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Presentation

Operator: Good day, and welcome to the Regal Rexnord First Quarter Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Rob Barry, Vice President of Investor Relations. Please go ahead.

Rob Barry: Great. Thank you, operator. Good morning, and welcome to Regal Rexnord’s first quarter 2025 earnings conference call. Joining me today are Louis Pinkham, our Chief Executive Officer; and Rob Rehard, 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 the presentation materials.

Turning to Slide 3, let me briefly review the agenda for today’s call. Louis will lead off with his opening comments and overview of our first quarter performance and a discussion of our business serving the humanoid market. Rob Rehard will then present our first quarter financial results in more detail, review our 2025 guidance and provide an update on tariffs. 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.

Louis Pinkham: Great. Thanks, Rob, and good morning, everyone. Thanks for joining us to discuss our first quarter results and to get an update on our business. We appreciate your continued interest in Regal Rexnord. Before we dig into the material on this slide, let me share a few high-level thoughts on our first quarter performance and the current environment. We began 2025 feeling cautiously optimistic about our improving growth prospects. We had seen 3 quarters of positive orders growth and we believed as we still do, that most of our end markets are at or near trough levels of demand and are starting to slowly rebound. This positive momentum continued in the first quarter. We saw further orders growth and all of our segments outperformed the targets we set last quarter.

So a very strong start to the year, which we believe provides evidence of healthy underlying momentum in our business. This momentum contributed to our decision to reaffirm our earnings guidance for the year. Regarding tariffs. Changes to U.S. trade policy have clearly raised uncertainty on several fronts, in particular regarding the macro outlook. And so during this period, we have been staying close to our customers and while they broadly acknowledge the heightened uncertainty that tariffs have caused, to date, we have seen little evidence of changes to planned spending. Now perhaps it is too early to see material changes, which is why we will be monitoring demand patterns closely and aim to share more on this front, if and when conditions materially change.

For now, our teams are focused on executing our many growth, synergy and cash flow acceleration plan. We are also hard at work implementing our robust tariff mitigation plan with urgency. Rob will share more on this topic, but the punchline is that we expect our mitigation plans to fully neutralize current tariff impacts on our 2025 EBITDA and earnings with a goal to be EBITDA margin neutral in the first half of 2026. So before continuing, I want to take a moment to thank our 30,000 Regal Rexnord’s associates for their hard work and disciplined controllable execution for delivering a really solid start to 2025 above our expectations and for efforts underway to manage tariff impacts and pursue opportunities presented by the disruptions caused by tariffs to take share in the market.

Now, let me provide some specifics on our first quarter performance, starting with sales. Our sales in the quarter were up 0.7% versus the prior year on an organic basis or 2.3% on a daily organic basis. Strength in Resi HVAC, Aerospace and Energy markets were key contributors along with discrete automation, which invited to grow after seven quarters of decline. Orders in the quarter on a daily basis and excluding currency impacts, were up 3.3% and book-to-bill was 1.07 [ph]. Notably, ITS orders were up nearly 9% with PES up just over 1%. AMC orders were down 3%, but up 2% excluding the data center business where from time to time we can experience order lumpiness. On a 12-month rolling basis, AMC’s orders are up nearly 7%. This marks our fourth quarter in a row of positive enterprise-level orders for Regal.

In April, daily organic orders were down 1.8%, largely reflecting aerospace project timing in AMC and anticipated Resi HVAC order rebalancing and PES, while orders in IPS were up about 1% after a 9% increase in Q1. Rob will elaborate on the segment dynamics in his section. Turning to margins. In first quarter, our margins continued to expand. Our adjusted gross margin was 37.9%, up 50 basis points versus the prior year, excluding Industrial Systems. Our progress on gross margin was aided by achieving $18 million of cost synergies in the quarter. Adjusted EBITDA margin was 21.8%, up 30 basis points versus the prior year, excluding Industrial Systems aided primarily by synergy benefits. Notably, all three segments exceeded their margin targets in the quarter helped by stronger volumes and good cost management by our teams.

Adjusted earnings per share in the quarter was $2.15, up 7.5% versus prior year or up approximately 10% adjusted for the net impact of the Industrial Systems Divestiture. Lastly, we generated nearly $86 million of free cash flow in the quarter, up 32% versus prior year, which we consider strong performance in the seasonally weaker period and contributed to Regal paying down $164 million of debt in the quarter. Cash generation and debt paydown remain an important part of our midterm value creation story. In summary, a very strong start to the year that we believe supports the healthy underlying momentum in our business. Next, I’d like to shed some light on an exciting part of our portfolio that we have not spent a lot of time talking about in the past, our offering for the humanoid robot market.

This market is still in the early stages of development, but it is attracting substantial investments across a wide range of end markets. It should not surprise you to learn that Regal Rexnord is very well positioned in this space with our automation portfolio and that we are gaining momentum here. So much so that our humanoid offering could start moving the needle on our enterprise sales growth rate over the next few years. On the left-hand side of this slide, we outlined why we are strongly positioned in this space. It starts with our deep domain expertise, in particular, in our discrete automation business in AMC, but also in parts of IPS. Our automation teams have worked on humanoid projects for decades, including on some milestones in the history of humanoid development such as creating rescue robots for the U.S. Defense Department or the first humanoid Robonaut used in space by NASA.

Our core expertise lies in product engineering, quality and reliability. We are a quality leader in precision motion control providing essential products that ensure the coordinated movement of the robots’ axis, such as arm and leg joints. Our engineers have a history of working very closely with our customers, and in many cases, become an extension of an OEM humanoid engineering team. While most of our work in this space has historically been on specific humanoid projects, we are starting to work with OEMs looking to produce units on a regular basis at scale. Producing at scale is one of our core competencies, which we can execute on a global basis. Finally, the scale and scope of our portfolio puts us in the unique position of being able to offer integrated solutions, which is something our customers increasingly value and is very much aligned with Regal’s strategy.

In fact, some of our significant recent wins in the humanoid space are solution sales. On the right side of the slide is our product offering. It includes a range of highly engineered components, including frameless motors and miniature servo motors sold in our AMC segment, along with high-precision bearings and brakes from our IPS segment. We are also selling integrated solutions comprised of these components such as the actuator system pictured on the slide. In fact, Regal Rexnord was recently selected to provide an integrated solution critical for performing tasks with human-like dexterity. This solution includes motors, bearings and actuators, all areas where Regal Rexnord has extensive expertise. Outlined in the lower left, market forecasts for humanoid growth are wide ranging, but they generally call for strong double-digit CAGRs north of 50% for at least the next decade.

A recent Morgan Stanley industry report, for example, expects humanoid robot production and CapEx to grow to an $80 billion market over the next 10 years from less than $1 billion today. Reshoring of manufacturing back to the United States should have a positive impact on this market and automation in general, where we are well positioned. Based on our business analysis and ongoing discussions with leading customers in this field, we foresee midterm opportunities to provide solutions for developing all the joints essential for a humanoid robots mobility. We have also secured several recent wins on this front with leading humanoid manufacturers worth over $20 million in sales annually, which are scheduled to ramp over the next 12 months to 18 months.

These wins cover between 30 and 50 axes of motion per robot and include both Regal Rexnord components and integrated solutions. In addition to these wins, our team has a funnel of opportunities worth approximately $100 million that we are actively working. I am extremely excited about our momentum in this space, so you can expect to hear more from us, as this rapidly growing market evolves. And with that, I will turn the call over to Rob.

Rob Rehard: Thanks, Louis, and good morning, everyone. I’d also like to thank our global team for their hard work and disciplined execution in the quarter. Now, let’s review our operating performance by segment. Starting with Automation & Motion Control, or AMC, net sales in the first quarter were up 40 basis points to the prior year period on an organic basis and nicely above our expectations. The performance primarily reflects strength in the Aerospace & Defense business and a return to growth in discrete automation, which was partially offset by weakness in general industrial and medical. The inflection to sales growth in discrete automation, which was up 12% to the prior year period is a noteworthy positive after a sustained period of pressure in that end market.

We see growing positive momentum in this market based on our higher shippable backlog in the second half of the year and into 2026, which is also expected to be mix positive for the segment. AMC’s adjusted EBITDA margin in the quarter was 21.8%, which was almost two points above our expectations, on stronger mix aided by discrete automation inflecting to growth as well as benefits from higher volumes and good cost management by the team. Orders in AMC in the first quarter were down 3% versus prior year on a daily basis and excluding FX impacts. However, if we exclude data center, where we are seeing some project lumpiness, orders for AMC were up 2% in the quarter. Book-to-bill in the first quarter for AMC was 1.02. This project timing lumpiness is also reflected in April’s order performance when orders for AMC were down 6% on a daily basis due entirely to our Aero business.

This is not something we are concerned about because Aero orders have been strong for some time, and we have a greater than 12-month backlog in this business. Given the longer cycle and project-driven characteristics of our AMC business, we think it is also important to look at orders on a rolling basis. As Louis mentioned, on a rolling 12-month average basis through first quarter, AMC’s orders are up nearly 7%, so we continue to feel good about the order momentum in AMC, where backlog has been building. In particular, the segment’s second half shippable backlog is up low teens versus this point last year, which is a key driver of the stronger second half sales performance we expect in AMC this year. Turning to Industrial Powertrain Solutions or IPS.

Net sales in the first quarter were down 3.4% versus the prior year period on an organic basis or down 1.9% on a daily organic basis, which was in line with our expectations. The decline reflects significant, but expected weakness in the machinery/off-highway market as well as project timing in metals and mining, partially offset by strength in energy markets. By region, IPS sales in its core North America market were up low single digits in the quarter, which was more than offset by weakness in China, Europe and Rest of World. Adjusted EBITDA margin for IPS in the quarter was 26.9%, about 90 basis points above our expectations and up 110 basis points versus the prior year. The upside versus our guide was largely tied to stronger mix with the improvement versus prior year aided mainly by synergies.

Orders in IPS on a daily basis and excluding FX impacts, were up nearly 9% in the first quarter. We believe this strong performance reflects further outgrowth, in particular, wins on projects in the attractive metals and mining and marine markets. It is helpful to recognize that order bookings in our IPS segment are increasingly waited to longer cycle orders especially with our strategic focus on selling industrial powertrain systems. The business is split roughly 50-50 between OE and aftermarket. We would say the aftermarket business is predominantly short cycle and the OE business is split roughly – evenly between short and longer cycle, implying that 25% to 30% of IPS overall is longer cycle. As the longer cycle portion of IPS continues to grow, it should give us more visibility into our revenue performance and improve our ability to manage through market cycles.

Book-to-bill in the first quarter for IPS was 1.13. In April, orders on a daily organic basis were up 1%, which we find encouraging given the strong nearly 9% orders growth that IPS achieved in the first quarter. Turning to Power Efficiency Solutions or PES. Net sales in the first quarter were up 8% versus the prior year on an organic basis, which was above our expectations. The result largely reflects strong growth in Residential HVAC, which was up nearly 30% in the quarter. This is partially offset by modest declines in the general commercial market. Versus our expectations, Resi HVAC markets were notably stronger. Overall, we were very pleased to see this segment return to growth and are cautiously optimistic this positive momentum can continue.

We would attribute the particular strength in Resi HVAC to a few factors: first, a strong furnace season. Second, destocking impacts after last year’s prebuy were smaller than anticipated, but may still become more significant in the second quarter. Finally, we likely saw some buying ahead of tariff-related price changes. In short, there is a lot of noise currently in the Resi HVAC data and channel. And so for now, we are remaining measured in our approach to forecasting this business. The adjusted EBITDA margin for the quarter for PES was 14.2%, which was above our expectation, aided by higher volumes, better mix and strong cost management. Orders in PES for the first quarter were up just over 1% on a daily basis and excluding FX impacts.

This result is above our expectations given anticipated headwinds related to destocking in Resi HVAC. Book-to-bill in the quarter for PES was 1.02. Daily orders for PES in April were down almost 2%, which is consistent with our expectation that we would see some modest headwinds to orders related to Resi HVAC destocking and weakness in the non-U.S. commercial HVAC business. On the following slide, we highlight some additional financial updates for your reference. Notably, on the right side of this page, we ended the quarter with total debt of approximately $5.3 billion, and net debt now sits just below $5 billion. We repaid approximately $164 million of gross debt in the quarter. Of further note, we ended the quarter with variable rate debt of roughly $290 million, representing just over 5% of our total debt outstanding, which we expect to have substantially repaid by the end of the third quarter.

Adjusted free cash flow in the quarter was $85.5 million, which was primarily deployed to debt reduction. We plan to continue deploying the majority of our free cash flow to debt reduction in 2025. Turning to the outlook. Today, we are reaffirming our 2025 guidance, including sales, organic growth, adjusted EBITDA margin, adjusted earnings per share and our prior adjusted EPS range of $9.60 to $10.40. All our assumptions are outlined in the table on the right-hand side of this slide. While we are pleased with our performance in the first quarter, given we are only one quarter into the year and considering the current macroeconomic uncertainty, we believe it is prudent to remain measured in our approach to guidance. As a result, we are not flowing the strong first quarter outperformance into our guidance.

Regarding tariffs, we expect our mitigation actions, which I will discuss in more detail on the next slide, will neutralize the impact of tariffs on our 2025 adjusted EBITDA and earnings per share. I would note that to date, we have not seen clear signs of tariff-related demand deterioration in our business. Our teams have been close to our customers in recent months regarding this topic. And while they are hearing broad-based acknowledgment of heightened uncertainty, we have had little feedback regarding changes to planned spending. Of course, tariff dynamics have been volatile and playing out over a relatively short period of time. So it may simply be too early to be seeing clear signs that spending will be impacted. Regardless, this is something we are monitoring closely and intend to provide an update on the demand outlook if and when material new information becomes available.

Finally, before I leave this slide, I want to share a few thoughts on the various tariff-related crosscurrents that could impact Regal Rexnord, dynamics that we have not factored into our guidance. On one hand, we see potential sales upside from tariff-related pricing, new share gain opportunities and more favorable currency rates. On the flip side, we could see weaker demand due to a softer macro environment and/or elasticity in response to our higher prices. We believe it is premature to say with any precision how these dynamics may play out. But at this time, we believe the positives likely outweigh the negatives. On this slide, we are updating our expectations regarding tariff impacts and how we are responding. In the first column on the left, we lay out the annual unmitigated cost impact from tariffs in place at the time of our March 19 tariff update.

The estimated gross annual impact at that time totaled approximately $60 million, broken down between steel/aluminum, Mexico/Canada and China as detailed on the slide. There was no Rest of World impact at that time. At March 19, our mitigation actions were expected to neutralize tariff impacts on our adjusted earnings per share within the year and to result in a neutral impact to EBITDA margins by the end of this year. In the next column, we are updating these estimates based on tariffs in place as of yesterday, May 5, when we released our earnings. The gross annualized unmitigated impact is now $130 million, again, broken down on the slide by category and region. The main changes since our prior update are a larger impact from China and adding impacts from Rest of World.

You can see further down that column that we still expect our mitigation actions to result in tariffs having a neutral P&L impact within this year and a neutral EBITDA margin impact by mid-2026. Notably, the majority of today’s update relates to higher China impacts given we have limited exposure on Rest of World. On the right-hand side of the slide, we lay out our principal mitigation actions, which we started to implement during the first quarter. These include supply chain realignments, production relocations, productivity measures and pricing actions. We have early positive momentum behind these actions, which bolsters our confidence we can fully mitigate tariff impacts on our P&L. We are prioritizing actions other than price in order to minimize tariff cost impacts for our customers.

And given the flexibility of our global manufacturing footprint and our in-region, for-region manufacturing strategy, we believe these can have a meaningful impact. That said, we still expect that pricing will be an important contributor to our mitigation efforts, and we started to take tariff-related pricing actions in the first quarter. We also share a few other tariff-related considerations. One, approximately 95% of our imports to the U.S. from Mexico and Canada are USMCA compliant. Two, we are dual country sourced on a majority of our imports to the U.S. from China. Three, our flexible global manufacturing footprint is enabling production moves outside of China, many of which are currently underway. And finally, the Rest of World impact on Regal is relatively small, reinforcing our in-region, for-region strategy.

The bottom line is that we are confident under tariffs currently in place, our mitigation actions should neutralize tariff impacts on our adjusted EBITDA and earnings per share in 2025 with margin neutrality occurring mid-2026. On this slide, we provide more specific expectations for our performance by segment on revenue and adjusted EBITDA margin for second quarter and for the full year. While our full year assumptions are largely unchanged, I will flag one update. We moved the PES sales guide from down low single digits to approximately flat, considering that segment’s strong start to the year, plus our view that some of that positive momentum will carry into the second quarter. We now expect all of our segments to see roughly flat sales in 2025 versus the prior year, which is consistent with our enterprise-level expectation for flat organic growth.

As I wrap up my prepared comments, I’d like to emphasize three points. One, while recent trade policy turmoil is creating some uncertainty, we feel very good about our ability to achieve tariff-related cost and margin neutrality. Two, we believe the underlying momentum in our business is positive. We have now had four quarters in a row of positive orders. And compared to the same time last year, our backlog scheduled to ship in the second half of this year is up low double digits in AMC and up high single digits in IPS, which gives us confidence in our full year guide. And three, even if we do encounter some macro frictions ahead, we still have many levers to pull to create shareholder value, which include $90 million of remaining cost synergies, ample sales synergies, opportunities to materially shift our capital structure to equity as we generate cash and pay down our debt, a range of outgrowth initiatives and expected share wins due to tariff uncertainty.

In summary, we are confident we will create value for our shareholders in 2025 and beyond. And with that, operator, we are now ready to take questions.

Operator: [Operator Instructions] And the first question comes from Mike Halloran with Baird. Please go ahead.

Mike Halloran: Hey, good morning, guys.

Louis Pinkham: Good morning, Mike.

Mike Halloran: So, let’s start on the long cycle versus short cycle side of things. Can you just talk through the dynamics you’re seeing on that side? I know you touched on it briefly by segments earlier, but maybe holistically, how you’re seeing the long-cycle orders, how the shorter cycle business is tracking as we move through here? Any changes? And then secondarily, is there any change to the expectations on how the second half long-cycle projects that you talked about last quarter, how those roll through in the second half at this point?

Louis Pinkham: Yes, Mike, I appreciate the question. We’ve seen some good momentum on winning longer-cycle larger projects, especially in our IPS segment. And this really aligns directly with our strategy there of leveraging the capabilities across the industrial powertrain to win more. So we feel really good about sales – excuse me, orders in the quarter being up roughly 9% and then even coming off of that, orders being fairly strong in April. From a short-cycle perspective, we’re really not seeing any significant changes there, fairly stable. If you look just specifically to IPS, short-cycle orders were up roughly 2% in Q1. And so I feel fairly good. From a second half perspective, we certainly, with the strength of the performance in the first quarter, we were able to balance a little bit more of the growth expectations of the second half.

At this point, we’re expecting the second half to be up only about 1%. As Rob said in his prepared remarks, we actually have backlog for the second half for IPS that’s up roughly high single digits and for AMC, that’s up low double digits, which gives us really pretty solid confidence in our forecast for the second half. And so at this point, we’re not changing anything with our expectations of long-cycle shipping in the second half and feel pretty good about the – feel really good about the guide at this point.

Mike Halloran: Thanks for that. And then a follow-up question. Maybe just talk about the competitive position here. I know, Louis, you alluded to it in your remarks, and Rob is certainly more explicit, but maybe some thoughts about the competitive positioning with your footprint and how you source and where the opportunity set for some share gains resides within the portfolio?

Louis Pinkham: Yes. Thanks for the question, Mike. We won’t speak specific to a competitor. But overall, on the whole, we believe we’re in a net advantaged position given our global manufacturing footprint and a lot of our dual country sourcing. I mean if you think about the – from the first set of tariffs to the second set of tariffs that we showed on the slide, we’re actually only seeing about a $70 million uplift. Rest of World has a fairly small impact on us, and that just shows you that we’ve been working on an in-region, for-region sourcing strategy for quite some time, in particular, for our PES and IPS businesses, but we’re absolutely seeing share opportunity because of the footprint in AMC as well. So we think this is a net positive for Regal and expect to see some benefits over the next few quarters.

Mike Halloran: Thanks, Louis. Appreciate it.

Louis Pinkham: Yes, thanks Mike.

Operator: And your next question comes from Julian Mitchell with Barclays. Please go ahead.

Julian Mitchell: Yes. Hi, good morning. Maybe just my first question was just around the EBITDA margin outlook. So I think you’ve got sort of 22% dialed in for the first half, 24% in the second half. Maybe just talk through some of the drivers of that step-up? And how do you see tariffs affecting the margin progression of Regal through the balance of this year?

Rob Barry: Yes. So first of all, for perspective, our guidance implies about 1% growth year-over-year in the second half, slightly weighted to fourth quarter versus third quarter. From a margin standpoint, we do expect to step up in the back half from a margin perspective, primarily in AMC. And the drivers there are around mix and volume, along with some price synergies and restructuring. So mix is the primary driver given the recovery of discrete automation, where margins are, let’s say, roughly 500 basis points above our fleet average. From a progression and then way the tariffs should roll through in the year, we will capitalize the cost of the tariffs, which will then hit the P&L as our inventory turns. And so there is going to be a lag there. And it’s hard to calibrate precisely. There could be some small timing impact from quarter-to-quarter. But again, we feel very confident in our ability to be EBITDA neutral by the end of the year.

Julian Mitchell: Great. Thanks. And my second question, just on the PES, revenue outlook as that’s the one segment where the guide changed this morning. Maybe dial a little bit deeper into the second half assumptions on top line. So I guess you’re saying first half is up mid-single digits year-on-year in sales, I think at PES, full year is flat. I realize there’s a tougher comp in the fourth quarter and so on, but maybe just sort of help us understand the degree of conservatism or otherwise in that second half PES guidance, please?

Louis Pinkham: Yes. Thanks for the question, Julian. We think it’s – we’re very pleased with the performance of the first quarter and the strength of the first order. However, we think it’s a bit too early to assume that strength will pass through the year, especially given what we’re seeing from hardy results, consumer confidence and housing weakness. And although we have pretty good line of sight to Q2, we are expecting the second half to be slightly down. And really what’s weighing on us is the macro. And so that’s how we pull together the forecast for PES.

Julian Mitchell: Great. Thank you.

Rob Barry: Thank you.

Louis Pinkham: Thanks, Julian.

Operator: And your next question comes from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeff Hammond: Hey, good morning, guys.

Louis Pinkham: Good morning, Jeff.

Jeff Hammond: Just to hit on the $130 million of tariffs, is there a way to break down how you think about mitigating that? How much is price – maybe how to rank order some of these other mitigation initiatives?

Louis Pinkham: Yes. So we put it in order of what we think is going to be the major drivers. So we haven’t tried to break it down more specifically Jeff, to percentages, but we do see supply base realignments as being the driver. Then second to that, production relocations and our productivity actions. And then for sure, we’ll have to leverage price and surcharges to be able to offset. But, in the end, we feel very confident about our EBITDA neutral by the end of this year and margin neutrality by the middle of next year.

Jeff Hammond: Okay. And then two margin questions. I guess, one, what’s the step down in IPS 1Q to 2Q? Is that just mix? Or is that a tariff timing issue? And then on the margin – you lifted the margins on PES, and I’m just wondering if that’s just the strong 1Q or if there’s something else going on to drive that as well?

Rob Barry: Yes. So the – first of all, your first question on IPS – largely the first quarter to second quarter is going to be around mix more than anything else. So it will be – it’s a mix of business within IPS and how we see that translating. Your second question related to…

Louis Pinkham: PES…

Rob Barry: The PES business…

Louis Pinkham: And it’s really just the flow-through of the Q1 performance for the year.

Rob Barry: That’s right. There is really not much of any more – and some cost – there’s also some cost savings that are embedded in the fourth quarter, in particular, and some price that’s improving the margins as we move through the year there. So that’s also contributing to the margin improvement as we move through for PES.

Louis Pinkham: And it’s basically the same pattern that we saw last year, Jeff.

Jeff Hammond: Okay. Great, thanks.

Louis Pinkham: In PES that is.

Operator: And your next question comes from Kyle Menges with Citigroup. Please go ahead.

Kyle Menges: Thank you. I think you had said you’d seen some prebuy at least in PES ahead of tariffs in the quarter. Did you get the sense that there was any other maybe prebuying in the first quarter ahead of tariffs? I think IPS orders up 9%, was particularly strong in the quarter. So was some of that prebuy? It would just be helpful to hear your sense of that in the quarter for the segments.

Louis Pinkham: Yes. Good morning, Kyle and we were trying to stay very close to our customers to understand this. When you look at the profile of the orders in IPS, they were mostly longer cycle, larger orders. And so not really – not at all prebuy driven. And we saw low single-digit growth in orders in the short cycle in IPS. So we didn’t feel – maybe there’s a scattering here and there, but nothing that we would call out material other than we do think perhaps some of the Resi HVAC was a bit of a prebuy, and we heard that from some customers.

Kyle Menges: Got it. That’s helpful. And then I thought synergies in the quarter of $18 million was pretty good. I mean that’s one-third of planned synergies realized in the first quarter, at least for the year. So, I guess, was that fairly in line or perhaps a little bit above what you had anticipated? And then could you just talk to your confidence in still hitting that full year synergy target of $54 million despite some of the tariff headwinds?

Rob Barry: Yes. I’d say that the $18 million that we had is very much in line with our expectations. We’re still right on track for $54 million we’ve got in the year, which means we’ve got about $90 million left in synergies coming at us. So we feel very good about it. So cadence of this year, right on track and expectations going into next year also feel really good about that based on the project activity that we’ve got going on.

Louis Pinkham: And, Kyle, we would not see any impact because of tariffs. And it really goes back to our strategy of in-region, for-region. So we’re looking at in-region for any of our synergies.

Kyle Menges: Got it. Thanks guys.

Operator: And your next question comes from Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe: Thanks. Good morning.

Louis Pinkham: Good morning, Nigel.

Nigel Coe: Hi guys. I want to go back to Jeff’s question on the 2Q margins in IPS and AMC. So Louis, I think you mentioned primarily mix, but I’m wondering if there’s a little bit of sort of tariff pressure hidden there? Or is the FIFO pushing the inflation beyond 2Q? Just curious if there’s anything impingent on those margins?

Rob Barry: Really not. I mean if you look at the guide that we put out first quarter to second quarter for AMC, you’re talking – margins are relatively flat from first to second quarter, nothing really going on there. And IPS is really more of a mix discussion than anything. There are certainly tariffs that will be capitalized, but we’ve already started that process. Will there be some slight impact there? Yes. But if anything, it would likely weigh to our benefit because the pricing already is embedded and the tariff is being capitalized. And in that business, it’s going to be three to four months. So that’s – you’re going to get a benefit, if anything, from the tariffs in the second quarter in IPS.

Nigel Coe: Yes. By the way, congratulations on moving away from LIFO accounting a couple of years ago. And then going back to this idea of kind of competitive advantage from the tariffs currently in place, we know you’ve got a pretty sizable Chinese competitor in HVAC motors. But are there any other pockets of – in your businesses where you do face Chinese or Asian competitors, particularly ones exporting still from regions?

Louis Pinkham: Really less so of Chinese competitors, but we absolutely do see some Asian competitors, especially in AMC, where we’ve already started seeing a benefit. And so this again, though, was why we’ve moved more and more to technology-based product and away from commoditized product. And so from our perspective, there’s going to be some opportunity there that we’ll be able to leverage.

Nigel Coe: Okay, I’ll leave it there. Thanks.

Louis Pinkham: Thanks.

Operator: And your next question comes from Tim Thein with Raymond James. Please go ahead.

Tim Thein: Thank you. Good morning. Maybe just first, I likely missed it. But Rob, a question as you went through in talking about everything – the guidance that was reiterated, I may have missed it, but was the free cash flow target, is that still on track for the roughly $700 million? I didn’t know if I saw that.

Rob Barry: It is still on track for $700 million in the year or an exit rate of $900 million. So all still on track.

Tim Thein: Got it. Okay. Good. And then just a question on IPS, obviously, not the biggest part of the business. But when you’re going through the comments from a regional performance, it stood out in terms of the implied year-over-year declines outside North America. Maybe, Louis, again, not something that is going to get a ton of airplay, but I mean, I think it would imply down like 20%, assuming I heard you correct in terms of North America. Can you just maybe spend a minute on that in terms of maybe going forward, your expectations for that non-U.S. part of IPS?

Louis Pinkham: Yes, you’re right. It’s actually probably low to mid-teens when you do the math out. Europe is certainly – the industrial economy in Europe has been weak and so has it been in China. I would comment, though, that 2024, we saw the flip actually. North America was down low single digits, but Rest of World was up, which allowed us to have roughly flat sales. Right now, we are and feel good about outgrowth in the U.S. that’s going to help us through this year. And we’re still expecting Rest of World to be slightly down. That’s in our guide to be flat for IPS for the year.

Tim Thein: Okay. All right. Understood. And then on AMC, just thinking as we look into the back half of the year, I think you’ll – assuming I did the math correct, you should be exiting the year from an EBITDA margin perspective at or kind of near the midpoint of that – the target you outlined for 2027 of call it, mid-20 percent-ish. Is that – as you think about the projected mix of the revenues, obviously, a little heavier from where you are today in automation. Is that kind of a reasonable run rate from a product mix standpoint? Or is there something that you would kind of caution against reading too much into that? Because it’s – I guess the simple question is that implies you’re exiting the year, near the target that you outlined. So I just wanted to kind of gauge your comfort level on that. Thank you.

Louis Pinkham: Yes. I know it’s been two years now, but the compelling strategy of acquiring Altra was to get the automation business. And that automation business, we believe, will grow and grow at an accelerated pace. And it does have margins that are roughly 500 basis points above our fleet. And so for that perspective, we would expect our EBITDA margins to continue to tick up just because of mix over time. So we do think that 24/7 does start to become a very good number going forward.

Tim Thein: Got it. All right, thank you, Louis.

Operator: And your next question is a follow-up from Nigel Coe with Wolfe Research. Please go ahead.

Nigel Coe: Thanks for the second part of the cherry here. So Louis, you spent 10 minutes talking about humanoids. So it’d be remiss not to ask a question on this. So I’m just wondering the opportunity funnel of $100 million, is this sort of – what are you sort of bidding on today in terms of what’s out there? And is this a supply chain that’s largely in China? Or is it – because obviously, that’s where we hear most of the activity from, but is this more global than that? Or is it mainly just Chinese business?

Louis Pinkham: Yes. Nigel, I appreciate the question. It’s not mostly China business actually. But the $20 million of annualized business that we won in the last quarter is not Chinese-based and would not be supplied from China either. So that $100 million though funnel, Nigel, I’d say it’s global, but I do not have a further breakdown of what that means. But I can tell you, again, the wins were not Chinese-based wins as a – or a majority. There’s a little bit in there, but mostly North American centric.

Nigel Coe: Okay, great. I’ll leave it there. Thanks.

Louis Pinkham: Yes. Thanks.

Operator: [Operator Instructions] Your next question comes from Christopher Glynn with Oppenheimer. Please go ahead.

Christopher Glynn: Thank you. Good morning. Just going back to the IPS margin guidance, I wanted to dive into the mix effect. Are you seeing distribution kind of static and OEM picking up – because I’m not aware of other mix variations you’ve talked about in the past at IPS?

Rob Barry: Yes. The answer – short answer is yes. That is what we’re seeing. More OEM versus distribution, which is aligned with our strategy as we’ve been discussing on the first – from the first-fit strategy.

Christopher Glynn: Okay. And it sounds like on the share opportunity related to tariffs and your advantaged footprint, you’re talking about some real-time things we’ll be seeing this year. So are you seeing – you’re actually negotiating with customers right now? And is that continuing to pick up momentum?

Louis Pinkham: Yes, Chris, absolutely. Each one of our businesses have different profiles. Right now, we’re not saying that it could be significantly material to the year, but feel good about the way we’re positioned. And again, I draw you back to the tariff slide where we have been working for quite a while to be in-region, for-region. And so a step-up of – I don’t like using the word only when I talk about a $20 million cost impact, but for Rest of World being a $20 million step-up and then China being $60 million, it tells you that we supply in region, for region, which puts us in a preferred position in a number of our businesses.

Christopher Glynn: Okay. Great. And anything you win that would tend to be sticky, I guess, right? It would hang around on a repeat basis?

Louis Pinkham: Well, especially as we’ve been working hard, Chris, on moving to more technology-based businesses, once you get in and you can serve well, you stay. And we feel really good about being able to do that. But getting in the front door is sometimes more difficult. So if this opens that door for us, awesome.

Christopher Glynn: Sounds good. Last one for me is on AMC’s medical business. Is that a market you see taking a pause or just a little lumpy short term?

Louis Pinkham: A little lumpy short-term, not because of the demand in the end market, more around our customers and their inventory management of the channel. So we think and feel really good about this being a continued market for growth for us, and we’re investing in the market with new product and technology.

Christopher Glynn: Okay. So you think that should tip back to growth within the year?

Louis Pinkham: Yes. But we’re pulsing by the end of the year that we will return into growth going into 2026.

Christopher Glynn: Thank you. Appreciate it.

Louis Pinkham: Yes. Thanks, Chris.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Louis Pinkham for any closing remarks.

Louis Pinkham: Thank you, operator, and thanks to our investors and analysts for joining us today. Q1 was a strong start for Regal, which is allowing us to hold our guidance while also taking an incrementally more measured approach to our rest of year assumptions. As we look ahead to the remainder of 2025, we will continue to manage what is under our control. And in this regard, we see many opportunities to create value for our shareholders. We still have $90 million of cost synergies to deliver ample sales synergies, a host of organic growth acceleration projects and sizable upside from augmenting our free cash flow and paying down our debt. We believe the strength of our orders and backlog and end markets that are just starting to rebound, also create a highly favorable risk/reward profile for investors.

We acknowledge tariff-related uncertainties but are confident in our ability to manage through them with potential macro risk to the top line, but also likely upside from higher price and strategic share gain opportunities. In short, high confidence that Regal Rexnord presents a compelling value creation opportunity for our customers, our associates and our shareholders. Thank you again for joining us today, and thank you for your interest in Regal Rexnord.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.