Good day, and welcome to the Regal Beloit First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rob Cherry, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Regal Beloit's First Quarter 2019 Earnings Conference Call. Joining me today are Louis Pinkham, our Chief Executive Officer; Jon Schlemmer, our Chief Operating Officer; and Rob Rehard, our Vice President and Chief Financial Officer. Before turning the call over to Louis, I would 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 guarantees 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 the actual results to differ materially from projected results, please refer to today's earnings release and our SEC filings. On Slide 3, 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 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. Now let me briefly review the agenda for today's call. Louis will lead off with his opening remarks. Rob will then review our first quarter financial results and provide an update on our 2019 outlook. Afterwards, Jon will review the performance of our three operating segments and provide color on our markets. Finally, Louis will summarize the quarter's results and 2019 outlook, and then we will move to Q&A. Now I will turn the call over to Louis.

Thanks, Rob, and good morning, everyone. Thank you for joining Regal's first quarter earnings conference call, and thank you for your interest in Regal. Before we discuss the quarter, I would like to share with you that I'm truly honored and humbled to be Regal's fifth CEO. Regal is a company with a strong team and solid performance momentum. Our technology is differentiated and provides value to our customers. We deliver energy-efficient and highly engineered solutions, improving the life cycle of value of our customers' products and systems in an increasingly connected and conservation-minded world. I would also like to take this opportunity to thank Mark Gliebe for his outstanding contributions to Regal, and to wish him the very best in his retirement. Mark not only positioned the business for continued success, he also built an outstanding management team that I now have the fortune to lead. I would like to provide a brief overview of how I will be approaching the CEO role and also share some initial observations. First, while I have been only on the job for five weeks, I have visited a number of our facilities, met with many of our associates and have had the opportunity to review performance with Regal's three reporting segments. I have been incredibly impressed with the talent of our organization and our opportunity to drive profitable growth for our customers, our associates and our shareholders. Our products are differentiated, push the boundaries of energy efficiency and are increasingly IoT-oriented, while our customer relationships are strong and deep. There was always opportunity for improvement, but as we believe at Regal, our role is to make tomorrow better than today. My management style is simple. It starts with integrity and perfectly aligns with the Regal culture. It continues to accountability and exceeding…

Thank you, Louis, and good morning, everyone. Sales in the first quarter of 2019 were $853.8 million, down 2.8% from the prior year. Acquisitions contributed 3.9%. Businesses divested or to be exited was a negative 4%, and foreign currency was a negative 1.7% in the quarter. Therefore, organic sales decreased 1% from the prior year. Our adjusted operating margin in the first quarter was 11%. Our margin was up 60 basis points compared to the prior year. Margins benefited from volume growth in our Climate and PTS segments, productivity improvements across all segments and slightly favorable price cost. These benefits were partially offset by tougher market conditions and project timing in our commercial and industrial business. Overall, despite the topline headwinds, we saw continued operating margin improvement in the quarter. Also on this slide, I have included information on a business we divested in early April 2019. This small non-core marine transmission business was previously part of our PTS segment. Annual sales in this business were approximately $20 million. The results of this business have been excluded from our results and are not included in our 2019 guidance. As a reminder, and consistent with the way we've treated divestitures in the past, additional details related to all divestitures are included in the appendix of this presentation. In these tables, we've included net sales and adjusted income from operations for each segment by quarter and for the full-year as well as the impact on adjusted diluted earnings per share for the full-year. So you can clearly see the impact of these divestitures on our ongoing business. Our first quarter 2019 earnings per share reported on a GAAP basis were $1.99. There were four adjustments to GAAP EPS in the first quarter. The first adjustment was restructuring and related costs of $2.3…

Thanks, Rob. Good morning, everyone. I'll walk through each of the segments and give more details on organic sales and operating margin performance. In Commercial and Industrial Systems, adjusted sales were $380 million, with organic sales decreasing 6.3% from prior year. Approximately half of the organic sales decline was related to the timing of some large, higher-margin power generation projects. While this impacted our first quarter results, we expect to realize the sales from these projects in the second half of 2019, and we do not expect an issue for the full-year. We also experienced weaker industrial market demand in the quarter across Asia, particularly in China and also in Europe. In North America, we experienced weakness in the pool pump market due mainly to weather conditions. Tailwinds in the quarter included strength in the number of North America end markets, including distribution, commercial HVAC and general industrial. In addition, price was up over the prior year. Adjusted operating margin was 6% of adjusted sales, down 110 basis points to prior year, primarily driven by the timing of the large, higher-margin power generation project sales, which are expected to occur in the second half of 2019, along with the lower unit volume due to the difficult market conditions. Price/cost was neutral in the quarter. Productivity improvements and Simplification programs had a positive impact on our margins. We recognize that this was a challenging quarter for C&I, driven primarily by the timing of the large project sales, which had a sizable impact on both our sales and our margin performance. We are expecting margins to improve in our C&I segment in the second half of the year. In Climate Solutions, adjusted sales were $248 million, with organic sales increasing 3.6% from prior year. In North America, sales in residential HVAC were…

Thanks, Jon. Now let me recap what was a solid quarter from an execution perspective. Both Climate and PTS had positive organic growth and strong margin expansion. For the total company, we were able to expand adjusted operating margins by 60 basis points despite some topline challenges in our Commercial and Industrial business. This margin expansion helped drive a 13% increase in adjusted earnings per share. Using the proceeds from divestitures, we strengthened the balance sheet by paying down over $90 million in debt and reduced our leverage from 2 to 1.8. The quarter did, however, have some shortfalls. Our C&I sales growth was negative and its operating margin declined. While these results were mainly market and timing-related, reversing them will have our relentless attention. Lastly, our free cash flow, which is a key part of the Regal investment thesis, was negative due to some strategic inventory builds. We are confident that we will deliver on this key metric and generate free cash flow greater than adjusted net income for the full-year of 2019. The overall results from the quarter have us on track for the full-year. And we are reaffirming our 2019 adjusted earnings per share guidance, which would be an 11% increase at the midpoint on a comparable basis. Operator, you may now open up the lines for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Joe Ritchie with Goldman Sachs.

Hi, good morning, everyone. This is Ashay Gupta on for Joe.

Good morning, Ashay.

Yes, Louis. Welcome, and congrats on the new role. If I could just first ask a housekeeping question. Could you size for us the power-gen project, the EBIT associated with it, and if there's also cash flow implications because you have like inventory stock?

Ashay, this is Jon. I'll comment on the revenue and the margin impact. So as I mentioned on the call, if the decline and the sales related to the timing of those large projects represented about half of the organic sales decline in the C&I segment. So that will give you a relative idea of the size of the impact from a revenue standpoint on the first quarter. And it was the primary driver for the margin decline as well. So while I don't want to get into the specifics of the margin performance of that particular - those particular projects, it was the primary driver on both organic sales decline as well as the margin decline for the C&I segment.

And Ashay, this is Rob. I'll just comment on the cash flow side. I would say it's minimal on cash flow in the quarter.

Got it. And I guess, just a follow-up, high level. I saw that you took down the organic growth forecast a little bit to low single-digits from low to mid-single-digits last quarter, I think. Could you comment on which end markets are driving this —I guess, declined in the expectation?

Ashay, this is Jon again. So predominantly, the impact is in our C&I segment, as I talked about the industrial markets, the global industrial markets and specifically the international markets. And then the other driver is - we also had in our previous guidance and expectation that the list - what's called the List 3 tariffs would increase from 10% to 25% in early March. We currently have in our guidance that they'll still be remaining at 10%. That's very dynamic right now, so we're watching that very closely. But that is in our assumption right now for our full-year guidance and our comment about low single-digit expected organic growth.

Got it. And just last follow-up. On capital deployment, so your leverage continues to come down, but you don't have buybacks included in the guide just yet. So just curious on like how your thoughts around capital deployment have evolved over the last few months and like what the toggle is between M&A versus buybacks today.

Yes. Ashay. This is Louis. Historically, Regal has taken a very balanced capital allocation approach that includes investing in the business, dividend, share repurchases, M&A and paying down debt. That approach is not changing. We will, however, have a strong preference in investing in our own product and technology that drives differentiation for our customers and profitable organic growth.

Very good. Thank you.

Thanks Ashay.

Thanks Askay.

Our next question comes from Jeff Hammond with KeyBanc.

This is Trish Gorman on for Jeff. So just on the long-term targets, specifically on the margins. Can you talk a little bit more about the drivers of margin expansion throughout the year, maybe broken out by segment, and kind of how we can expect the cadence of that?

Trish, this is Jon. So I'll talk a little bit about that and see if Rob would like to add anything. So we are expecting - as we mentioned, we are expecting - our third overall, we're expecting margin improvement overall for Regal through the year. We were pleased with the performance in the first quarter. Despite some of the headwinds on the topline, we were able to derive 60 basis points of margin expansion in the first quarter. We have been pretty consistent that the three-year targets that we laid out in 2017 that we were still deriving to those three-year targets after making some good progress in 2017 and 2018. Clearly, PTS, we're going to be continuing to expect strong performance from PTS and Climate. The markets are performing well in those businesses, and we're off to good start in those businesses. We have some challenges to overcome in C&I with the first quarter start. The timing on those large project sales, we won't realize the sales from those projects until the second half. So that will continue to present some challenges for us in the second quarter for C&I. But we've put that and thought that through and included all of that in our guidance for the year, but that's kind of how we're thinking about it from a margin standpoint.

Okay, that's helpful. And then I know you guys mentioned the divestiture of a non-core marine transmission business from PTS. Have you identified any other sale candidates? And kind of any updates on divestitures?

So Trish, this is Rob. As you know, in our 2017 Investor Day, we commented that as far as our focus, innovate and simplify strategy, we would be pruning up to $200 million of our non-core underperforming businesses over a three-year period. And to date, with this update, we've pruned about $220 million in annual sales. So at this time, we're not providing a new target, but we do continue to evaluate opportunities.

Okay. Great. Thanks guys.

Great. Thanks Trish.

Our next question comes from Mike Halloran with Baird.

Hey, good morning, everyone. And welcome aboard, Louis.

Thanks Mike. Good morning.

So some questions on the FER side. Obviously, you've laid out the $40 million as kind of the cumulative benefit. If you can disassociate with that one? Does that include the pre-buy activity? Or is it - that's just the incremental benefit from the transition? Second, how do you expect that benefit to layer through the year? And what does it mean for the back half of the year? And then, third, are you anticipating any kind of gaps associated with the transition in terms of volumes just given the pre-buy activity? Thank you.

Mike, I'll make sure I hit all those questions. Let me kind of walk through it, and then you just tell me if there's anything I missed there. So first of all, the $40 million of incremental sales does not include the impact of the pre-build. So we've always laid that out saying that's the annualized impacts of the change for Regal. Now from a timing standpoint, we are expecting to see some benefit in the second half of this year, and we've included that in our guidance for the impact that will have on Climate and for the overall company. But clearly, the pre-build will - you can't think about it as $40 million divided by two will be the impact in the second half because we're going to have the pre-build that will be sales that we recognize on the standard products in the first half that will come out of the second half. But we will see incremental sales from FER in the second half, and we'll see some benefit from that. And then by 2020, we'll realize the full impact of that $40 million. It's a little dynamic because we're still trying to understand the exact impact of the pre-build on our business in the first half. We do know that pre-build benefited our first-half Climate business. We had a solid demand in North America. We believe we have solid demand even without the pre-build, but the pre-build certainly helped in the first quarter. We also expect to see some incremental demand from the pre-build in the second quarter. To help size that, we had previously estimated that the impact of pre-build on our sales would be in the $3 million to $5 million range for the first half of 2019, and we're now thinking it's going to be slightly north of that range based on what we saw happening in the first quarter. Let me just comment for a second while we're on the topic. On FER, we feel really good about our position there. We feel very good about the $40 million incremental revenue expectation. All of our new products are in place. Our capacity is there. We're ready to serve. We've got a great suite of new products there, some very differentiated technology. Our entry-level inside product has very - has high reliability. We think we're leveraging an industry-leading position with our installed base. We've put Near Field Communication capability into that product to help our customers with programming, to help them with inventory, with install. And then we have our highest-performing DEC Star product on the other end of the product spectrum that offers the highest energy efficiency solution, the lowest noise solution that uses our axial technology and helps our customers with the most difficult applications in the FER. So we think we've got every solution that a customer would need, and we're in a really good position, we believe.

Yes, you hit all the bases there. Thanks for that, Jon. And then just back from the C&I side and the other halves of the organic decline, you talked about we're seeing in the international markets. Maybe talk about how that progressed through the quarter, if you've seen any signs of stability as you've gotten into April or May here, and what that means in the projections as you move through the back half of the year?

Sure. So you look at the C&I business. So let me just kind of walk through, first of all, some of the headwinds that we had in the quarter. I'll just go back through those again. Again, they were in - on the industrial side of the business primarily and with the global markets, Asia, particularly in China, Southeast Asia, Europe. We all had weakness across those markets in the first quarter. And in North America, we had the full pump market, and we also saw weakness in agriculture, similar to what I commented on with PTS. In terms of order trends and what we're seeing as we head into Q2 here, I would say that January was our weakest month as we start off the year pretty weak, and we saw a little bit of uptick in February and March. As we look at the April order rates overall, they're pretty much, I would say, flat to prior year is kind of what we saw early now as we've entered the second quarter. And I'm talking total company. You've got PTS seeing some order strength versus prior year. Climate's slightly up, but based on our forecast for the quarter, we feel good about the quarter for Climate. And then C&I is still down on a year-over-year basis as we've entered the second quarter. I will say that we did see a little bit of a sequential improvement in Asia, but we're still - we still have some difficult market conditions, we believe, we're going to be facing here in the second quarter in C&I.

That's helpful, Jon. Appreciate it.

Thanks Mike.

Thanks Mike.

Our next question comes from Scott Graham with BMO Capital Markets.

Hey, good morning. Welcome the board, Louis. Hi, Rob and Hi, Jon.

Thanks, Scott.

So I have a very - maybe a simple sort of overarching question on things. So we've lowered the organic sales guidance a little bit, and we're relying on margin expansion in our lowest margin business, although that is also the largest business. It looks like international's not really helping us out so much. So would it be fair to say that - with some of these puts and takes here, that maybe the lower end of the guidance is where you're more comfortable? Or are you still thinking that you can do the mid or perhaps higher and if so, how?

Right now, Scott, we're holding to the mid of our guidance. So you're absolutely right from a C&I perspective, a little bit slower start in the year. But however, as Jon outlined, as the power-gen timing for the power-gen project shipments will help our margins in this segment in the second half, not in the second quarter, but in the second half. We're also pleased with the margin performance in both our PTS and Climate segments. And I'll tell you, as a newcomer to this business, I've been very impressed with the focus the organization has on productivity and driving productivity improvements, both in the supply chain as well as in our manufacturing facilities, also their approach to pricing and managing pricing, ensuring that we get value for the products that we supply to our customers. So right now, we're holding to the midpoint of guidance.

That's fair. Thank you. Two other follow-ups here. We had Asia and Europe weaker in two of the three segments. Just hoping you can give us a little bit more color on those markets in both C&I and Climate, and kind of what you're thinking for the second half of the year.

Yes, I think that - so in Climate - let me start with Climate. So you're right, they were - Scott, they were similar - some similar dynamics between Climate and C&I. I didn't comment a lot about the international markets for PTS. Asia's not that big of a contributor for the PTS segment overall. Europe was actually okay for the PTS business, but that's a bit more focused business around some end markets like marine and conveying. But when you look at the Climate business, we saw pretty much weakness across all the international markets. Now you know international is not that big a contributor in overall revenue for Climate. It's more of a North America business. But for our business exposure that we had in the international markets, we saw weakness in China, we saw weakness in the Middle East and we saw some weakness in Europe. Now in China and the Middle East, we're going to have more favorable comparisons in Climate as we progress through the year because we've had these headwinds for some time now. In C&I, we're going to - we believe we'll continue to see some headwinds certainly through the first half here for the C&I business. Our exposure in the Asia markets and C&I is mostly on the industrial side. Most of our products are industrial products and often related to large infrastructure investments as well. So I'm not sure if that answered all your questions. So that's kind of some additional color on those markets.

No, Jon, that was great. Just the last question is if you can just comment on price/cost in the quarter; perhaps even filter it down by segment if possible.

Yes. So overall price/cost was slightly positive in the quarter. I had mentioned, as we walked through the segments, we were neutral to positive in all three segments in the first quarter. So that's very good to see. That continues from what we were able to deliver in 2018. In terms of just how you think about it, price/cost, neutral in C&I, slightly favorable in Climate and favorable in PTS, overall company slightly positive in the quarter. For the year, we're expecting to remain neutral to slightly positive for the full-year 2019.

That's great, Jon. Can I sneak one more in here, maybe for Louis, on a 40,000-foot basis?

Sure.

So Commercial and Industrial is a margin that's been sub-10 for some time. And I'm guessing that that is one of the first things that you saw when you even began the process of - before your appointment. What is the plan there, Louis? Even if you just sketch it out in general because those margins - it's the largest business with the lowest margins, which is just not the combination you want. Can you help us out with that?

Sure, Scott. It's a bit early in the process, but you're absolutely correct. As I did my assessments of coming into Regal Beloit in my first five weeks, it is a margin position that we honestly don't really like and want to continue to try to improve. I believe, actually, we have the most opportunity to improve there as well. And so the potential for us to continue margin expansion in our C&I business is there. What will it take? It's a little bit too early for me to tell you specifically. I would definitely have more clarity through the year. An important part of our cadence at Regal is our long-range plans or our strategic plans, and they will be coming in the third quarter. And so after that as well as looking at the portfolio of the business, I'll be in a much better position to outline our next steps. But I can assure you this is and will be a focus for our organization is improving our C&I margins.

Appreciate that. Thank you.

Sure.

Thanks, Scott.

Our next question comes from Julian Mitchell with Barclays. Please go ahead.

Thanks, and welcome too, Louis. In terms of - maybe a first question for you, Louis, just trying to understand the sequence of sort of priorities as you see them, is it right to think that your first priority is simply hitting those 2019 goals that were laid out two to three years ago? And then I guess, at the end of the year, it sounds like we may get a bigger update on your thoughts on strategy and portfolio and maybe any initial impressions you've had around how much surgery on the portfolio you think is desirable or necessary at Regal.

Yes, great and thanks, Julian for the welcome. To answer your question, absolutely, my priority is to hit our guidance for 2019 as well as the guidance that was given in the 2017 Investor Day. The Board is not giving me any specific mandate other than they have encouraged me to take my time to assess the business and evaluate strategy, along with a portfolio strategy that brings value to our customers, our associates and our shareholders. Our intent is that as we go through this year - my intent is, as we go through this year, that will become clearer and I will be crystallizing that through the end of this year and likely will be sharing that in early 2020 with the investment community. So that's how I'm thinking about it right now. From a portfolio pruning perspective, it's just far too early for me to be talking about any kind of surgical actions within our portfolio. But you can be assured that our focus will be again to bring value to our shareholders.

Thank you very much. And then maybe my follow-up question, just a more prosaic one around there's a fair amount of Regal business in C&I as well as PTS going through distribution channels. Some manufacturers have complained about destocking in the distribution channel in recent months. Just wondered where Regal assesses the levels of inventory in its channels, how comfortable it is with those levels. And has it seen much destocking recently?

Julian, this is Jon, I'll comment on that. So I'll talk about from both the industrial side and the HVAC side. So in HVAC, I would say that we do believe that inventory is slightly up in the channel and likely affect our weather, although it's always hard for us to put a finger on what the drivers are and how much weather has an impact. But we did end 2018 in December with a pretty mild month from a heating standpoint. And the year started off that way. Then we had the cold weather that came through, but it's fairly late in the heating season. So we believe there could be an impact there, but we don't think it's a significant driver. We had - because we had solid demand in the North America residential HVAC market in the quarter, and we feel good about the second quarter there. On the industrial side, from what we can see, industrial inventory levels have increased, but there's also the dynamic that's going on with both tariffs and pricing. And so it's difficult for us to see with that inventory that's in the channel, how much of that increase could be due to end market demand versus the dynamics, the impact of both the tariffs and price. So - but we have seen that. We have seen an uptick in inventory levels and the industrial distribution channel.

Great. Thank you very much.

Thanks, Julian.

Thanks, Julian.

Our next question comes from Nigel Coe with Wolfe Research. Please go ahead.

This is Bhupender here for Nigel.

Good morning.

Hey. So I just want to go through two things here, Jon, can you just go through the Climate Solution cadence again, the pre-build which happened, and how you think about - it seems like margins in the quarter were pretty strong like on the Climate side too. I mean, you mentioned PTS was pretty strong in the margin, but will you say that Climate margins were pretty strong too, and how those margins actually look in the back half as the impact of the pre-build happen? Thanks.

Sure, sure, Bhupender. So let me just kind of walk both of those a little bit. I'll start on the margin side. We did have a very good quarter for the Climate business with margins up 280 basis points over prior year. Really, three main drivers to that margin expansion. We had just overall good leverage on the volume. We had a number of productivity improvements, investments that we've been making in the business and productivity improvements overall. And then the third area was we had very positive mix from - in terms of our high-efficiency products. And so we feel - we've started off - and that's without the benefit of FER in the business because we're still in the first half of course, so all three of those helped our margins in the first quarter, and price/cost was slightly favorable. So we didn't have many headwinds related to price/cost. So a good start to the year from a margin standpoint. We are expecting margin expansion for the full-year for total company, and I would say we're expecting margin expansion for Climate for the full-year in 2019. In terms of kind of the cadence, what happened with the pre-build, let me kind of walk back through that. I've commented that first quarter, we saw high single-digit strength in North America residential HVAC. That benefited from not only market and our product mix, but also benefited from some impact from the FER pre-build for the upcoming FER regulation. It's sometimes difficult for us to get an exact number of how much was pre-build versus how much was market, but we do know - believe here was some impact from the pre-build in the first quarter. We also expect some incremental demand from the pre-build in the second quarter. And I think I mentioned earlier that we estimate that range - we had previously estimated that to be in the $3 million to $5 million range in terms of sales impact from the pre-build on our first-half performance in Climate. We're know looking at that to be slightly north of that range, the $3 million to $5 million previous estimate. That demand - that's demand on standard products, so we'd see that come out of the back half of the year. I would say, as we get through the second quarter, we'll have a better idea of exactly what was that impact on our first half. We expect that to come out in the second half, but then we will expect to start to see the demand pick up on the FER-related products. That's that $40 million of incremental sales we're expecting on an annual basis. We'll see some meaningful impact in the second half of this year, and then we'll see the full impact of that in 2020.

Okay, got it. Thank you so much. The other question just to follow-up on the other question about divestiture bucket, right, I mean you have - kind of a medium to long-term target of like $200 million plus you've already done. You don't want us to give the numbers, but I just wanted to get a sense of like which businesses would have some of the non-core assets you think could be on the line here like in the next six months or nine months or 12 months. And any color on that?

Yes. Bhupender, this is Louis. Really, honestly, no color on that right now. So we hit the objective that Rob already outlined of roughly $200 million. Certainly, over the next six to nine months, I'll be working with the team in assessing the business. And again, our overall goal is to drive shareholder value. But to give any specifics on divestitures, we have none at this time.

Okay. Okay, got it. Lastly, I just want to finish with the restructuring number you have, EPS - GAAP EPS at $0.18. We saw $0.04 in the first quarter. How should we think about the rest of the year for that? Thanks.

Yes, I would say that the number that Rob gave is still the right estimate that we have for full-year, Bhupender. And I would just say that somewhat linear through the year, I think. Is it right, Robby, should comment on that, but I think that's the right way to think about the expected cadence of that spend.

I would agree.

Okay, got it. Thanks a lot guys.

Thanks, Bhupender.

Thanks, Bhupender.

[Operator Instructions] Our next question comes from Robert McCarthy with Stephens. Please go ahead.

It's Robert McCarthy on for Robert McCarthy. How you're doing?

Good morning, Rob.

Good morning. Four questions, I think the first is, obviously I think you guys highlighted very much - very well, rather, some of the challenges that happened in the first quarter, the timing. So that's very well explained. Do you think across your businesses, do you think there has been any share loss like in the recent quarters that you would call out? And if so, what are you doing to combat that share loss, given the fact that some of these numbers are pretty soft?

Yes. I would say, Rob that as we look at the business performance in the first quarter, we don't believe that there is a meaningful impact from share loss and from share in general on our first quarter performance. I'll comment that on - in C&I, we do believe that the main drivers were the markets that I had talked about, mainly the industrial and international markets as well as the North America pool market in the first quarter. And then the timing of the large project sales, which impacted about half of the organic sales. So we walked it. We looked at it closely, and we believe those are the main drivers in our C&I segment in the first quarter. We continue to look at the tariff situation. We continue to feel like that that's a net benefit for Regal over the long-term. I would say it's difficult for us to size right now the exact impact on next year because it's really on a product-by-product basis in terms of where they may benefit or where there may be some headwinds for us. But overall, we continue to see that as a net positive for the company.

Yes. And on that point, so my second and my third question, on the tariff impact, could just amplify your existing comments that maybe you said at the outset of the call, I think I might have missed it, in terms of kind of the incremental news flow we've seen from the Trump administration, what you're expecting to contemplate, to combat that in terms of pricing and other cost actions? And then over the longer term, do you think that points you to reassessing kind of your geographic footprint?

Yes. So I'll touch on that, and then if Louis or Rob would like to add anything. So let me just go back just a little bit to last year when the tariffs came into place. We've been pretty consistent with how we've been mitigating the impact of the tariffs. One is through leveraging our global manufacturing footprint in the scale that we have with our manufacturing footprint and supply chain. And we feel really good about the position that we have there, and we feel good about that position from a competitive standpoint as well. So we have moved a number of products. And I mentioned the industrial motors example, where we've continued to make investment there in that business to reposition that product. And there is a number of other product moves that we've done leveraging our footprint. The second lever really to pull and to mitigate the impact is price. And we've done - what we needed - have needed to do appropriately on price as well between the footprint actions and then with price to fully mitigate the impact. We feel very good about how we've been able to handle that through the second half of 2018, and now as we've entered into 2019. When we entered the year, our expectation was that the last tranche of duo, the China tariffs was called the Section 301 List 3 Tariffs. We had expected that those tariffs would increase from 10% to 25% in early March. That's the way it had been communicated, and so we have set that as our expectation for the year. And that was in our initial guidance. Of course, that didn't happen. There's been a lot of news over the last few days that's a very dynamic subject right now. Our current assumption is that they're going to remain at 10%. But I'll tell you, in terms of our actions, it doesn't really change our actions that much. We're continuing to leverage the footprint. We're treating it like the tariffs are here to stay, and we're managing price appropriately. If they go to 25%, there's probably a couple footprint moves that we'll accelerate, and then we'll do what we need to do in terms of managing on the price side.

Yes. Maybe I'll just add there. I think Jon did a great job answering the question. From an outsider coming in, there's no question that our scale is a core strength for Regal, and it's absolutely a competitive differentiator. And so we're going to be able to leverage the global footprint and our global supply chain to best position ourselves to grow.

Great. And then the last question, which will go back to the 40,000-foot question. I think Julian and Scott asked some good questions about timing of the portfolio, kind of a review. And I think, suffice it to say, it sounds like we're going to get some incremental news flow in the back half of 2019, and then certainly some views on the portfolio probably for 2020 - early 2020 timeframe. So I'm not going to beat a dead horse there. I guess, from your standpoint, you came in highly tatted from certainly our channel checks, but what are the specific things you've done in your career, Louis, and specific accomplishments and specific strategic focus that you think is going to serve you very well in kind of addressing the challenges of this portfolio, because cutting through it all, you've got some excellent people around you. You guys execute well. You take a lot of costs out. But you were brought in for a reason, and that's really for taking a look at this portfolio and trying to come with the path forward that makes sense in an environment of increasing competition, particularly for this wide product set. So could you talk about maybe two or three things that you think you're going to bring, that's really going to be - shine a very critical lens on the portfolio and with either the businesses or the processes that will set you up for success?

Robert, I actually love to share, and I think over the next few weeks, as I'm trying to get out on the road, I'll be able to share even more. But as I think about it, hey, I'm an engineer by education. I believe in product and technology and I've had - what I believe is a fairly solid track record on focusing on products that solve customer problems and differentiate a company. In this case, it will differentiate Regal in the marketplace, so we can get value for those products. That will be an emphasis. I believe strongly in investing in engineering and technology. I would say that's one. Two, I believe that it all starts with the customer. And you need to fully understand the needs of the customer so you can provide product, technology and services to differentiate and to solve their problems. That will be a focus, a relentless focus for our organization. And then three, I've had experience on portfolio management throughout my career. I've made a number of acquisitions. I've made a few divestitures as well all around positioning us strategically or positioning our portfolio strategically for organic growth. We've already started with a clear message within our organization that our goal is to outgrow our markets by 50%. By doing that, we will win in those markets, and we'll grow share. And so organic profitable growth will be a priority, but we will look at the portfolio as well and decide a path forward. So hopefully, Rob, that gives you a little bit of a taste, but more to come on this topic.

I look forward to sitting down with you and the rest of the investment community in late May. I'll only have a comment on negatives, measure thrice, cut once.

Okay. Thanks Rob.

Our next question comes from Chris Dankert with Longbow Research. Please go ahead.

Hey, good morning, everyone, and welcome again, Louis.

Yes. Thank you. Good morning.

I guess, thinking about the FER changeover here. Do you think you can comment - I guess, is the majority of that pre-build in those shipments, is that the DEC Star product, and just kind of like how you feel about the R&D pipeline and kind of the next-gen stuff going forward?

So Chris, this is Jon. So the pre-build product definitely involves DEC Star. So when we think about pre-build, it's essentially customers that are building the products that they would be selling prior to the regulatory change in July. So it's a bit more of the existing product offerings and the standard product offerings. So that's the majority of what's impacted by the pre-build. Now that's a range of products for us, but they're the existing products that we've been selling for some time into the Climate space on the heating side. When we think about the $40 million of incremental sales on an annual basis, that does include DEC Star, but it's not only DEC Star. We've got a pretty wide range of price solutions. I think, in fact, on that one slide, we showed that - we show there were three products and a few others that we're offering to customers as well. But that kind of summarizes it from an entry level high-efficiency product all the way to the highest performing high energy-efficient product, which is the DEC Star. So DEC Star is a component, a portion, if you will, of the $40 million of incremental sales. I'll tell you, I feel really good about your other part of the question, Chris, was around where we're at on technology and where we're at on product development. I feel really good about a number of the programs that we've been working on and have been introducing into our markets. And while we're on Climate, Climate, in particular, we've always had an industry-leading position on what we call the ECM technology, the high-efficiency technology. And we've really leveraged that as we develop a new suite of products to help our customers with FER. I do believe that DEC Star, it is a product that's growing. It's still relatively small in our Climate business, but we believe it has a lot of potential. When changes like FER come into play, it's a great solution for some of those toughest applications. And it just gives us another opportunity and, if you will, another product that we can supply to our customers to help them solve problems and that is our goal.

Got it.

Chris, I'll just add quickly. I'm excited about the funnel. I've had the opportunity to review the new product development funnel in each of our segments. And I believe that we're focused on the right things. It's all about understanding your customers, and then providing products and solutions that differentiate us in the marketplace. And that will be a relentless focus for us, for sure.

Glad to hear it. And thanks for the clarification guys. And then Louis, we've kind of picked your brain quite a bit here, but to narrow in, any thoughts on the opportunity with Simplification specifically, what you like there or any additional opportunities to run faster? Just some high level thoughts would be great.

Chris, really not much more than I've already shared. From a Simplification perspective, it's too early. I think the decisions that the teams have made historically in the direction that we're going make a lot of sense, and so I'm highly supportive of. Nothing that I've shared that I'd change today. Again, it will be a focus on understanding our customers and driving profitable organic growth that helps to differentiate us in the marketplace. That's how I'd sum it up, not much more.

Got it. Thanks so much guys.

Thanks, Chris.

Great. Thanks, Chris.

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

Thank you, operator, and thank you all for joining our first quarter call. Overall, Q1 was a solid quarter for Regal with an improvement in adjusted operating margins of 60 basis points, delivering an 11% return on sale and an increase of 13% on adjusted EPS. Although our C&I segment saw some pullback in a few end markets, which led to an overall organic sales growth down 1% for Regal, our Climate and PTS segments performed well, with both delivering positive organic sales growth and margin expansion. I am honored and thrilled to be the new leader of this strong organization. I am proud of our team's overall performance, and I'm excited about our opportunities for the future. Thank you all for your interest in Regal, and have a good day.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.