Regal Rexnord Corporation

Good day, and welcome to the Regal Rexnord First Quarter 2022 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchstone phone. To address your question, please press star then two. Please note this event has been recorded. I would now like to turn the conference call over to Mr. Robert Berry, Vice President, Investor Relations. Mr. Berry, the floor is yours, sir.

Great. Thank you, operator. Good morning and welcome to Regal Rexnord's first quarter 2022 earnings conference call. Joining me today are Louis Pinkham, our Chief Executive Officer, and Rob Rahard, our Vice President and Chief Financial Officer. Before turning the call over to Louis, I'd like to remind you that the statements made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees, since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in forward-looking statements. For a list of factors that could cause actual results to differ materially from projected results, please refer to today's earnings relief and our SEC filings. On slide three, we state that we're presenting certain non-GAAP financial measures in the presentation. We believe these are useful financial measures to provide you with additional insight into our operating performance and for helping investors understand and compare our operating results across accounting periods and in the same manner as management. Please read this slide for information regarding these non-GAAP financial measures, and please see the appendix for reconciliations of these measures to the most comparable measures in accordance with GAAP. Turning to slide four, let me briefly review the agenda for today's call. Louis will lead off with his opening comments. Rob Rahard will then provide our first quarter financial results in detail and discuss updates to our 2022 guidance. We'll then move to Q&A, after which Lewis will have some closing remarks. And with that, I'll turn the call over to Lewis.

Great. Thanks, Rob. And good morning, everyone. Thanks for joining us to discuss our first quarter earnings and to get an update on our business. And thank you for your interest in Regal Rechnord. I am really pleased to report that 2022 got off to a very strong start for Regal Rechnord with solid first quarter operating performance plus significant progress on our M&A integration and longer-term growth and margin initiatives. In the quarter, the company achieved 15% organic top-line growth, posted 280 basis points of adjusted gross margin expansion, and realized 250 basis points of adjusted EBITDA margin expansion. Our top line performance was boosted by clearly identifiable share gains in many parts of our business, while our margin expansion was underpinned by, among other factors, achieving positive price costs and realizing strong merger synergies in MCS. And with first quarter orders of 10% and a record backlog, our revenue prospects are solid. Our PMC and Arrowhead integration activities are progressing nicely, and I'd like to congratulate the PMC integration team that through strong execution was able to accelerate a number of our synergy actions, allowing us to start realizing savings a bit sooner than we had previously planned. While our results in the first quarter were strong, the global supply chain continues to be challenged and new supply chain headwinds arose during the quarter related to COVID containment efforts in China. The good news is that our Regal Rechner team has been successful confronting all challenges head on, and I believe that is apparent in our results and updated outlook. So before going any further, I'd like to say a sincere thank you to our 30,000 associates around the world It is your disciplined execution, embrace of our 80-20 principles, and continued adherence to our Regal Rexnord values, even as we face persistent personal and professional challenges, that is allowing us to serve our customers at a high level, gain share, and meet our financial commitments while continuing to invest in our business. One of the things I am most proud of and most excited about as I look ahead are the share gains our teams have been achieving in recent quarters. I attribute these gains to a number of factors, including execution that's a little better than some of our competitors, our 80-20 mindset, and our digital investments that are making it easier for our customers to transact with us. New product development has also been gaining momentum as our team strengthened the muscle around driving customer intimacy and leveraging voice of the customer to make products that are purposeful for our customers and deliver value they are willing to pay for. Value we measure with the gross margins we earn on selling them. A common denominator of all new product development at Regal Rechnord is being mindful of our business purpose, creating a better tomorrow by energy efficiently converting power into motion. And while driving energy efficiency is central to our purpose, our teams are also thinking more broadly about the environmental impact of our products. A great example is pictured on this slide. A Rexnord-branded gear drive sold through our MCS segment, which is commonly used in metals and mining, pulp and paper, and aggregates and markets. In the example picture, a customer in the aggregates market was having to perform excessive oil changes because it did not have a good way of measuring oil quality in its prior gear drives. while runtime is typically used to time oil changes. This is a rudimentary approach and often results in excessive cost and oil waste. In response, our Regal Rexnord engineers developed a continuous oil monitoring solution with an IoT sensor and control board that uses proprietary algorithms to identify when oil degradation has occurred. The result is increased runtime, reduced frequency of oil changes, lower operating costs, and lower hazardous waste disposal. The gear drive is also equipped with remote monitoring capabilities, which connects to an online dashboard and enables robust diagnostics and prognostics, resulting in further operating efficiency gains for the customer. A real win. Before turning the call over to Rob, I'd like to share some perspective on the operating environment expected in second quarter. As you may remember, when we set our guidance for this year, we decided to take a more conservative approach, capturing our strong orders and record backlog, but retaining some caution around supply chain constraints and inflation. In short, I'm glad we did because unfortunately the operating environment became riskier during the first quarter related mainly to the situation in Ukraine and to a lesser extent, the China government's COVID containment efforts. The situation we are experiencing in China included a whole city lockdown in Shanghai starting on April 1st. The local port is open, but logistics around it have been restricted. For Regal, a couple of our facilities were impacted, but were able to resume partial production earlier this week and should be fully operational in May. However, we continue to confront challenges related to a number of our suppliers not being fully operational. Fortunately, all of our associates in the region are safe, and notably, vaccination rates among our team in China are nearly 100%. As a result of the lockdowns, our sales have seen a modest negative impact to start second quarter. However, net of expected catch-up activity and assuming current plans for relaxing recent government COVID containment protocols, we believe the ultimate net impact will be minimal for Regal Rexnord. Turning to Ukraine. I think it goes without saying that this situation is both horrifying and saddening. And our thoughts and prayers are with the people of Ukraine. From a business perspective, Regal Rechnord has very little exposure to either Russia or Ukraine. That said, the macroeconomic ripple effects of the crisis are just starting to be felt, but likely raise risk to the macro outlook in Europe and perhaps more broadly. I'm not going to speculate, but rest assured that we are monitoring the situation closely and will remain focused on what's under our control, keeping our associates safe, executing our M&A synergy plans, continuing to pursue our numerous growth and margin expansion initiatives, and remaining balanced when it comes to capital deployment. And with that, I'll turn the call over to Rob to take you through our first quarter performance in more detail.