prior guidance. For aftermarket, our guidance remains at flat to up 5% for 2024, with some softening and rebuilt demand expected in the fourth quarter. In summary, we are maintaining our guidance on sales of down 3% to flat and improving our EBITDA guidance to be approximately 15.5%. Our performance in the third quarter, particularly in our power systems and distribution segments, resulted in strong profitability despite a softening in North America heavy-duty truck market. While we do expect continued softening in several of our key markets in the fourth quarter, we are committed to delivering strong financial performance and returning cash to our shareholders. During the quarter, we returned 250 million to shareholders in the form of dividends, consistent with our long-term plan to return approximately 50% of operating cash flow to shareholders. I continue to be grateful for the commitment of our employees and leaders around the world for delivering for our customers while also achieving strong financial performance. Our impressive third quarter results and improved full year guidance continue to demonstrate that we remain well positioned to invest in our future growth, bringing sustainable solutions to decarbonize our industry and improve financial performance cycle over cycle. Now let me turn it over to Mark.

Mark Smith

Thank you, Jim, and good morning, everyone. We delivered strong revenue and profitability in the food court. Given the strength we are maintaining our full year revenue guidance. We've increased our expectations for EBITDA percentage to be at the top end of our prior guidance range. Third quarter revenues were $8.5 billion, flat from a year ago was organic growth offset the reduction in sales driven by the separation of Lux. Sales in North America decreased 1%, while national revenues growing 2%. Foreign currency fluctuations negatively impacted sales by 1%. Ebitda was $1.4 billion or 16.4% of sales for the quarter compared to $1.2 billion or 14.6% of sales a year ago. But those year-ago numbers included $26 million of costs related to the separation of the benefits pricing, strong operational efficiency and absolute sort of beyond the separation costs were the primary drivers behind the improved profitability. Now let's look at each line item in a bit more detail. Gross margin for the quarter was $2.2 billion or 25.7% of sales compared to $2.1 billion or 24.6% loss due to improved margins were primarily driven by favorable pricing, which varied across our different segments from operational improvements. Selling, admin and research expenses were $1.2 billion or 14.8% of sales compared to $1.2 billion or 14.3% lost. You, which included costs related to the separation of U.S. joint venture income of $99 million decreased 19 million from the prior year, primarily driven by lower technology for use in our engine business costs incurred and start to put the amplifies So technologies our battery, so joint venture, which is reported within accelerate growth and was formed last quarter. Other income was $22 million, an increase of 29 million from a year ago or improvement driven by mark-to-market gains on investments related to company-owned life insurance. Interest expense was $83 million, a decrease of $14 million from prior year, primarily due to lower weighted average interest rates. The only an effective tax rate in the third quarter was 19.2%, including 36 million or $0.26 per diluted share. Favorable discrete items. All in net earnings for the quarter were $809 million, or $5.96 per diluted share compared to $656 million of $4.4 $0.59 per diluted share in 2023. Eps benefited from the increased earnings and also a lower share count resulting from the tax-free share exchange associated with the separation of weapons that was completed in the first quarter. All in operating cash flow was an inflow was $640 million. Year to date, operating cash flow was an inflow of $65 million, which included $1.9 billion of premium required by the previously disclosed settlement agreement with the regulatory agencies. Excluding the settlement quarter year to date, operating cash flow was $2 billion compared to 2.5 billion in the first nine months of last year. The lower operating cash flow this year is primarily due to higher inventory. We do expect to see stronger operating cash flow in the fourth quarter this year. I'll now comment on segment performance and our guidance for 2024. As a reminder, guidance for 2024 includes the U.S. for the operations of Atlas in our consolidated results up until the full separation, which occurred on March 18th. Components. Revenue was $2.7 billion, a decrease of 16% from the prior year, while EBITDA decreased 13 points from 13.6% of sales to 12.9%, driven primarily by the dilutive impact of the separation and a weaker duty truck market. North America. Several facilities within our drivetrain and braking systems business in North Carolina were impacted by hurricane hitting at the end of Q. three disrupting production from causing us to record some costs in our third quarter results. Our improved shown incredible resilience and extremely challenging circumstances and working very hard to reach produce components. We expect 2020 for full year revenues to decrease 12% to 15%, a decrease of 2% from the prior guidance at the midpoint for the EBITDA margins in the room range of 13.3% to 13.8%, lowering the range from our previous guidance of 13.7% to 14.2%. For the Engine segment, third quarter revenues were $2.9 billion, a decrease of 1% from a year ago. Ebitda was 14.7%, an increase from 13.5% a year ago due to operational improvements of positive pricing, including a retroactive pricing agreement and our light duty business that was finalized within the third quarter. The benefits through pricing and lower operating costs more than offset, but we could North American heavy-duty truck volumes in 2024. We project revenues for the Engine business to be down 2% to 1%, narrowing the range of the prior guidance and EBITDA to be in the range of 13.7% to 14.2%. Consistent with our communication last quarter. In the distribution segment, revenues increased 16% from a year ago to a record $3 billion, driven by increased demand for power generation products, particularly for data center locations. Ebitda increased as a percent of sales to 12.5% compared to 12.1% a year ago, primarily due to higher volumes and pricing. But we now expect 2020 for distribution revenues to be up 8% to 11% to an increase of 2% at the midpoint of our prior guidance, primarily due to stronger power generation markets excuse me. Ebitda margins are now expected in the range of 11.5% to 12%, also up from our previous code of 11.3 to 11% to 11.8%. Results for the Power Systems segment set another new quarterly record. Revenues were $1.7 billion, an increase of 17%, and EBITDA increased from 16.2% to 19.4% of sales, driven by higher volumes, particularly in the power generation markets, improved pricing and other operational improvements. In 2024, we expect Power Systems revenues to be 8% to 11% and an increase of 4% at the midpoint from our prior guide. Ebitda expectations have also increased to approximately 18.3% to 18.8%, up from 17.75 at the midpoint, have a probably a good accelerate. Revenues increased 7% to $110 million, driven by increased electrolyzer installations. Our EBITDA loss was $150 million compared to a loss of $114 million a year ago. As we continue to invest in the products and capabilities to support those parts of the business was strong. Growth is expected while reducing costs in areas where we assessed the prospects for growth of it extended into the future. In 2024, we expect revenues to be in the range of 400 to $450 million, a net losses to be in the range of 400 to $430 million, both unchanged from last quarter. As Jim mentioned, given the strong performance in the third quarter, particularly in power systems and distribution for improving the full year company guidance for profitability, we still project 2024 Company revenues to be down 3%. For company EBITDA margins announced expected projected to be approximately 15.5%, which is at the top end of our prior guidance range. Our effective tax rate is expected to be approximately 23.5% for the full year 2024. Excluding the tax-free gain related to Atlas and other discrete items and down from our prior guidance of an expected tax rate, 20 capital investments will be in the range of 1.2 to $1.3 billion, consistent with our prior guidance. In summary, we delivered strong sales and record profitability in the third quarter of 2024. Tom, we will experience moderation in some markets in the fourth quarter, most notably North American heavy duty truck. We have updated our projection for EBITDA to the high end of the prior guidance range due to strong execution, particularly the projected record full year EBITDA in power systems and distribution, we took some spec 24 borrowing position navigate any further economic cyclicality. We are on track to continue our trend of raising performance cycle over cycle whilst continuing to invest in the future. And that's encouraging given that this is projected to be a down year for North American heavy-duty truck production. Our priorities for the remainder of this year for capital allocation remain to reinvest for profitable growth. Our strong cash dividends and support our strong credit rating. Thanks for your interest to do now. Let me turn it back to Chris.

Question and Answer Session

Christopher Clulow

Thank you, Mark. I will begin our question and answer session out of consideration to others on the call, I'd ask that you limit yourself to one question and a related follow-up. If you have any additional questions, please rejoin the queue. Operator, we're ready for our first question.

Operator

Thank you, Chris. Now be conducting a question and answer session. Once again, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your loans in the queue. You may press star two to remove yourself from the queue For participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. one moment while we poll for questions.
Our first question comes from Steven Fisher, UBS.

Steven Fisher

Thanks. Good morning and congrats on the beat and raise. It's hard to find those and machinery world these days. Nevertheless, I think there were some investors are a little concern that maybe the Q4 guidance looks awfully conservative after the strong Q. three. I don't know how much of that is related to the storm impacts in components. But I guess the bigger picture question here is even though it's maybe a little early, but do you think there are enough positive news to offset the rest of the downturn that we have in the heavy duty truck market, however, long that, that may last to keep EBITDA growing over the next year?

Jennifer Rumsey

Yes. So let me just comment first. He thinks greater weighting of the only comment a little bit on the fourth quarter and what we expect. There's really three factors that I point to and revenue guide for Q4. We expect further softening and heavy duty market. Our I talked about that product changeover with plant that will drive further volume reduction and that a pickup truck business. And then just working days with year end will be fewer. And we see in our past, many of our markets fewer working days, especially with the holidays and normal maintenance and have now completed. And so those are really a factor that, as you can see, where the team has done a great job of continuing to focus on profitability across the business, delivering strong decremental margins where we've seen reductions in heavy duty, which it takes a lot of effort. I just want to acknowledge the great work of the team and then leveraging some of the places that we have strength with early strong performance, of course, then power-gen on that, that impacted power systems and the deal. We expect that to continue as we go into next year. Okay. And maybe just building on that last part there. I mean, how would you describe the momentum in power gen right now? The new record revenues in the quarter? Yes, you're sold out on the 95 liters. Where are you on the capacity utilization on 50 was 78. What's driving the further upside from here? Or is it mainly pricing or can you kind of push out more volumes? It's really both of our total. Over the course of this year. We've worked on strategic pricing and offsetting some of that the inflationary costs that we've seen and pricing for value in that business. And we've been working on capacity installed base and our own operational improvement and launching the new center products. All of those things you've given us improvement over the course of the year and if leader is that capacity, but we've been able to increase capacity through that improvements by about 30% on that product and 20 for the new products. And then as we talked about previously, we are investing right now to double capacity 95 liter that will come online late next year as we go into 26. We don't see any end in sight in terms of demand and that market work with their internal thoughts on the 95 liter at the 27, seven 4%, how do we leverage that capacity? We have now investment we have now while we're putting in more online late next year. And I think, Steve, the only thing I'd add to your first question is, you know, we're not we're building our plans with a relatively modest start on heavy-duty truck to the first half of next year with what's the roadmap. So the comments and questions. And we're very focused on kind of managing through the cycle. I will say, I mean, in terms of the impact of how lean and Milton, we're back to our regular operation in that business and trying to just work through some of that backlog that built up during the period that we are most very severely impacted. But it's been a really tremendous effort by the team that we have multiple facilities in the western North Carolina region within now come and drivetrain and braking systems that have been dealing with that. The impact of that hurricane.

Operator

Thank you. Our next question comes from Angel Castillo, video, Morgan Stanley.

Angel Castillo

Hi, good morning and thanks for taking my question. And congrats on strong quarters. Just wanted to dive a little bit deeper into some of the dynamics there may be impacting the next couple of years. I saw some headlines around maybe the California omnibus on low NOx valuation and some states maybe doing the kind of middle model-year 25 to maybe model year 2016 enforcement. Just any comments or maybe read-throughs to what maybe that tells you about the underlying kind of enforcement of those regulations and the potential for kind of pre-buy in to 25, just any broader reproduced, maybe EPA or to finish the demand for you? Andrew.

Jennifer Rumsey

I mean what we've seen, of course, this year at the carbon of U.S. regulations have gone into place as we get and a 27, we see commonization again between EPA and higher, but we believe is a positive for the for the industry. What happens between now and then in terms of different states following those carbon regulations, as you know, noted, some have pushed out a little bit difficult to predict, but certainly these are items this year and carb even with with some of the flexibilities that they've put in place to sell on 200 milligram NOx product nationwide. And so we're watching that space closely. I would say over this Mark noted, we're projecting softening. And as we go into next year and the heavy duty truck market and then still anticipating, depending on economic conditions, the pre-buy likely starting at some point during 25 ahead of the 27 regulations. That's very helpful. Thank you. And then just wanted to circle back on the prior question around 2025 for power generation. I think you indicated you kind of seats gross power systems and I'm continuing there. Just curious, it seems like your power generation guide of 15% to 20% was unchanged despite content. We had strong performance there. Can you talk about 25 just early indications based on your backlog, which we anticipate kind of that 15% to 20% type growth to persist into next year? Or how do you kind of see that based on kind of pricing and backlog indications today? I mean, will that that demand in that market is going to remain strong. So it's all about what we can do in terms of capacity and managing our supply base. But and that's one of the factors that gives us confidence going to start with you, strong backlog. And then, of course, distribution should be continue to be pretty resilient up some of the economic shock. Thank you. Our next question comes from Tao mangoes city. Thank you, guys are appropriate. As I noted, within Power Systems, industrial, the industrial portion actually pretty strong growth in the quarter. Despite certainly some competitors not showing great results in mining this quarter. So just about to hear kind of what's driving that acceleration and growth in that industrial portion, just how you're thinking about that into 4Q and into 2025? I mean, overall, our guidance is pretty flat in the mining market. We've seen some rebound in demand that you're that you're seeing in those results, but really not significant shifts in that market right now. Yes, I think overall, I'd just add that we are the mining is really the key market for us in the industrial side. But as you know, and that has remained pretty pretty resilient from our perspective, where it's moved a little bit around the world. We maintain a pretty good both in the first-fit side as well as in the aftermarket, which drives the rebuilt, don't over read and one quarter's units. Got it. And then and then just follow up on power systems. Looks like with the new guidance cannot be doing incrementals of about 60% and 2024. So it would be helpful if you could frame how we might think about incremental margins in that segment and in 2025. And I guess why wouldn't it be from close to 40% to 50% or down? And what factors could cause weaker incrementals next year? I do get accused of pushing the power systems business if it holds up probably stay of the 40% to 60%. But here's what I'd circle. Part of the improvement was really a reprioritization of cost kind of reset at the start of this journey, which has really been going on for a couple of years now you get that benefit early on and then there's been a lot more focus on your pricing capacity and efficient capacity improvements. So yes, we still think there is more to come on the top line on the bottom line. I don't think we can continue to expect 40% to 60% incremental margins. We will provide, you know, specific updates here in February, but what we know today, we would expect more improvement going into next year.

Operator

And our next question comes from Jerry Revich, Goldman Sachs.

Jerry Revich

Hi, good morning, everyone. A majority of votes Highmark. I'm wondering if you can just expand on the margin performance and engine really outstanding results in Q3. Guidance implies margin expansion in the fourth quarter on lower sales. You mentioned operating efficiencies in the prepared remarks. Can you just expand on where it those efficiencies are versus pre-COVID levels? And it feels like there's momentum into 25 even if demand is softer, just given where the exit rate looks to be in the fourth quarter versus the cost structure in the first. I'm wondering, can you just expand upon those points if you don't mind? Yes. I think there's been a lot of improvement, um, post COVID, no doubt about that. But we're still not all the way back to those kind of 2019 operating levels. So I still think there's more room to come on operational efficiencies. And then we talked about kind of been the big part of this investment cycle. Of course, the strong medium duty demand has really helped in this environment and our physicians continue to strengthen the. So that's really has helped some wells we have flagged and it is going to happen. There is going to be short sharp reduction in pickup truck engine production in the fall this quarter. We view that as largely temporary thing about with all the information we have to do that that's going to resume. So I think the top line will face some first half year pressure on heavy duty relative to the first half of this year. But yes, continue to focus on operating costs. I mentioned briefly in my remarks that we've really been making adjustments to our organization structure costs since for the fourth quarter of last year. And whilst that hasn't been dramatic in any period, I think that helps set us up well going into next year. Just so you didn't Mr. I did point out to make a huge deal, but we did get some extra pricing which helped in the third quarter that was retroactive back to the start of the U.S. We won't get all of that again in the fourth quarter. But nevertheless, I think the cost base, the operational efficiencies may bid in and not in the short term, but may be in the medium term. We get some boost from China as well because our earnings are okay but far from what the full potential of John was in the engine business. So I think there's a lot to look forward to. But the exact timing of earnings accelerate in the engine business isn't clear yet. So we kind of got to focus on the cost efficiency, certainly through the next nine months. Super shift gears and ask about the natural gas engine demand. Now that you've opened up full rate production, can you just update us on your expectations of natural gas share in the market six to 12 months out based on the demand in the performance of the production ramp you alluded to in the prepared remarks, please. Yes. I mean, we've said that we think we could get up to 8% to 8% share in the market with the natural gas product. We had several big fleets that were testing that are in development. And I noted that the US has played so how they start to ramp up volume yet increasing confidence and the strong performance and efficiency. Fundamentally, in most places, I can provide not only a reduction in CO2 per fleet that want to know your 40s, but perhaps but also a reduction in operating income because of the pool price differential between natural gas and diesel and stuff like that are interested in pursuing. And I think over time or above the target for me to exactly predict because it also depends on some of the economic conditions now that that our impact over time. And we're excited to have that product out now with Kenworth and Daimler will be launched and as well and 25. So they'll be positioned with that in the market. Okay.

Operator

Our next question comes from Jamie Cook, Truist Securities.

Jamie Cook

Hi, good morning and nice quarter. I guess my first question on, you know, you guys have talked about adding capacity on the large engines and engine side. one of your peers came out last quarter and talked about adding even additional capacity and large engines because of demand. So I'm wondering if you are making any changes to your capacity increase that you've talked about historically? And then on to what degree do you how much incremental capacity you're adding that could potentially benefit 2025? And then my follow-up question, Mark on again. I know someone asked questions on Q4 versus Q3. Margins in merchant implied step down, but how much was that are repricing that you talked about, so that helped the engine business that maybe we view as one-time? And then within components, how much of an impact was at the hurricanes? Thank you. Thanks, Jamie. I'll take the first one that Mark take the second one. So no, over the course of this year, what you've seen as new products for power generation capacity within the constraints of the equipment and our supply chain that we have today go from going up about 30% on the 95 liter to that, of course, is going to carry over into next year. And the mantra and power systems right now is just one more. And how do we continue to squeeze every every shift every day, one more out of what we have within our current constraints. And so we'll continue to focus on that. And then, of course, working to get that in that doubling the capacity for the 95 by next year, we're continuing to look at it. We want to be smart about where we can make reasonable investments, detector, take capacity out further where we see strong market conditions. So nothing really specific to say right now, but just that we're continuing to look at our footprint and then where there may be opportunities. The second part. The first thing I'd say we're going to get natural, I will answer the specific questions for you, Jamie. I just wanted to share that we're going to get natural variations from quarter to quarter, but I just want to remind, but we're very focused on the cost side on the efficiency side, of course, getting value for the products which are helping our customers be successful. This is also important. So yes, the kind of retroactive element of the pricing was about 50 basis points ballpark for the Company in the quarter. There's a go forward benefit just not as much as that. And then the costs you're talking, you're talking low tens of millions of dollars between components on the eliminations segment where we incurred some costs for the impacts of Hurricane Harvey. So there are puts and takes. There are some positives, some negatives in the results. I think the revenue guide, you can see we haven't changed because we have very clear business, the OEMS., the medium and pickup truck production from the way that these very well. We're very well run customers like the workers of predictability around the production levels. So I think the revenues well pinned on. I think the key for us is maintaining strong cost and efficiency discipline as we go into next year. And they're continuing to focus on preparing ourselves, more demand and grow both in the future and raising these margins as we set out at the analyst day on generating more cash. Let's focus.

Operator

Thank you. Our next question comes from Tami Zakaria with JPMorgan.

Tami Zakaria

Hi, good morning. Thank you so much. As I sort of adding one more question on incremental margin, because I think it's really the start of the performance in recent quarters. When I look at your incremental margin in the third quarter, it's almost 50% ex the filtration separation, which is quite impressive versus in long term target of over 25. Do you believe your incremental margin target can move up for the long time given the power generation products success and investing some retro active pricing as well? It's seen and you have a lot of new products coming in in the next couple of years. Would you consider revisiting your long-term incremental EBITDA margin target as we begin next year? I don't think witness, I think we'll give guidance just for the year and then we'll see see how we do have there's a lot of moving parts to our portfolio. Of course, we're feeling like we're a pretty good job in our core business since we had our Analyst Day incrementally, there will be more headwinds to the accelerator side of the business. But overall, we're pleased with this year. Let's focus on finishing strong for this year. We'll give you our full guidance with all its Technicolor when we get to February. So I appreciate the question, but today we're not going to talk about longer-term targets.

Operator

Okay. Thank you. Thank you. Our next question comes from Rob Wertheimer, Melius Research.

Rob Wertheimer

Just a clarification on the retroactive pricing. I wonder if you can describe what that is, how much continues and more fundamentally whether that indicates that you have any enhanced pricing power through engines? If I if that was something different to that. I have a motion to cash flush out. I don't think we should read anything into it other than it's been a protracted discussions and expect to January first Globe. So that's just sometimes things take a while. The results? Yes. As a reminder of that in our light duty space, there wasn't it was it was more localized there. Perfect. Okay. That helps a lot on just more fundamentally, obviously, you and your largest component, large engines are seeing a lot of demand and new customers may must be telling you they have a big role to play years and years ahead. Is it very clear that even the biggest hyperscale data centers will use recip engines on backup? I wonder if you could just talk about what your customers are telling you about the change in sort of design and scope and scale data centers in where you fit in for the next decade to come? Yes. I mean, I think at this point in the next decade, we think reciprocating engines are going to be the solutions of Baxter. And of course, they're looking at different potential options for prime power and evaluate and what that looks like. But in other other technologies at the night is from from time cost reliability. It's hard to match what a diesel gen sets can do for backup power. So we really think that can be a solution for some time.
Our next question comes from David Raso, Evercore.

David Raso

Hi, thank you. Are back to the pre-buy question. I know we're sitting here on election day, so I'm curious your thoughts of science around the election. Could alter your thoughts are not unsurprising made it this far without question, David, it was a faster if I can answer them. The timing of your introduction of a 27 compliant engine. You take us through your thoughts around that, the idea of maybe introducing that early building some credits. Obviously, the nat gas engines are ready or providing some credits as well. Can you just take us through how you're thinking about low-volume that or anything you wanted to comment on whoever wins the White House and Congress, how that impacts your thoughts? Yes. I mean, the end of the day commences going to do only all is that we're going to work across party lines and engage in that important for our business and our industry. And we'll do that. We've done that with the Biden administration at the past up and then the State Administration of debt at the next administration. And what's really important to us in our industry is having that regulatory and legislative stability. And we do not expect any change regardless of the outcome of that election on 27 regulations for our industry. So as we have in the past, are really we have a history of being first in the market with products to comply with new regulation and deliver increased value to our customers. And we're always focusing on the landscape, what's the right product at the right time? How do we take consider regulatory flex ability and credits as a part of that strategy. And given all that, we do intend to launch the diesel version of the 15 liter home platform and 26 ahead of the 27 regulation. And with that launch not only deliver lower NOx product into the market. That also one that has significant improvement in fuel efficiency and operating costs by 7% efficiency improvement in that product. And that will deliver value to our customers and then look into how do we further strengthen our position in that market through these regulatory changes. And this is really consistent with our past strategy, and that's worked well for comment over the years is delivering value to our customers through these regulatory changes and strengthening Act. So that's our intention. And we've got the 15 liter natural gas out now will add that these are version of that from 26 and then monitor our mid-range products at the start of New Orleans for sorry, sorry, the early introduction of the 27, I assume you're thinking first quarter 26 with the new model years. Can you help us so the peers in the channel, there's some sense of that might be a pre-buy of your engines and 25 to get from that early $0.26 reduction. Can you help us a bit a is that maybe helping some of the truck orders are seeing in the industry? I mean, you are 40% of the trucks out there. So pre-buying comments, would it imply our total industry numbers pretty meaningfully in the cost of the new 27 engine coming out early in 26? Can you just give us some sense of the cost to the customer and, you know, the follow-up would be how much is the warranty versus the components? I'm just trying to get a sense how much you're bringing all 12 costs into 26 costs flat? So let me check to frame it to how you're thinking that, of course, the specifics on pricing, we're still discussing that with customers, the exact timing and transition between the current 15 liter and the next generation system later in 2016. We're still in discussions with our customers are not going to give exact answers. What I will say is that we are at a meaningful engine and after treatment, our content and technology to both comply with the lower NOx regulation as well as deliver better fuel efficiency and operating cost and value to our customers. And that will be added as we launch this new product and 26, the requirement for a longer omissions warranty does not take effect until 27. So customers that buy this new high-efficiency market-leading product 26 will not be.

Operator

Thank you. Question comes from Noah Kaye, Oppenheimer & Co.

Noah Kaye

So taking the questions and related to this transition, I guess, is probably one of the biggest R & D investments the Company has ever made. So as we start to kind of get past that you think that will help us think about the direction of R&D spend. It seems like maybe an obvious place to get leverage in future growth. But you do 1 billion after spending 23. We're going to be around that range for 24. How should we think about the level of lending going forward? Yes. I mean, you've got a we're investing at a record level, high level with these new platforms that we're bringing into the market. We think those will position us well for the future. And so you'll see some normalization of that. Now the exact shape of that is going to depend, frankly, on how regulations evolve and what the what I call the bridge period of technology looks like and how that transitions to zero emissions. But we'll see that coming off of our peak as we get past that the 27 product launches and will continue to be investing in R&D to create differentiation and value in the market to grow business over the long term. So we are launching a mix late next year or sorry, I think you said 26 implies about six? Yes, yes. Okay. And then just switching gears, can you characterize the durability of strength in medium duty? The US? I think the six and seven classes have done pretty well. There's still some backlog there. But just can you talk about the demand you're seeing now in the market and whether that kind of continues into next year, you're kind of commented on some of your expectations for heavy do so million vehicle? Yes. Yes. I mean, ditto, for the year, we're seeing medium duty North American medium-duty up a little bit flat to up 5%. We're continuing to see pretty strong demand. I mean, you've seen a little bit of inventory on and normalization of back of, but we continue to see very strong demand. And what future regulations on that horizon. We expect that likely to continue year into next year.

Operator

Our next question comes from Tim to Raymond James.

Raymond James

Thank you. Good morning. Definitely. The first question is just on the distribution business and I'm curious what, if any, in the mix impact there could be given if you look at the strength that we've seen and you're projecting that to continue for some time timing power-gen that that that's now running at, call it 10 points higher as a percentage of distribution revenues from a couple of years ago. While some of that's coming as you've seen parts come down. So maybe in historical terms, asset mix negative because this is the whole goods grows as a percentage of revenues. But maybe just given the strength in demand in tightness in supply that that's not the case. So maybe just your thoughts on just the mix within distribution and how to think about that going forward. Thank you. Yes. I mean, as you noted, that typically whole goods as mix margin negative compared to aftermarket for us, as you just step back and look at the business and Total, you've got to consider in and what we've done around inflationary pricing and operational efficiencies have tried to flex up and the higher volume, and we're going to focus on those operational efficiencies. But the power duration, those revenue mix compared aftermarket will be negative on the data. And then maybe one remark that our you know, two months where we continue to drive on those operational issues issuances. Another use, of course, continue to drive as much of the parts business we can on the line for the most important thing is we're meeting customer expectations and growing earnings in an efficient way. Got it. And then, Mark, just on the yes, gross margin guide color that you gave earlier was the you highlighted pricing several times it was there from what was that was all of that from this retroactive deal you had in light duty? Or was there maybe just so I mean, year over year, those are the pricing just, you know, it was appropriate for the engine to note for the Engine business that was a particular product. But no, those are the pricing and the overall expectations haven't significantly changed for the rest of the business, quite frankly. So the pricing would expect it to get at the start of the year. That's just it's just taken time. The most important thing is it's been reset all of a timing issue and a concentration in Q three. We always anticipated something in our full year numbers. So on a full-year basis, there's not much to say, but it just came in a more lumpy fashion because of the capture of major. Thank you for your last question. I would now like to turn the floor back to Chris Cooper for closing remarks. Great. Thanks very much. Appreciate everyone joining today. That concludes our teleconference. I appreciate your participation and continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you for your participation. You may disconnect your lines at this time.