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.

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.

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…

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…

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

Hey, good morning, guys.

Good morning, Mike.

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?

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.

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?

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.

Thanks, Louis. Appreciate it.

Yes, thanks Mike.

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

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?

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.

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?

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.

Great. Thank you.

Thank you.

Thanks, Julian.

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

Hey, good morning, guys.

Good morning, Jeff.

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?

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.

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?

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...

PES...

The PES business...

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

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.

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

Okay. Great, thanks.

In PES that is.

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

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.

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.

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?

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.

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.

Got it. Thanks guys.

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

Thanks. Good morning.

Good morning, Nigel.

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?

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.

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?

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.

Okay, I’ll leave it there. Thanks.

Thanks.

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

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.

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

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?

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.

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.

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.

Got it. All right, thank you, Louis.

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

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?

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.

Okay, great. I’ll leave it there. Thanks.

Yes. Thanks.

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

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?

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.

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?

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.

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

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.

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?

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.

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

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

Thank you. Appreciate it.

Yes. 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 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.

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