Regal Rexnord Corporation

Good day and welcome to the Regal Rexnerd 4th Quarter 2025 Earnings Conference Call. 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 1 on your touch-tone phone. To withdraw your question, please press star, then 2. Please go ahead.

Great. Thank you, operator. Good morning and welcome to Regal Rexnord's fourth quarter 2025 earnings conference call. Joining me today are Louis Pinkham, our chief executive officer, and Rob Rehart, our chief financial officer. I would 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 regalrexnor.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. During the slide three, let me briefly review the agenda for today's call. Louis will lead off with opening comments and a review of our fourth quarter and full-year performance and a discussion of our recent data center wins. Rob Rahard will then present our fourth quarter financial results in more detail and introduce our 2026 guidance. We'll then move to Q&A, after which Louis will have some closing remarks. And with that, I'll turn the call over to Louis.

Thanks, Rob, and good morning, everyone. Thanks for joining us to discuss our fourth quarter results and to get an update on our business. We appreciate your continued interest in Regal Resnord. Before we get into the quarter, I want to provide you with an update on the CEO search. The board search committee has been working diligently and our process is progressing as expected. We will update you as new information becomes available. Now, on to our results. Our team delivered solid fourth quarter performance, ending the year on a high note. Fourth quarter aligned with our expectations on adjusted earnings per share. We saw tremendous order strength and a backlog exiting 2025 up 50% versus prior year, giving us extremely positive momentum as we begin 2026. While our data center business is clearly performing exceptionally well, We also saw healthy orders in other parts of our business, especially discrete automation and aerospace and defense. Before continuing, I want to take a moment to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution, in particular, driving our new product pipelines, our cross-sell initiatives, and building our commercial funnels to drive stronger and more profitable growth. Now, let me provide some specifics on our fourth quarter performance, starting with orders. Orders in the quarter on a daily basis were up 53.8% versus prior year, and book to bill was 1.48. In the quarter, we booked orders worth approximately $735 million for our new EPOD solution, which comprises our proven power management content, including switchgear, automatic transfer switches, and power distribution units. You may remember we discussed DPODs on our third quarter call when we dimensioned an opportunity funnel worth over $400 million and a billion-dollar funnel for our data center business more broadly. In Q4, we also built momentum in discrete automation, which saw orders grow 9%, In aerospace and defense, with orders up 21%, and in IPS, where orders grew over 3%, in which we believe reflects outperformance in end markets that were challenged by a sub-50 ISM. Excluding the large EPOD orders, our enterprise orders grew 2.7% in the quarter. Shifting to sales. Our sales in the quarter were up 2.9% versus the prior year on an organic basis, demonstrating accelerating organic growth. We saw particular strength in AMC, which grew over 15% organically. The AMC team did an excellent job executing its backlog and benefiting from share gains in its largely secular markets. We saw weakness in PES in the quarter, which was more severe than expected, given headwinds in the residential HVAC market. IPS continued to achieve steady growth, outperforming sluggish industrial markets. Turning to margins, our fourth quarter adjusted growth margin was 37.6%, up 50 basis points versus the prior year. Our teams overcame tariff and mixed headwinds with continued strong execution on synergies, good price realization, and benefits from volume leverage. Adjusted EBITDA margin was 21.6%, roughly flat versus prior year, reflecting our gross margin expansion, volume leverage, and disciplined discretionary cost management, which offset higher growth investments. Adjusted earnings per share for the quarter was $2.51, up 7.3% versus the prior year. Lastly, we generated $141 million of free cash flow in the fourth quarter. We ended the quarter with our net debt leverage coming down to 3.1%. In summary, a strong fourth quarter characterized by solid adjusted EPS growth exceptionally strong orders, and a rising backlog, giving us positive momentum as we begin 2026. At the beginning of a new year, it is always good to reflect on the success of the prior year. In 2025, our orders grew 15.5% for the year on a daily basis, led by AMC up 53%, followed by IPS up 4% and PES, which was down 5%. Sales for the year were up 80 basis points on an organic basis with acceleration as the year progressed. Strength in aerospace and defense, discrete automation, energy, data center, commercial HVAC, and an incremental $90 million of cross-sell and powertrain synergies were partially offset by headwinds in general and industrial and medical. Turning to margins for 2025, our adjusted EBITDA margins were 22%, roughly flat to the prior year on a comparable basis, reflecting good execution in a tough operating environment. Our teams overcame headwinds from tariffs, rare magnet availability, and mix by effectively executing on synergies worth $54 million in addition to price realization discipline and good discretionary cost management. Adjusted earnings per share for the year was $9.65, up nearly 6% versus the prior year. Adjusted free cash flow was $893 million, including the ARS program we launched in second quarter. Our cash flow allowed us to pay down over $700 million of debt in 2025. In summary, I would characterize 2025 as a year of executing a wide range of growth initiatives which are starting to pay off, giving us increasingly positive momentum. It was also a year of achieving margin stability in the face of external pressures outside of our control. As we enter 2026, I believe we are extremely well positioned, in particular given traction on our growth initiatives. One of these initiatives in the data center market is where I'd like to turn next. On this slide, we are providing additional details on the orders we received during fourth quarter for our e-pod offering. As discussed on our third quarter call, these turnkey power management solutions, which we launched in early 2025, are designed to expedite data center construction by making the installation of power management content more plug and play. The pods, which are tailored to specific customer needs, comprise content drawn from our longstanding power management portfolio, which includes switchgear, transfer switches, and power distribution units, as well as from our thermal management offering, which includes hermetic motors and air moving solutions. Regal is also project managing assembly of the pods, including content from third parties. So part of our value proposition is providing a single source of contact for the customer and allowing customers to procure a suite of power management content with a single SKU. As you can see on this slide, we were awarded orders for EPODs with a base value of approximately $735 million. So why are we winning this business? It starts with our 50-year track record of quality and performance in power management. Our product solutions are tried and true. Second, our customization capabilities. This is a differentiator for Regal, an ability and willingness to customize the system design to best meet the needs of our customer. Third, the strength and durability of our supply chain relationships, which help enable the next success factor are high service levels around on-time delivery and lead times. Equally important, we have shown across our business an ability to support high service levels while manufacturing at scale. Another driver of these wins, the scale and scope of Riggle Reshnort. Orders of this magnitude are facilitated by the backing of our $6 billion enterprise. Customers value our ability to balance agility and velocity with discipline execution as they contend with a feverish pace of AI-driven development. In short, we are seeing the power of our evolved Regal Reshnord portfolio to support differentiated growth. As part of the new Regal Reshnord, what was a $30 million power management business five years ago and an $120 million business today, has a defined path to roughly $1 billion in sales over the next two years. Viewed more holistically, these wins demonstrate that our enterprise growth strategy is gaining momentum. In particular, investing to address rising demand in targeted secular markets. We are working the strategy in many areas, which is where I would like to turn next. On this slide, we highlight key secular growth verticals where we are directing the majority of our new product, e-commerce, and channel investments. In the middle column, we provide examples of new products we have launched to address relevant customer needs in each vertical. And on the right, we highlight a few notable examples where we are seeing traction in the marketplace. We already discussed e-pods and the data center market. Our electromechanical actuators for the emerging eVTOL market, which we developed through a partnership with Honeywell, is another great example. Various third-party forecasts are calling for significant growth in eVTOL unit volumes in the coming years, and we are well-positioned, with over $200,000 of ship-set potential per plane. Next, our Cole Morgan Essentials product. which launched at the end of 2025, where we are leveraging our motion control technology for the ultra-premium market in an offering designed for the much larger high and mid-premium market segments. Initial market reception has been strong, and we believe we are on track to meet our goal for $50 million of sales from this new offering by 2028. Finally, we have developed a range of differentiated solutions to support robotic actuation, which spans humanoids, cobots, and robotic surgery applications. Our teams are currently working an opportunity funnel in excess of $200 million across these applications and have already been experiencing strong double-digit compounded growth in robotic actuation in recent years. The common theme here is Regal Rechnort making a range of growth investments in high potential secular markets, which are starting to pay off. What we are experiencing in data center is one more advanced example. Positively, we see tremendous additional upside as both our offerings and earlier stage markets, such as eVTOL and humanoids, continue to mature. And with that, I will turn the call over to Rob.