Regal Rexnord Corporation

Good morning and welcome to Regal Rec's North Third Quarter 2024 Earnings 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. Please note this event is being recorded. I would now like to turn the conference over to Rob Berry, Investor Relations. Please go ahead.

Great. Thank you, operator. Good morning, and welcome to Regal Rexnord's third quarter 2024 earnings conference call. Joining me today are Louis Pinkham, our chief executive officer, and Rob Rayhart, our chief financial officer. I'd like to remind you that during today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the regalrexnord.com website. Also on this slide, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we've included reconciliations between the non-GAAP financial information and the GAAP equivalents in the press release and in these presentation materials. Turning to slide three, let me briefly review the agenda for today's call. Lewis will lead off with his opening comments, an overview of our 3Q performance, and an update on our powertrain business. Rob Rehart will then present our third quarter financial results in more detail and review our latest guidance. We'll then move on 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 third quarter results and get an update on our business and for your continued interest in RealRexNord. I believe our third quarter can be characterized by significant and strong controllable execution by our team. As an enterprise, we achieved a record-adjusted gross margin of 38.4% and a record-adjusted EBITDA margin of 22.8%. which is up 110 basis points versus prior year on a comparable basis. Our largest segment, IPS, had a very strong quarter, achieving positive organic growth in weak markets, which we believe provides clear evidence its outgrowth initiatives are gaining momentum. In addition, IPS posted another quarter very strong, record-adjusted EBITDA margins aided in large part by achieving planned synergies. That said, we were disappointed in our overall third quarter sales results, with sales down 2.7% on a comparable organic basis, driven mainly by our AMC and PES segments, facing end-market headwinds that continued to be more severe than we expected. In particular, we saw larger headwinds in discrete automation in AMC and in general commercial and non-US commercial HVAC markets in PES. And while our residential HVAC business within PES has started to see signs of stronger demand, we have not been able to ramp our capacity fast enough to keep up with it, weighing on our service levels. We expect this to be largely resolved during fourth quarter. Despite these headwinds, we are seeing growing momentum behind our various cross-sell initiatives, which helped IPS achieve positive growth in the quarter. I will highlight a notable example later in the presentation. And before digging deeper into our results, I want to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution, navigating through persistently choppy end markets, while also continuing to advance our many longer-term value creation drivers. We discussed these value creation opportunities in some detail at our September 17th Investor Day. For those who were not able to attend, I think you would find it worthwhile to review the materials which are available on our investor site. Expanding on third quarter results, orders in the quarter on a daily basis were up 2.5%. The growth was led by IPS, followed by AMC, and while weighted to longer cycle bookings, helps give us confidence that we will see better top line performance in 2025. In October, daily orders were down less than 1%. Despite third quarter top line pressures, margins in the quarter were strong. Our adjusted gross margin came in at a record 38.4%. Adjusted EBITDA margin was 22.8%, up 110 basis points versus the prior year on lower volumes. That translates to $7 million of adjusted EBITDA growth on a roughly $44 million revenue decline. We think very strong performance for a business with over 38% gross margins. and reflects achieving $27 million of synergies in the quarter, along with strong cost management by our teams. Regarding synergies, we remain on track to achieve $90 million this year, after which we will have another $220 million of cost synergies to realize, largely in 2025 and 2026, and worth about two points of margins. Adjusted earnings per share in the quarter were $2.49, which is up 18.6% versus prior year and a clear inflection point for Regal. Lastly, we generated $126 million of adjusted free cash flow in the quarter, which contributed towards paying down debt. In summary, a good quarter of controllable execution by our team coupled with some encouraging performance on orders. At our September Investor Day, we presented our detailed strategy for accelerating profitable growth. Each quarter going forward, I plan to highlight a product, case study, or initiative that shows our growth strategy in practice. This quarter, it is a powertrain win that demonstrates how we are providing differentiated value add for our customers and getting paid for it through value pricing. Pictured on the left-hand side of this slide is a powertrain we designed for a mining customer. Its principal components are called out on the diagram. Nearly 100 of these powertrains will be installed to power and control motion across the mine's vast network of conveying infrastructure, which will move potash from deep inside the mine, and then once on the surface, through a network of ore processing operations. Various pieces of the conveying infrastructure are being direct shipped to the mine site where they will be assembled. To help minimize the degree of onsite assembly, the customer valued being able to receive the powertrain from us as a fully assembled, fully integrated solution. Our engineers were also able to address all of the mine's power and motion needs with only three sizes of the powertrain pictured, down from the five originally conceived by a third-party integrator, further reducing complexity. This is a great example of how our team's understanding of the customer's application resulted in valuable design enhancements. While not directly part of the powertrain and not pictured on this slide, our innovative RexPro conveyor chain is also being sold as part of the project, The RexPro solution arrives in a manageable length that can be easily assembled into longer strands using simple fasteners and tools, a much easier, safer, and faster assembly process versus competing products. Winning this RexPro business also reinforces how we are selling Regal's broader portfolio to our valued customers. A notable feature of this powertrain win is that we are being paid a premium specifically tied to integrating the motor into the drivetrain, leveraging our motors and powertrain expertise. The motor's precise alignment in the subsystem is critical to its functionality and efficiency under the harsh operating conditions at the mine. As you can see on the lower right portion of the slide, The value of our complete solution engineered for ease of install by a customer coordinating content from a global set of suppliers for assembly at a remote site all earned Regal Resnort a nice price premium above the individual component cost while still helping our customers save time, money, and reduce project risk. This win helps validate our powertrain strategy and our strategic focus on a subset of high-value verticals where we have deep domain expertise, motors expertise, and highly engineered power transmission components that are truly valued by our customer. On top of all of this, the harsh duty nature of this application leads to a significant aftermarket opportunity for our business, which we forecast at approximately six times the value of the initial product sales. at even stronger margins. This is another example of what we discussed at Investor Day, creating a more durable business through stronger and stickier relationships with our customers, along with significant aftermarket revenue potential. My congrats to the team for this fantastic win. And with that, I'll turn the call over to Rob.