Regal Rexnord at Bank of America Conference: Strategic Growth Path

On Wednesday, 19 March 2025, Regal Rexnord (NYSE: RRX) presented its strategic initiatives and future outlook at the Bank of America Global Industrials Conference 2025. The company highlighted its transformation from an electric motor business to a significant player in industrial power transmission and automation. While Regal Rexnord reported impressive growth metrics, it also acknowledged challenges such as tariffs and market uncertainties.

Key Takeaways

• Regal Rexnord has grown from a $3.6 billion to a $6 billion business, focusing on industrial power transmission and automation.
• Gross margins improved from 27% to 38%, with a target of 40% by year-end.
• Free cash flow is set to double again, reaching $1 billion annually.
• The company aims for 2% to 5% organic sales growth CAGR from 2024 to 2027.
• Synergy targets from the Altra acquisition increased to $250 million by 2027.

Financial Results

• Revenue increased from $3.6 billion to $6 billion.
• Gross margin rose from 27% to 38%, targeting 40% by the end of the year.
• EBITDA margin improved from 15% to 22%, with a 25% target by year-end.
• Free cash flow nearly doubled, aiming for $1 billion annually.
• Debt reduction is a priority, with a focus on paying down acquisition-related debt over the next 18 months.

Operational Updates

• Regal Rexnord shifted its portfolio from 75% electric motors to 75% industrial power transmission and automation.
• The company implemented decentralization to enhance customer proximity.
• Investments in product management and solution selling are underway to boost product vitality.
• A significant partnership with Honeywell aims to develop solutions for advanced air mobility.
• The company is leveraging digital tools to improve customer interactions and focusing on automation and reshoring trends.

Future Outlook

• Regal Rexnord expects 2% to 5% organic sales growth CAGR from 2024 to 2027.
• The company targets a gross margin of 40% and an EBITDA margin of 25%.
• It plans to continue increasing exposure to markets with secular tailwinds.
• The advanced air mobility market presents potential growth opportunities.
• Regal Rexnord will prioritize debt reduction and consider stock repurchases if shares remain undervalued.

Q&A Highlights

• The company expects tariffs to be cost-neutral or margin-neutral over time.
• Opportunities in humanoid robots, particularly in China and the U.S., are being explored.
• An industrial manufacturing rebound is anticipated, with the ISM index expected to rise above 50.
• Cross-selling initiatives from the Altra acquisition are projected to generate significant synergies.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Bank of America Global Industrials Conference 2025:

Andrew Oben, Analyst, Bank of America: Joining us, I’m Andrew Oben. I cover multi industrials at Bank of America. And with us, we have the management of Regal Rexnord.

And present today will be Lewis Pinkham, company’s CEO, and also Rob Rehaut, EVP and the company Chief Financial Officer. Gentlemen, thank you so much for coming to London. I hope you’re enjoying it. And I think, Luis is going to give some slides and then we’re going to go to some Q and A. Thanks so much.

Lewis Pinkham, CEO, Regal Rexnord: Great. Thank you, Andrew, and good afternoon, everyone. I’d like to begin by thanking Bank of America’s team for hosting this conference. And to Andrew, in particular, we look forward to expanding our relationship. To the investors here today, thank you for spending time to learn more about Regal Rexnord.

I realize that many of you may be less familiar with Regal, and so I will provide an overview of the company shortly. But before I get into the specifics, I would like to outline the investment opportunity as we see it. I believe that considering an investment in Regal Rexnord today, amidst concerns about tariffs and at a time when some of our key end markets are at low levels in the cycle, present a unique and I think highly compelling value investment opportunity. Six years ago, soon after I became CEO, we began a journey to transform Regal into a grow. This is highly apparent in our margins, both gross and EBITDA, where we have made significant progress, but where there is still more upside to come, much of it tied to self help.

This business has a long track record of strong cash flow generation, but over the next few years, our cash flow is on track to accelerate meaningfully to $1,000,000,000 annually, equivalent to a mid teens cash flow margin. Over the next eighteen months, we’ll be using that cash flow primarily to pay down acquisition related debt, creating significant potential upside for equity holders as our capital structure shifts from debt to equity. Longer term, our substantial cash flow creates sizable value creation opportunities from bolt on M and A and stock repurchases. Organically, we are working many initiatives to help accelerate sales growth. Many are tied to launching new products that have increasingly wide competitive modes and are highly weighted to the 50% of our markets that have secular growth tailwinds.

Investing to grow the 40% of our sales in the aftermarket is another priority. It’s higher margin business improves our durability as an enterprise. As you can see, we have many levers to create value, which are largely under our control. Yet Regal Rexnord is trading at a free cash flow yield above 8%. In short, we believe Regal Reschtenor is an undervalued asset, but one with catalyst for revaluation.

This is the opportunity I’d like to lay out in more detail today. As I mentioned, we have been on a strategic and operational transformation journey since 2019. This slide summarizes the profound changes that have occurred at Regal since that time. In the year preceding these changes, legacy Regal was a $3,600,000,000 business with 27% gross margins and 15% EBITDA margins. Our portfolio was weighted 75% to electric motors with the remaining 25% in power transmission.

Today, we are a $6,000,000,000 business. Our mix of motors has flipped from 75% of sales to 25% with the other 75% of our portfolio now in industrial power transmission and automation. We have 38% gross margins, 1,100 basis points higher, the majority of that change organic, and have a path to 40 gross margins exiting this year. EBITDA margins are up 700 basis points to 22% with a path to 25% exiting this year. Free cash flow has nearly doubled, and we have line of sight to it doubling again over the next few years.

What drove all this improvement? For one, three highly intentional M and A transactions, two, acquisitions and one divestiture aimed at three objectives: one, doing more in the strategically advantaged power transmission space two, expanding into the highly attractive adjacent industrial automation space and three, divesting our large horsepower industrial motors business to focus our motors portfolio on wider mode, higher margin, premium efficiency products, especially motorized air moving solutions. Operationally, we decentralized to get closer to our customers. We created a product management function and invested to raise product vitality with a shift in focus from selling components to also assembling our components into more value added solutions, guiding all of our decisions and remains an eightytwenty minuteuset. To us, that means focusing on our highest value opportunities, products, customers, markets and deprioritizing everything else, which at earlier points in our transformation journey meant pruning less strategic businesses.

A critical KPI in assessing the portfolio quality is gross margin, which reflects the value customers see in our products. Now let’s dig a bit deeper into our product portfolio. Here is a portfolio view of Regal Restor today. We are organized into three segments. The link between them is Motion.

Our business purpose is to create a better tomorrow with sustainable solutions that power, transmit and control motion. Starting with Power Efficiency Solutions or PES, this is our legacy motors business and represents just under 30% of our sales, our now more curated portfolio of high efficiency electric motors power motion. Next is industrial powertrain solutions or IPS, which represents nearly 45% of our sales. These highly engineered components transmit motion from a power source to whatever is being powered. Increasingly, we’re selling these components plus a motor integrated into a complete system, which is called a powertrain.

Customers can drop the powertrain system into the application, they’re powering, simplifying their assembly process while improving quality, reliability and efficiency. Our third segment is Automation and Motion Control or AMC, which is nearly 30% of our sales. One of our primary products here is servo motors, small, high precision motors that control motion with incredibly high precision and can do so with great consistency over a long period of time. We also sell the drives and controls used to operate these motors. Our linear actuators control high precision lateral motion.

These products are most commonly used in automation applications such as a robot, which could be a factory robot, a surgical robot or a humanoid robot, really anywhere that high precision motion matters. Our transformation journey to date would not have been as successful if its execution wasn’t guided by our Regal Rexnord values. Our value serve as unwavering guideposts for how we run the business. And given all the changes in our portfolio, our values and culture have been critical to us executing two extremely successful M and A transactions to achieving our synergies, which have been substantial and to harnessing the power of the combined organization. I’d like to spend most of the remaining time talking about our plans to accelerate growth, given our track record on margin expansion and cash flow generation is quite clear.

This slide summarizes our growth improvement plans by segment. Moving from left to right, we list our three segments in the first column. The second column shows the organic growth achieved by each segment in the twenty nineteen to twenty twenty three period, pro form a for all M and A. Next, we provide our through the cycle growth targets. And then in the last column, some key drivers of the growth improvement we expect.

In summary, I would outline the three primary drivers of the improved growth outlook. First being, we are making growth investments, particularly in markets with secular tailwinds or that benefit from large scale trends or megatrends. These investments are largely related to new product development and technology, both customer facing and behind the scenes technology, which make it easier for customers to interact with Regal along the entire buying journey. Robust online search, product configurators, being able to receive a single PO when buying products from across our portfolio are some of our examples. Our new product vitality was 10% in 2024, and we see it doubling to 20% in 2027.

Second, solution selling. Our current portfolio and our new product investment is disproportionately focused on solutions and subsystems. Our solutions help differentiate us from our competitors and make our customer relationships stickier. They also make it easier for our customers who can increasingly buy complete systems rather than the individual components that comprise them. Third, leveraging the unrivaled scale and scope of our transformed portfolio to create unique value propositions for our customers.

For example, our scale and scope allows us to make powertrains while most others cannot. It also allows Regal to be the natural destination for spend consolidation because we are now a viable and reliable one stop shop. Our go to market scale and scope allows us to serve global customers locally around the world. It also allows us to monetize our new products on a scale many competitors cannot. Bottom line, where historically our portfolio grew just over 2%, we think we can raise that to 4% due to all of the factors I just discussed.

Let’s dig into a few of these in the next slides. Our portfolio today has nearly 50% of its sales in markets that benefit from secular tailwinds, which are summarized on this slide. We plan to continue to raise our secular exposure by directing an outsized percentage of our growth investments to serving these markets. Our inorganic growth in time will also continue to drive these exposures higher because one of our key M and A criteria is investing in businesses with secular market tailwinds. While our portfolio today is characterized by highly engineered components with attributes our customers value, the scope of our product portfolio coupled with our technology leadership and deep domain expertise in our focused markets means we have an opportunity to move up the value chain and deliver more value added solutions to our customers.

As part of this strategy, our new product development is disproportionately focused on solutions and systems. Solutions currently represent a high single digit percent of our sales. We see this growing by 10 points over the next three years. Some examples of our new system products are pictured on the right side of this slide. I’d like to highlight an electromechanical actuator solution that we designed for Honeywell as part of a recently announced partnership in the advanced air mobility market, which is sometimes referred to as the Electric Vertical Takeoff and Landing or eVTOL aircraft market.

This slide provides a little more detail on the Honeywell partnership, which helps illustrate why we are getting traction with our solutions and applies to many of our solutions across Regal Restor. Some of the more notable drivers are listed on the left hand side of this slide. First is our long standing heritage in the aerospace business and the deep domain expertise it brings. Second is the depth and breadth of our portfolio. As you can see in the picture, these actuators comprise many of our components, which we are able to engineer into a value added system.

The value prop for the customer is about improving quality and reliability through an integrated system optimized for performance along with making it easier to do business with Regal by being able to procure one system versus multiple components. Our significant global manufacturing capabilities were also a factor here, which means that we can produce at scale with consistency and reliability. Regarding advanced air mobility in particular, we are excited about the significant growth potential we see in this market as outlined on the lower part of this slide. AAM has the potential to be truly needle moving growth opportunity for Regal in the future. A category of solutions we believe is a sizable strategic opportunity for us is providing competitive powertrains.

As I mentioned earlier and as described on this slide, a powertrain combines a motor or power source with the power transmission components that connect the power source to whatever it is providing. The power source can be one of our high efficiency electric motors from PES or a high precision servo motor from AMC. Given our scope in motors and in power transmission components, we are able to provide powertrains for a wide range of applications. Traditionally, customers procure all these individual pieces and assemble the powertrain themselves. Increasingly, our customers are buying the complete solution from us, which allows them to focus on the larger products these subsystems go into.

It also raises the quality, reliability and efficiency from the powertrain. This slide illustrates the scale and scope advantage we have in powertrains. Down the middle of this slide, we list all the key product categories in our powertrain portfolio. Across the top, we designate the leading global competitor and their capabilities in each principal product category. A few things become clear.

One, Regal Rexnord is a leader in all categories with top three positions across the board. Two, we have the broadest portfolio in terms of production capability. And three, we are the only player able to offer complete industrial powertrain across a wide range of applications. This slide shows how we envision the company over the three year planning horizon, factoring our growth, margin and capital deployment plans. In short, powerful further transformation is summarized in these metrics: organic sales growth of 2% to 5%, forty % gross margins, 25% EBITDA margin, low double digit annual earnings per share growth, a free cash flow margin comfortably in the low to mid teens, which implies $1,000,000,000 plus in annual free cash flow and net leverage in the 1.5 to two times range.

We believe all these metrics help support a top quartile valuation multiple and that achieving these targets will be important catalyst for revaluation. A powerful component of our investment case less easily captured by the operating metrics I just shared is the potential benefit to our equity holders from paying down our debt. The bars in the chart on the left represent our enterprise value and indicate the percentage mix of debt versus equity and how we expect the mix to evolve over the next three years based on our generation of cash under the assumptions outlined on the right hand side of the slide. Notably, we assume that our EVEBITDA multiple remains constant over this period. Of course, if our multiple expands and should, that would suggest even more meaningful upside for our equity holders.

The rising percentage of equity in our capital structure is, as we pay down debt, implies significant upside potential to our share price and is expected to be a significant component of the Regal Rexnord investment case over the next couple of years. I hope I have given you a better sense of why we think Regal Rexnord shares represent a highly compelling investment opportunity. Fundamentally, it starts with having a high quality enterprise as outlined on the left, strong secular exposures, technology differentiated solutions, strong brands and channel positions, robust aftermarket sales, unrivaled global scale and scope, a strong cash generation, most of these attributes are reflected in our top quartile margins. From a financial perspective, we have ample remaining margin self help ahead of us, plus strong and accelerating cash flow and ability to create value for our equity holders by deploying cash flow to debt and over time by deploying capital to inorganic growth and stock repurchases. I have also shared a variety of initiatives underway to improve organic growth where we are making good progress.

Much of this progress has been masked recently by end market pressures, but with our orders now inflecting positive over the last three quarters, we are optimistic that our self help growth initiatives will increasingly be apparent in this year, unfolds and in the future. In that context, we believe our shares trading at a free cash flow yield above 8% suggests RRX is an undervalued asset with compelling risk reward. With that, I want to thank you all for being here today and look forward to questions from Andrew.

Andrew Oben, Analyst, Bank of America: Yeah. No. Thanks so much, Louis. Just a question. I know that you have put out a press release today highlighting the tariff impact.

Lewis Pinkham, CEO, Regal Rexnord: Yes.

Andrew Oben, Analyst, Bank of America: Could you just, clearly a very hot topic at this conference, can you just provide details for us what exactly the impact is and what does it mean for company’s earnings and, yeah, the considerations they wanted to putting out a press release like this.

Lewis Pinkham, CEO, Regal Rexnord: Yeah. I think the main takeaway is that we believe the tariffs will be cost neutral for us, if not margin neutral over time. So the tariffs that are in place today, you’ve got steel and aluminum and then you’ve got the tariffs coming from China, Mexico and Canada. That’s about a unmitigated $60,000,000 impact annually to Regal. We believe that we’ll be able to manage that to cost neutral initially, the margin neutral by the end of the year by leveraging the strength of our supply chain, leveraging the strengths of our manufacturing footprint with over 100 manufacturing facilities around the world along with driving productivity and price in the marketplace.

That’s the main takeaway from that announcement.

Andrew Oben, Analyst, Bank of America: And just sort of to dig in a little bit more, are those going to be surcharges? And what happens to your backlog? Can you go and reprice the backlog?

Lewis Pinkham, CEO, Regal Rexnord: They are not surcharges. They would be partially driven by price.

Andrew Oben, Analyst, Bank of America: Okay.

Lewis Pinkham, CEO, Regal Rexnord: It’s not a surcharge. And we would not go renegotiate our backlog. But remember, when you think about our backlog, which is three to four months, some of it’s already in inventory. We don’t see a big impact.

Andrew Oben, Analyst, Bank of America: And so on April 2, tariffs is a go, 12:01, your prices go up and that’s it?

Lewis Pinkham, CEO, Regal Rexnord: Well, prices have already gone up to address the tariffs that have already been put in place.

Andrew Oben, Analyst, Bank of America: Okay.

Lewis Pinkham, CEO, Regal Rexnord: If the April tariffs come in, that’s a different story. Right. We still believe we’ll be price cost neutral, but it price will have to be part of that story.

Andrew Oben, Analyst, Bank of America: And what happens if they rescind it?

Lewis Pinkham, CEO, Regal Rexnord: That will have to be managed as well through a commercial negotiation with our customers.

Andrew Oben, Analyst, Bank of America: But general, this is just the pricing. We’re going to go up, there’s more uncertainty to handle us up, we’re raising prices.

Lewis Pinkham, CEO, Regal Rexnord: Yes. And the other thing just to emphasize though is the leverage of our scale as a business. If you refer back to during the COVID period, we were able to move production pretty well to garner share growth. We’re going to need to do some of that as well here to minimize the tariff impact.

Andrew Oben, Analyst, Bank of America: And what percent of New Mexico revenue falls under USMCA?

Lewis Pinkham, CEO, Regal Rexnord: It’s roughly 90%.

Andrew Oben, Analyst, Bank of America: Oh, wow. Okay. Let me ask you sort of another question. There’s a lot of interest. We’ve we’ve been hosting a lot of events in humanoid robots.

And, I think I know where this where this is, but does it move the needle anytime soon? Just you brought it up. I I know I, on the robotics side, you know, I’m familiar with your exposure, but human right robot, just talk a little bit more about that because clearly something investors care.

Lewis Pinkham, CEO, Regal Rexnord: Yeah. So, you know, honestly, we’ve been playing in this space for quite some time, in particular in China. Most of it’s been project related. So we know what it takes and we have products and components and solution to be able to support humanoid. We also believe in on shoring and with the fact that there’s likely going to be more manufacturing brought back to The United States.

But with 4% unemployment rates, the only way you’re going to do that is through automation. So this was a big part of the thesis of the acquisition of Altra and why we wanted to move in the automation space. And so we do feel there could be strength in humanoid robots. Actually, in our next earnings call, we’ll talk about a partnership that we’ve just signed in The U. S.

To accelerate that for Regal. But we also think there’s going to be other automation opportunities where we’re perfectly positioned as well.

Andrew Oben, Analyst, Bank of America: Excellent. And just maybe you can expand your view on industrial manufacturing pickup in The U. S. In terms of reassuring. How are you poised to benefit?

Lewis Pinkham, CEO, Regal Rexnord: Yes. So, you know, ISM has been below 50 for nearly twenty four months now. And arguably, it’s even in the high 40s because of the strength of the electrical utility and data center industry. So we arguably have been in a recessionary state and a low point of our markets. There has to be a reinvestment in capital.

And we thought for sure that was going to come in 2025. And actually, we started to see it in January. ISM was getting stronger, little bit of a pullback in February because of the tariffs and market uncertainties. But we’re still in we still believe that we’ll see ISM go above 50 this year.

Andrew Oben, Analyst, Bank of America: Oh, okay. This year. Okay. But you’re in the same market.

Lewis Pinkham, CEO, Regal Rexnord: And so given that no, not ready to bet on that one yet. Given that, we’re well positioned. We’re well positioned because of our position in industrial powertrain and our channel position, our strong brands, and then we’re well positioned with the automation solution suite out of AMC.

Andrew Oben, Analyst, Bank of America: And maybe just provide a little more color, what are you hearing from your customers at this stage of the cycle? Any changes since you reported fourth quarter earnings? Are there any pockets where you’re seeing macro improvements? And any pockets where there seems to be some sort of slowdown? Like, how people talk about slowdown, like actual slowdown?

Lewis Pinkham, CEO, Regal Rexnord: Yes. So we won’t share a lot more than we shared at our earnings release. But we did talk about the fact that we were expecting a bit of a gap in the first half because of residential HVAC and the A2L transition of the last quarter of last year. However, we saw 3% orders growth in January where we were expecting orders to be down. And so perhaps there’s some optimism there.

There’s definitely discussion with our distribution channel partners, and I believe one of them was here meeting with at the conference who feels that this year could be a low single digit growth year. That would absolutely benefit from us for us since, today we go through distribution on 50% of our IPS business and 25% goes through three large distributors, one of which was with you. So we’re still dealing, talking with our customers that there’s optimism in the year. But the longer the uncertainty around markets and tariffs go on, I think the less likely that could

Andrew Oben, Analyst, Bank of America: be. Gotcha. And what are you hearing from your customer at this stage in the cycle? And specifically, any changes since you reported fourth quarter earnings?

Lewis Pinkham, CEO, Regal Rexnord: No.

Andrew Oben, Analyst, Bank of America: Okay. And just once again, I know it was the business, but how would you describe your moat across your businesses? What differentiates Regal Rexnord from the competition?

Lewis Pinkham, CEO, Regal Rexnord: I’m going to bring it down by segment and to give you the enterprise view. For AMC, it’s absolutely technology and product. If you have a Kollmorgen, you go to Thompson. Those are differentiators. In IPS, it’s about the strength of our brands, the engineered solutions, and it’s our position in the channel to best service our customers in the aftermarket.

And if you talk about PES, it’s technology around premium efficiency motors and air moving solution. Technology is our moat in PES.

Andrew Oben, Analyst, Bank of America: And is it also customization or

Lewis Pinkham, CEO, Regal Rexnord: And so from an enterprise level, it is that integration capability, our scale and scope around our portfolio to be able to bring products together as one integrated system. And it’s our scale and scope of go to market, our ability to access more of our OEM and end user customers with nearly 2,000 sales professionals in the marketplace worldwide.

Andrew Oben, Analyst, Bank of America: Gotcha. That makes sense. And just to remind us, what’s your split between distribution and direct?

Lewis Pinkham, CEO, Regal Rexnord: It’s roughly forty-sixty distribution by business. It’s roughly fifty-fifty in IPS, thirtyseventy in AMC and 20 fiveseventy five in PS. Okay.

Andrew Oben, Analyst, Bank of America: So I guess, you have a target, if I get it right, 2% to 5% sales CAGR from 24% to 27%. Right. And this incorporates sort of market CAGR of 1.5% to 3.5 plus outgrowth. So what does this assume? Like what exactly are you assuming about general market environment?

And when does your target embed inflection in the market environment to hit those numbers?

Lewis Pinkham, CEO, Regal Rexnord: So our target embeds in inflection starting in the second half of this year, although we’ve guided this year is flat from a sales perspective. But our expectation is that we start rebounding from a market perspective in the second half. Every one of our divisions, we have 20 divisions. We run our businesses decentralized. Everyone has a product and technology roadmap and a market strategy.

They all have a growth plan to outgrow their markets by 50%. And so that will come from new product or growth in vitality or improvements in our go to market as well as moving from a component supplier to a systems supplier. And then lastly, it’s about our cross sell initiatives. In 2024, we had about $100,000,000 plus of cross sales. And today, only 15% of our customers buy two or more of our products.

But if they’re buying one, they’re buying likely all. And so just moving that to five percent would be roughly $160,000,000 of incremental revenue or $1,000,000,000 over the next ten to twenty years from the aftermarket. And so these are all the initiatives we’re trying to drive to outgrow what we believe market will be.

Andrew Oben, Analyst, Bank of America: And just generally, is there sort of some embedded that because another question you ask, it’s been just so weak for so long. Is there a view that once we inflect, we could be sustainably above the trend for a while? Or how do you We want

Lewis Pinkham, CEO, Regal Rexnord: to be cautious about our approach, but that would be our expectation and our hope is that we would start to see a rebound ’26 and ’27. You know, as you said, we’re guiding this period of ’24 to ’27 at 2% to 5%, the midpoint is 3.5. If we’re flat this year, that makes ’26, ’20 ’7 above four.

Andrew Oben, Analyst, Bank of America: Right. That’s exactly right. Okay. And there was material rise to your M and A cross sell synergy targets, which I think were pretty solid, $25,000,000,000 and then raised an increment $125,000,000,000 to $27 largely affecting Ultra cross sell. So what changed relative to previous expectations?

And how do you plan to drive these synergy targets?

Lewis Pinkham, CEO, Regal Rexnord: It’s exactly what you said. It really was that we embedded the Ultra cost sell in. And I’d say what gives so historically, we had not, it was only the Rexnord cross sell. So $125,000,000 more with the Ultra cross sell that Okay.

Andrew Oben, Analyst, Bank of America: So it’s applying the same tool set to Ultra?

Lewis Pinkham, CEO, Regal Rexnord: That’s correct. That’s the major driver. And what’s really driving it is all of the initiatives we talked about, in particular, the simple fact that we want more of our customers buying more than one of our products. We’ve also been investing significantly in digital to help with that. Today, most of our competitors take a PEO by brand or by product.

We’ll take one PEO for any product in our portfolio. We’ve invested heavily in product configurators and digital online activities to help our customers do business with us more easily. All these things should allow us to achieve our $250,000,000 goal by 2017.

Andrew Oben, Analyst, Bank of America: And this extra $125,000,000 is dead and better than the plan? It is. Okay. Thank you. And what work on the M and A cost synergy targets is already completed and what work is left to be done through ’27?

And, yeah, what drove the incremental $15,000,000 raise to the targets, the cost synergies?

Rob Rehaut, EVP & CFO, Regal Rexnord: Yeah. So the $54,000,000 is on track for this year. Those are the cost centers that we see coming this year with another 40,000,000 next year and 15,000,000 in, 2027. The extra 15,000,000 was just driven by, additional opportunities that we identified during the process. A lot of that came through, you know, direct material savings, as well as additional footprint, consolidation opportunities.

The way that we’re getting there is obviously, you know, through footprint rationalization and direct and indirect material savings. Most of the and that’s on the remaining portion. The portion that’s already behind us is the like, a lot of the OpEx expense that we were able to pull out, like corporate costs, those sorts of things.

Andrew Oben, Analyst, Bank of America: And the acquisition of Altra, you completed in March of ’twenty three. So what have you learned two years since completing the acquisition? And how do you think about these businesses belonging on the same portfolio?

Lewis Pinkham, CEO, Regal Rexnord: I think it’s an excellent fit. We were very intentional with that acquisition. When I became CEO, we outlined a we outlined a strategy that drove us to improve our gross margin. That was a big driver. And then position ourselves in markets that would allow us to accelerate growth, a big reason for the Ultra, especially the A and S side of Ultra, the automation side of Ultra acquisition.

So the fit has worked out exactly as we expected. Maybe a little surprised that ’24 had the reset on discrete automation, But the long term play in automation and the macro drivers that support it, we’re really excited. No. Sorry. I apologize.

No.

Andrew Oben, Analyst, Bank of America: No. That’s fine.

Lewis Pinkham, CEO, Regal Rexnord: Well, so then, what we’re very pleased with is the product and technology that we got. Yeah. Maybe a couple of surprises is we expected a little bit more operational strength on the A and S side of the business. We’re working on that. That’s the Regal Refdoor business system.

We can bring that to bear and help with that. What we’re incredibly excited about is the integrated system capability that we have today with the strength of the portfolio.

Andrew Oben, Analyst, Bank of America: Yes. The product is always good. So how do you think specific about sort of cash flows, right? Because I think Fortive was run-in a very specific the Fortive, Kollmorgen and Thompson were run-in a very specific way, in a very Danner like way. Yeah.

Yeah. So how do you sort of, and you’re clearly cash flow generation is one of the main pitches and relative to EBITDA, you’re targeting very robust cash flow generation. So can you just sort of connect how do you get more how do you sort of start with Ultra, ring more cash out of Ultra and end up with superior cash flow conversion?

Lewis Pinkham, CEO, Regal Rexnord: Ultra’s cash flow conversion was pretty solid. So was Rexnord, so was Regal. But you bring it all together and so you drive it off of EBITDA. We will continue to invest in R and D. R and D is about 3% of Regal.

That has gone up 100 basis points. We don’t think we need to invest anymore there. And we don’t see our CapEx needing to be above 2%, not even with Ultra nor the investment. Because I agree with you, Ordiv was a little bit restrictive around markets that Ultra could grow in, where if there’s a return on investment, we’ll invest to grow. And that’s what we’ve been doing.

Andrew Oben, Analyst, Bank of America: Interesting. Okay. Thank you. And then maybe just shift a little bit to margins. You have 200 bps adjusted gross margin expansion, 300 bps adjusted EBITDA expansion.

Just operationally, how should we think about key levers to drive improvement? And is there more restructuring to be done?

Rob Rehaut, EVP & CFO, Regal Rexnord: There is more restructuring to be done. But just let me start with, there’s about you’re right about 200 more basis points of improvement in gross margins. Half of that’s coming through the synergies that we just talked about, the 54,000,000 The other half is is eighty twenty lean product line simplification. The things that we have been doing already to kinda to get us there. So we’re have a very clear path to get to the, 40% gross margins, exiting this year, and then the 25% on the EBITDA margins as well.

EBITDA margins, we need a little bit of help from the top line, not much to get there. We do still expect to exit at 25%.

Andrew Oben, Analyst, Bank of America: And just sort of think about 40%, I think, your business is aftermarket and services. So how do you track your attach rate and what KPIs do you track?

Lewis Pinkham, CEO, Regal Rexnord: Yes. Our attach rate is, we believe, quite solid, but it is market by market and vertical by vertical that we look to drive it. Now our aftermarket is about 40% of our sales, like you said. We still feel though that you’ve got to drive the installed base and we invest heavily in the installed base. The system solution has allowed us to do that because as I said before, we track typically four to five replacements over the life cycle of product solution.

And so the installed base is just as important to us as the optomarket.

Andrew Oben, Analyst, Bank of America: Excellent. And maybe sort of Powertrain, I think highest margin business in your portfolio. Can you just remind us what is it about that business that makes it better than the other two businesses? And frankly, is it structural or is it where we are? Is there room over time to bring automation motion control to that level?

Lewis Pinkham, CEO, Regal Rexnord: Scale and scope helps a lot. Position in the aftermarket with 50% sales helps and the strength of our brands and the fact that we’re really the leader in many of the markets and the products we serve help. But remember, our objective for IPS is between 2729. AMC is 24 to ’26. Right.

It’s not that far behind. And in time, we absolutely believe AMC will get to parity with IPS because of growth.

Andrew Oben, Analyst, Bank of America: Got you. And just I guess the final question, should we expect you guys to start doing M and A once net leverage falls below 2.5 in 2026?

Lewis Pinkham, CEO, Regal Rexnord: If we’re still trading at our multiple right now, no. We’re going to buy back. It’s not. But we are cultivating and we are we have a funnel of activity and we’re looking at it will only be bolt ons. We do not the transactions we made with Altra and Rexnord were highly intentional.

We do not see a need to do anything significant with the portfolio. It’s about strengthening it. But again, if we’re trading where we are today, we’re going to buy back shares.

Andrew Oben, Analyst, Bank of America: We are right on time. It’s been a delight to have you here. Thanks so much.

Rob Rehaut, EVP & CFO, Regal Rexnord: Thank you.

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