Regal Rexnord Corporation

Good morning and welcome to the Regal Rexnord Third Quarter 2022 Earnings Conference Call. All participants will be in 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 your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Robert Berry, Vice President of Investor Relations. Please go ahead.

Great. Thank you, Operator. Good morning, and welcome to Rico Rexnord's third quarter 2022 earnings conference call. Joining me this morning are Louis Pinkham, our Chief Executive Officer, and Rob Rehard, our Vice President and Chief Financial Officer. Before turning the call over to Lewis, 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 guaranteed 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 release and our SEC filings. On slide three, we state that we are presenting certain non-GAAP financial measures in this presentation. We believe that 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 third quarter financial results in more detail and discuss updates to our 2022 guidance. Louis will then share some brief comments about our recently announced acquisition of Altra. We will then move to Q&A, after which Louis will have some closing remarks. And with that, I'll turn the call over to Louis.

Great. Thanks, Rob. And good morning, everyone. Thanks for joining us to discuss our third quarter earnings and to get an update on our business. And thank you for your interest in Regal Rationals. As you saw in our announcement last week regarding our planned acquisition of Altra, It is clear that our team is working on a number of fronts to continue advancing Regal Rexnord's transformation into a faster growing, higher margin, more cash generative, and higher return enterprise. I am excited to report the product of those efforts are also apparent in our strong third quarter results. Even in the face of persistent inflationary and supply chain headwinds, and some incremental macro-related caution at our customers, our Regal Rexnor team delivered strong third-quarter performance. That includes 8% organic top-line growth, 120 basis points of adjusted EBITDA margin expansion, and further evidence of share gains supported by our digital and e-commerce investments, new products, and competitive service levels. The margin gains we achieved were enabled by a host of factors, chief among them continued strong performance realizing merger synergies, where we remain ahead of plan and continuing to achieve a positive price-cost position. Also notable, the team's disciplined approach to managing working capital improved our free cash flow performance in the quarter. And so as we forge ahead into the fourth quarter, we are firmly on track to meeting our earnings guidance commitment, which we have revised to reflect a modestly higher midpoint in our targeted range for earnings per share. For this strong execution, pursued with a sense of urgency, as well as continued adherence to our Regal Rexnord values, I want to say a sincere thank you to our approximately 29,000 Regal Rexnord associates around the world. Turning to orders, we did see some moderation as expected. Daily organic orders were down 3.6% for the quarter on an FX neutral basis in line with what we shared at our September investor day. Even so, we remain cautiously optimistic about our top-line prospects, especially given our strong backlog position up roughly 70% from the beginning of 2021, plus commentary from many of our customers across a range of end markets that remains fairly positive. In addition, for certain of our end markets, including aerospace, mining, ag, and non-res construction, which makes up over 25% of Regal Rexnord, there are signs of growing momentum. And beyond what markets give us, we have many outgrowth initiatives underway, including a healthy pipeline of new mixed positive products and high-impact digital and e-commerce investments. Which brings me to controllable execution. It's our mantra at Regal Rechnort. Regardless of what the macro does, we will manage it by focusing on what is under our control. And we have a lot under our control on the growth, margin, and free cash flow fronts. Controllable execution is evident in our third quarter segment performance. Commercial is a great example. The segment turned in another quarter of double-digit organic top-line growth as the benefits of 80-20 initiatives, new products, and digital and e-commerce investments are driving outgrowth. Industrial also continued to demonstrate strong execution. Adjusted EBITDA margins up 370 basis points and mid-teens organic order growth are quantifiable signs that the turnaround at industrial is continuing and even gaining momentum. Climate performed just slightly below what we had communicated in our last earnings call with incremental temporary margin pressure largely tied to non-metals inflation and mix. However, The climate team has a plan for improvement back to the segments more normal high teens to low 20s margin levels with a step up in Q4 and improvement throughout 2023. And we remain very excited about climate's prospects as we head into 2023. Given regulatory changes, we are well positioned to address, plus government incentives around heat pumps and meaningful new product tailwinds. Which brings me to MCS. Solid growth and very strong margin performance, in large part related to that team continuing to realize merger synergies, but also strong operational performance. Our powertrain team is also gaining momentum in the market, And I'll share an example of one of its recent powertrain wins on the next slide. As we discussed our September investor day, we assembled a cross-functional team dedicated to selling integrated industrial powertrain solutions, leveraging end market, application, and product expertise spanning our motors and power transmission businesses. The team has accelerated our traction selling powertrains, and our opportunity funnel is growing nicely. Pictured on this slide is a recent powertrain win, the product of the team's collaborative efforts. This win was with a grain processing customer involved in the production of ethanol, renewable diesel, and biodiesel fuels. The customer was looking for an integrated solution that improved efficiency and reliability and lowered install time. What our team came back with was a subsystem that integrates our Marathon motors, our Fault gearbox and couplings, and Rexnord bearings. What makes the solution differentiated is a design that leveraged our powertrain team's relevant application expertise In this example, a bucket elevator for the ag end market. The result was lower complexity, reduced install time, and greater efficiency and reliability. We made it easier for our customer and gave them a superior product. Having deep application expertise is part of the secret sauce to selling powertrains, and one of the reasons we're excited about adding Ultra is because it enhances our capabilities in relevant powertrain components and extends our application expertise into new markets. We will share more on this front post-closing. And with that, I'll turn the call over to Rob to take you through our third quarter performance in more detail.