Regal Rexnord Corporation

Good morning and welcome to the Regal Rex Nord Second Quarter 2025 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 Rob Berry, Vice President Investor Relations. Please go ahead.

Great. Thank you, operator. Good morning and welcome to Regal Rex Nord Second Quarter 2025 earnings conference call. Joining me today are Louis Pingum, our Chief Executive Officer and Rob Rehart, 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 have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials. Turning to slide three, let me briefly review the agenda for today's call. Louis will lead off with his opening comments, an overview of our second quarter performance, and an update on our CROSSO initiatives. Rob Rehart will then present our second quarter financial results in more detail, review our 2025 guidance, and provide an update on tariffs. 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 second quarter results and to get an update on our business. We appreciate your continued interest in Regalrexnord. In short, our team delivered solid second quarter performance in line with our expectations on sales and modestly ahead on adjusted earnings per share. So before continuing, I want to take a moment to thank our 30,000 Regalrexnord associates for their hard work and disciplined execution. I am also especially proud of the job our associates have been doing to overmanage the impacts of tariffs and rare earth magnet constraints. Their efforts keep us confident that we can fully neutralize current tariff impacts on our adjusted 2025 EBITDA and earnings and be adjusted EBITDA margin neutral in the first half of 2026. Now let me provide some specifics on our second quarter performance, starting with sales. Our sales in the quarter were down .2% versus the prior year on an organic basis in line with our expectations. We faced a couple notable headwinds in the quarter related to project timing in metals and mining in our IPS segment and to temporary rare earth magnet availability, which delayed certain higher margin shipments into the medical and defense markets, specifically in the AMC segment. These headwinds were largely offset by particular strength in residential and commercial HVAC and in aerospace. For reference, our sales in the first half were roughly flat on an organic basis. Now regarding tariffs and the demand environment, we have been seeing limited customer spending and project timing impacts, which in aggregate are having only a modest impact on our business. Bigger picture, we continue to believe that demand in most of our key end markets is at or near trough levels and were it not for various macro uncertainties, the industrial cycle would be gaining momentum at a firmer pace. Even so, we remain optimistic that our sales will improve and grow at a low single digit rate in the back half of 2025 and into next year, given multiple quarters of positive orders that have grown our backlog, particularly in our IPS and AMC segments. Orders in the quarter on a daily basis were down .5% and booked to bill was 0.98. Orders in the quarter were weighed down by AMC, which saw an orders decline of 7.5%. This decline was driven by the timing of a sizable data center order expected in the quarter and a tough compare, as orders in AMC were up 12% in the second quarter of last year. Specifically, a $35 million data center order that was expected in the quarter ended up booking early in July. It would have improved AMC's second quarter orders growth by roughly 8 points had it come a week earlier and Regal's overall orders for the quarter would have been flat. I would like to take a minute to acknowledge the significant achievement this data center order represents for our power management team within AMC and for Regal, Rex, Nord, and Broadway. The order is for switchgear that will be used in a hyperscale data center in North America. We believe this July data center order will be the first of five similarly sized orders that the customer plans to award on this particular project and feel that we are well positioned to win some or all of this additional content. And while any additional wins associated with this project would likely hit our P&L only at the end of 2025 and in 26 and 27, this project alone could provide a meaningful boost to our enterprise growth rate next year. In July, daily organic orders for Regal, Rex, Nord were up .4% driven primarily by strength in data center. Turning to margins, our second quarter adjusted gross margin was .2% up 10 basis points versus the prior year excluding industrial systems. Our progress on gross margin was aided by achieving $17 million of cost synergies in the quarter. Temporary impacts related to rarest magnet availability were a modest ten win. Adjusted EBITDA margin was 22%, down 20 basis points versus the prior year excluding industrial systems. Adjusted earnings for share in the quarter was $2.48 up .3% versus the prior year. Lastly, we generated $493 million of pre-cash flow in second quarter of which $368.5 million relates to an accounts receivable securitization program we completed in the quarter. This program, which Rob will elaborate on, is net accretive to our earnings by allowing us to accelerate paying down higher cost debt, which remains a top priority. In summary, a strong second quarter, which along with healthy recent orders and backlog growth makes us optimistic about improving top line and earnings momentum in the back half of this year and into 2026. Next, I'd like to spend a few minutes updating you on our cross-sell synergies where we are seeing positive momentum and expect a growing contribution to our sales performance. Bottom line, we are on track to deliver at least the $250 million of cross-sell synergies we announced following the Rex Norden Ultra transactions. As you can see on the chart on this slide, we achieved $120 million of cross-sell synergies through the end of last year and are on track to add incremental $50 million this year. As a reminder, principal cross-sell synergies include addressing the broader customer base of the combined business and taking advantage of the rival scale and scope of our product portfolio and go to market to gain wallet share and to sell more solutions, including powertrain. This value proposition is resonating, which is evident from our growing funnel of cross-sell opportunities, which stood at nearly $300 million at the end of 2020. Notably, the win rate on our cross-sell opportunities has been tracking about 10 points above the enterprise average. On the right-hand side of this slide, we provide a few recent examples of cross-sell wins. The first is a powertrain sold to a cement manufacturer valued at approximately $3 million. The harsh operating conditions in the cement industry translates to significant estimated lifetime aftermarket sales worth about $12 million, which come with nicely accreted margins. We won by making it easier for the customer to build out a new plant by receiving an engineered solution optimized for efficiency and durability versus individual power transmission components that the customer would have to assemble. The next two examples are of wallet share gains. As we discussed at our investor day in September of last year, only 15% of our power transmission customers buy more than one product category from even though in most cases they use most if not all of the categories we sell. This creates tremendous opportunities for spend consolidation. The scale and scope of our product portfolio plus significant digital investments that are making it easier to do business with us position Regal Rechnord as a natural destination for spend consolidation. We expect the initial spend in new categories to ramp considerably as the customers validate our quality and production volume capabilities for the newly added product. Margins on the new categories are at least our OEM fleet average. In short, we believe the value of our unrivaled scale and scope in power transmission is gaining momentum evident in the orders and backlog growth we have been experiencing in IPS and AMC. And with that, I will turn the call over to Rob.