Q4 2020 Earnings Call

President and Chief Executive Officer, Mike Peterson, Senior Vice President and Chief Financial Officer, and My Mccarthy, Vice President Investor relation truck side, it's called it the liquidate and.

We play for a period of two weeks.

So number find a replay can be found any earnings release. The company filed in an 8-K S. E. C. Yesterday may 12 at this time for opening remarks, and introduction I'll turn the call obituary Mccarthy.

Good morning, and welcome everyone.

Before we get started I need to remind you that this call contains certain forward looking statements that are subject to the safe Harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the FCC.

In addition, some comparisons work for her to non-GAAP measures our earnings release, not SEC filings contain additional information about these non-GAAP measures why we use them why do we believe there helping to investors and the contain reconciliations to the scored corresponding GAAP data.

Consistent with prior quarters, we will speak to core growth adjusted EBITDA adjusted earnings per share free cash flow and return on invested capital as we feel these non-GAAP metrics provide a better understanding of our operating results. However, these measures are not a substitute for gap data and we are good.

To review the gap information our earnings release and in our filings with the FCC.

With that I'm, please to turn the call over to Todd Adams, President and CEO Brett.

Thanks, Robert Good morning, everyone. This is.

Oh, I'm here with Mark Peterson, our CFO.

This morning, as Rob said Im going to cover our financial results.

Three months ended in March as well as our fiscal year. The other things will do or provide a oh paid on or operating environment actions, we've taken to protect our associates and our business near term while.

Listening ourselves to drive and.

We're gonna have to live with cold for a period of time and that'll eventual transition to a coast corporate world.

Mark will go through it in more detail, what our platforms highlighting some of the key attributes.

Likely changes we've made to our business.

Over the last several years it make a formal resilient.

Going forward.

Because the strength the positioning of our balance sheet cash flows.

And finally, we'll sort of talk through how we're planning for this upcoming June quarter mm.

Yeah I'll start on slide three.

I think we're trying to keep everyone up to speed with our investor call that we did at the end of March and then the pre release we did.

In early April.

We announced last night or essentially in line with a we've communicated with one small exception free cash flow, it's just a touch higher than in the pre release.

It's been is earning season has ruled on I think it's even more clear that are more to quarterly results were exceptionally strong.

Relative to the broader industry universe, very high quality, industrial peers, and particularly against or end market competitors.

Actually it was like every other company was impacted in the fourth quarter by the virus.

Games in China in Italy dealt with the challenges throughout the quarter and then situation worsened by late in the quarter globally. So our teams demonstrated exceptional creativity resilience dedication.

Just continue to serve our customers.

We did everything we possibly could to keep our associates in their families shape.

Yeah, we're gonna numbers for the quarter, we delivered 1% core growth at the rexnord level with water management, leading the way with 7% core growth in PMC only down 1%.

Essentially flat when you exclude the impact of our 80 20 initiatives.

EBITDA quarter was $124 million in our incremental margins were 43%.

Yes in the quarter was 55 cents and taxes were about a penny any better than what we had anticipated.

When you look at a four year, we delivered 1% core growth net of our 80 20 initiatives record EBITDA of 460 million or 22.3% of sales.

I also record free cash flow $257 million up 21% year over year.

On a GAAP reported basis.

Sales were up 17 million EBITDA was up 17 million.

<unk> perspective, we ended.

The year at 17.4%, which is a new high watermark for us.

If you move to capital allocation, we had a year frankly milestones.

Capex declines this 2% revenue, which is consistent with what weve been planning for communicating last several years to reduce the recurring asset intensity in our business.

Close to terrific acquisitions water management.

Both right down the middle in terms of strategic fit and frankly very critical in our creating the most comprehensive I tried it solutions in the market today.

We also prepaid honorably that term debt earlier in the air and we ended with leverage at 1.9 times.

And finally, we bought back over $100 billion, roughly 3% to 5% of were outstanding shares and just a little over three months.

And initiated our first ever dividend at 32 cents annually.

Tupperware temporarily caused our stock repurchases very comfortable committing to retaining the likely growing our dividend over the coming years, having just announced the eight cents quarterly dividend last week.

What you're seeing the results are frankly, the compounding effects that are still for one and two initiatives.

Or 80 20 simplification work.

Terrific progress on our focus growth breakthroughs around connected products and market adjacent see all the things we've been talking about for the last couple of years actually reading out.

I guess, a very difficult macro environment.

It could move.

A slight ahead to slide four.

You know by this time I'm sure everyone's heard a lot of companies have responded to the crisis in very short period of time involved to adapt to a hold instead of realities about how we go round our daily lives.

I am.

Very biased, but I believe our response has been exceptional.

We've got 6700 associates around the world as the most important thing we focused on is the overall wellbeing of our people.

Obviously their health and their families help.

But also our financial health and mental health.

And not just our direct teams and our associates, but the communities that we live in working.

Beginning by issuing a work from home policy on March 12, two all those that could.

To making match mandatory and temperature testing last week at March.

Second the approach of doing more and going bigger earlier.

Starting with today meetings with our response, because the factory once the continuous communication and updates to our team worldwide.

So far we've had 20 positive tests amongst our global team at numerous others has been warranty thankfully all have or our recovery.

And the biggest thing we're done it's not only create the state this environment possible to the ways, we rearranged work shifts leveraging technology, but more importantly, we've gone out of a way to make sure our teams feel safe and supported.

Things like grocery stock boxes that are teams can work in our plants and don't have to make that extra trip to the grocery store. After work the mental health Webinars for people to feel connected and save about how this is impacting their lives.

We believe deeply in total associate engagement, that's perhaps most powerful pillar of our core values and if there was ever a time where people make a difference this is it.

I couldn't be more proud of our global teams and the agile combination of a cost down decision framework married with empowered decision, making it the point of impact that's produced an overwhelmingly positive response to this pandemic.

And finally.

We have a return to work plan that's in place and will likely be triggered in early June.

We're taking the approach it being very conservative and measure.

We've managed to this entire crisis with 90 to 90, Fas, 5% of our capacity operating as normal at all times and our attendance has been frankly exceptional throughout.

Being cautious and forward looking has served us very well and its approach we're going to stick with.

In their favor the right you'll see our second generation of temperature testing that we've deployed at all of our facilities.

Thank you temperature verify you're wearing a mask.

Huh.

If it's out of that range, we'll take your photo and send it to our environmental health and safety teams and your batch to get the building will work again, it's not a single point solution, but at the spirit of making people feel safe. We all eventually return to work.

Moving to slide five I love under plan from here and how we're going to operate over the next several quarters.

First of all we've made the decision to change our fiscal year to December 31st.

The overarching reason is aligned for comparability purposes, as well as a variety of factors runner business cycle. The customer cycles, just makes sense for us to do so we did it.

Next in the something Mark will talk through and much more detailed.

But as we anticipated going from a growth environment to an environment, where we thought we'd be contracting.

We went through business by business product by product market by market channel by channel and region by region to come up with our best view, what we would anticipate our demand could look like over the next several quarters.

Obviously augment that with customer input, especially could.

Internally would call it the Bouchie analysis.

Essentially what we do what do we think our sales declines you're going to look like and what would we need to do to flatten the curve on what that would do our profitability.

It's on this basis again business by business, we went about flexing and cutting our cost structure to substantially minimize any downside risk to our earnings and cash flow over the next several quarters.

I'll talk about it in a minute, but we assumed it was going to be tough, which lent itself to go in big on the cost response, and when Mark talk you through it and you'll see it.

The exact same data that we're looking at every day business by business.

So the punch line is we essentially cut our cost to the salary line.

And this is an unhedged do so this is just the bottoms up platform without any risk adjustment at the corporate level that we would obviously.

Under undergo.

So what you're seeing what do you really see.

He is monitoring the cumulative reported a day daily order rate against that line.

Basically every day above the Bouchie line, it's a good day.

It also means on some level retiring risk.

At <unk> the amount of risk that we thought we have we started this in April.

Speaking about April and I'll spend the second on that for the month sales were down 21% year over year and that's what two fewer fiscal days in the month and adjusting to that we were down 12%.

What's encouraging to us is that within one month of sales contract. We're growing in March decremental margins in April were below 30% and this is before any substantive benefit from the cost reductions I'll outline and just a minute.

As we previously discussed we're rolling ahead with our third phase of skill for initiatives.

Made some closure announcements announcements and began the process of transitioning some of our manufacturing fashion to third parties as well is expanding existing regional footprints to accommodate certain internal transfers or production stuff. We're going to continue to do we started moving that already.

We started growing to $20 million net benefit from this third phase in the first part of calendar year 21.

I'll move to 80 20, you know were two years into our 80 20 journey and a lot of the heavy lifting behind this particularly on the PMC side.

The strategy of focusing our resources on our biggest opportunity is clearly paying off.

And this is exactly the decided that this is the exact kind of environment. We think our targeted chair get initiatives are going to be affected and we're seeing that start to stack into some wins, particularly the Oems and end users that are taking this low activity to consider alternatives. We believe this will accelerate adoption connected.

Products.

We're excited to have a leadership position in the markets we serve.

From a capital allocation strategy, it's basically unchanged the overarching plan we outlined in February.

Is consistent we're going to keep leverage that two to three times and in this environment as close to two as possible. We're clearly committed to our dividend, having just announced just last week.

Systematically buying back shares below intrinsic value the company, while we're we're paused on this side of pure prudence in the near term, it's something that we will resume once we see things normalize just a bit.

I'm going to continue to make the right high returning organic investments in our business and augment that with strategic acquisitions like the ones. We just did last year and this is all inside the free cash flow and leverage open on the low we've discussed.

The primary focus is going to be on water and consumer related end markets.

Finally, and you made it seemed as it relates to the increasing importance of BSG for years, good the approach or simply do the right thing.

But we really did a poor job communicating what we've been doing to the outside world.

Over the past several months.

We decided to aggregate everything we've been doing.

And if you are first CSR report.

Got the report on our website, we've got a separate.

Huh.

Rob in our Investor Relations website, we will see all that see that's our activity and I'll cover and a couple slides, but we think thats a level that will be a pleasant surprise to a lot of people externally.

If we move ahead with one to two slides six here's.

Where you'll see our.

Comprehensive response.

We did we did execute approximately 100 840 person reduction in April and this had been plan as part of a normal top grading process that we try to look at every year, but maybe even more clear as we simplified our business with 80 20 over the last several years.

Secondly, we continue to pay all of our hourly associates.

Simply decided to flex hours to the bluebirds demand and this varies by plant.

We have certain business that are actually growing year over year. So it wasn't a one cents one one size fits all solution. It's purely based on demand service levels and lead times, we had a very rigorous sigh of process, that's going to be priority one for us as we move forward being able to manage our business.

Actively to demand, while serving our customers at a very very high level.

We've done all the fluctuating and cutting of non essential expenses that you expect from us.

And finally, we've taken the approach of implementing furloughs across our salaried workforce and this was done an escalating levels, where I'm appropriately taking the biggest cut held by my team Cascades from their this impacts.

800 people across the rest of world.

And we chose to scale this furlough level to deliver the intended benefits over the nine month period. So this is not a simple cuts of your salary. This is.

Essentially not being paid to work.

For a period of time and that aggregates into frankly, a really big number in a very short period of time.

Hi months, we captured $51 million of savings and Thats $68 million annualized.

That's a testament to our team and culture, they want us to both protect our financial health, while keeping the team together that we've developed through a joint eventual recovery.

Relative to what we've been seeing from other companies as they've announced it we think it's a pretty meaningful number and it's obviously all cash.

We believe the actions protect our decremental margins do well below 30.

And I think it more that answers the question that we had gotten over the years of what else.

Could you do if things got tough.

Finally, it's going to go into some refinements if things are worse in certain parts of our business, we'll do more.

If it's better we'll do less a this is about being agile and adjusting to the environment.

We move to slide seven as I mentioned, just a minute ago on MSG the simply do the right thing approach.

It is the way we've gone about Rts she activities, it's not he achieved for Steve stake or window dressing, but she annually doing things that are good for the environment. Our team communities, we live and work in and obviously at the board governance level, but also good for our business.

We've established board level oversight of our history activities.

But to take a look at our work our progress and our goals you can see the website address on the slide.

And I think as I said earlier, there's a CSR link on our Investor website.

Now moving to slide eight.

If you take away one thing from today's call, it's that culture matters.

The rexnord business system, which is simply the way we work in our common language.

He is without a doubt the single biggest competitive advantage we have.

It's about everyone being on the same page and always doing the right thing for our associates for our customers for our shareholders.

It's about being nimble and entrepreneurial and this is inside a framework of disciplined tools and processes.

That allow everyone to be fan base and decisive.

Our philosophy engaging our people are on a plan with processes that drive performance is something this ingrained in our culture.

And while it's always fun to do it to the growth environment harnessing the power of our culture during times like this the beat our competition.

And take market share is equally as rewarded.

Our team is 6700 people strong the average age is 44 and the average tenure is 10 years.

We are diverse about 40% of our us workforces diverse.

Some of the amazing things that our team has done and led include things like leading food drives for local food pantries, making mass for one another donating ppt to hospitals and healthcare workers.

Leveraging our threed printing capabilities to make respirator mass.

I think as you may have seen with donated a million dollars like genic product to healthcare facilities and lets goes on and on.

The thing so special about our culture is our team's commitment to continuous improvement.

Over the course, the last year, we've done 4279 continuous improvement events up 37% year over year end up 119% over two years and this is at all levels of the organization catalog within our internal knowledge management system for sharing in deploying.

And it's the relentless compounding impact that spirit to get just a little bit everyday, but so amazing to me a part of.

I missed all the disruption and uncertainty we continue to get just a little bit better every day and while it's certainly not the way we'd expect things to go we're adapting.

Our business cadence and all the process, we have continue to roll on being connected transparently communicating and caring for one another gives us the confidence that we're going to get through this together.

Moving to slide nine.

We are front and center as it relates to offering the most comprehensive identiv solutions within the industry.

With our redesigned year, driven sensor technology, coupled with our digitally connected platform. We are becoming the go to source for healthcare education and high traffic areas solutions around Ajay.

We're seeing major retailers commit to seven figure retrofits of their stores and advanced reopening.

And the integrated solutions around agenda reliability and connected or value propositions that are resonating within the market.

Last year, so our fiscal year, our old fiscal year ending in March our hygienic products category grew 16%.

And the month of April they were up 34%.

Made to date to 11 business days were up 55% year over year.

And finally before I turn it over to Mark are connected products and PMC continue to gain traction and we've seen a spike and interest for the solution.

Particularly in situations, where they will simply be fewer people.

In any given plants are operation.

The ability to ensure uptime remotely without having to physically be onsite and environments that are critical to infrastructure.

We think over the next several years has a long term secular change that only accelerates and we are incredibly well positioned based on the work we've done over the last several years and with that I'll turn that I'll turn over to Mark and after he's done we'll take your questions. Thanks, Doug Please turn to slide number 11.

I'd like to make a few comments about how our platforms are position coming off a strong fiscal 2020 results.

Turning to our process <unk> motion control platform.

PMT here is characterized by operational excellence in execution.

Well look was down slightly but excluding a two point impact from our 80 21 up on location efforts PMC core growth was up about 1%.

If you deliver adjusted EBITDA that was flat with the prior year. Despite the $22 million dropping reported net sales, which clearly highlights the benefits from the structural cost reduction actions, we've taken in the platform.

Over the last four years, we downsized the original PMT physical footprint by approximately 25%, including a major foundry here in Milwaukee, you take out roughly $45 million a structural costs at the same time, we've expanded our base and lower cost regions, which now account for one quarter of total PMC employment.

As a result, more flexible and variable cost structure at the same time, we've integrated to substantial and highly strategic acquisitions, Cambridge and sent the head of added balanced the PMT and market diversification and strengthened our position in food processing renewable energy and marine power.

We turns on tangible assets in improving and capital reinvestment requirements are moderating in fee from the slide that we invested just 2.6% or revenue capex during our fiscal 2000.

Smells allocated to investments associated with the current round a structural cost reduction actions as part of our supply chain optimization and footprint repositioning initiatives.

PMT is commercial excellence 80, 20 initiatives are delivering tangible results, even a winning a higher share at first but applications with strategic customers, which has positive implications for our longer term share of the long tail moral markets.

We simplify the business by eliminating about 10000 individual part numbers.

Taken together these strategic programs have freed up the resources to reinvest and strategic growth initiatives like our direction digital enterprise strategy, while enabling PM to deliver over two points of margin expansion over the last four years.

Please turn to slide number 12.

What I'm asking platform landlords $15 million of incremental adjusted EBITDA in fiscal 2000 on a $40 million increasing reported sales. We've also lowered zones fixed cost base and its environmental risk profile exiting free foundries in the past four years to too stupid divestitures and one through our first the first phase of our school furnish.

Thats.

Water management business model to maybe can you characterize as designed to cure assembled tests.

Translates into higher return on tangible assets and lower capital expenditures. For example, Capex was just one personal revenue in our fiscal 2000.

Over the last two years.

Completely offsetting the impact of an unprecedented headwind zone as Levered Directionally business system, and our 80 20 initiatives blip or roughly 100 basis point increase and its adjusted EBITDA margin while at the same time stepping up investments in new product introductions and strategic market expansion and also reducing joins overall asking you call cycle, So 25 per se.

Yes.

That's helpful expansion me adjacent markets for fire suppression insight worst products being complemented by.

By rapidly expanding offering of LTE enabled and digitally connected components core non residential plumbing markets.

You can invest in Turkey, confirming directly toward differentiated growth profile as measured against other water sector corridors.

Please turn to slide 13, I'll review, our balance sheet is well positioned for the current environment and provide some visibility along our expectations for free cash flow over the remaining three quarters calendar 2020.

Looking first at our balance sheet liquidity as of March 31, you can see got in late March or short term uncertainty accelerating we elected to draw a combined 325 million from a revolving credit accounts receivable securitization facilities to bolster our on balance sheet liquidity. So diesel dismissed the finished much of the cash balance of $573 million.

As I discussed earlier rent up our share repurchase activity.

To $80 million in the March quarter, as we generated $108 million of free cash flow along as to keep our net debt leverage ratio unchanged from the December quarter, an all time, low 1.9 times and still slightly below the low end of our long term target range of two to three times.

As we've discussed in the past, we balance our financial leverage we're implementing other liquidity and debt maturity profile.

Our long term debt consists of two elements.

621 million dollar term loan that does not mature until August 2024.

$500 million of senior notes that are not due until December 2025.

With respect to our financial covenants, we have only one covenant tied to a revolver.

Net debt leverage ratio not to exceed 6.75 times.

But we remain very comfortable with delivery position overall maturity schedule.

Also on this slide we're providing a higher level of transparency, we're doing a free cash flow outlook for the remainder of calendar 2020 by providing forecast for key elements of our free cash flow profile over the nine month period through this upcoming December.

Somebody this information with our results from the March quarter, one that we can construct calendar year estimates.

As you can fumes slide we expect to invest $25 million and capital expenditures and make cash payments of between 18 and $20 million for restructuring expenses.

Approximately 40% of the combined investments are driven by execution of our third phase of school for initiatives.

In addition, we expect cash outflows for interest and cash tax payments to be a combined $85 million to $90 million range.

Lastly, and given our expectations for lower year over year sales. We felt we project reduced working capital balances will release, approximately $20 million to $30 million of cash the partial offsets.

The bottom line is that we currently expect to extend our track record of free cash flow conversion above 100% of net income, becoming nine months and for the entire 2020 calendar year.

Moving to our near term outlook was from the slide 14.

Got it would be helpful to investors' understanding of the current business environment to sure exactly how market demand is being reflected in our order rates as we approach the halfway point of the current June quarter.

This is an internal chart, we refer to a default you chart user to monitor the cumulative quarter to date year over year percentage change you consolidated orders that were seeing across our operating units.

As you can see our quarterly orders were down year over year by between 20 and 30% through most of our fiscal April before finishing the fiscal month on approximately 25%.

Since then our order declines moderated somewhat in accordance big consultative rate as of yesterday was minus 20% year over year basis.

Which puts us above the June quarter forecast, we established at the beginning of this quarter, which of the Blue line and the chart.

We're seeing that same gentle found that we still improving comparisons in our water platform and across most of PMC.

Because if you turn to slide 15, you'll see that the quarterly decline is also running at minus 20% for 85% of our PC platform, which is PMC, excluding our aerospace operations.

Turning to slide 16, like we all surprising to good order declines at a much larger for aerospace operations. Although it was very important to note that last year. This comparison is impacted by strong order rates and our aerospace operations in last year's second quarter.

And then turning to slide 17.

The order growth so far this quarter has a much stronger discern.

Orders were down between 10, and 15% surface for April but orders in our fiscal May have actually been running ahead of last year as we hit the halfway point of the month.

Strengthen hijacked products. That's how described earlier has been key driver.

We'll know more by late July we intend to provide an update of forward look when we report our June quarter results at that time.

Well from a slide 18.

I will wrap up our prepared remarks, Wilson guideposts, where we believe you can expect from lack stored in the June quarter.

But we obviously remains challenging we want to share with you how we're thinking about the market environment as we look in the second half in the quarter and beyond.

The overweight our demand outlook with an operating and cost reduction plan that has spoken on controlling was what is within our control while preserving the capacity to respond quickly.

Fully eventual rebound.

I'd also like to remind you of Todd's comments from earlier that a wider range of possible outcomes, because as necessary element to forecast in the current environment.

Based in part our experience of orders so far this quarter, appearing in our best information about the likely phasing revenue, we expect to generate from the order backlog we had at March 31.

Project, our consolidated June quarter sales will decline year over year by between 18 and 23%.

Business sales outlook and incorporating our countermeasures, we'd expect our total adjusted EBITDA margin of the segment level, which excludes corporate expenses to finish the June quarter between 20, 123%.

Corporate expenses to be approximately $7 million in quarter, four reduced by about 30% year over year.

Lastly, our interest expense for the quarter will be approximately $13 million and our depreciation and amortization will come in at about $23 million will that we'll open the call for questions.

Thank you we will now begin the question and answer session. If you had a question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound finer hash key if you are using a speaker phone you may need to pick up the handsets first before passing the numbers once again.

And if you have a question. Please press Star then one on your Touchtone phone. Our first question comes from Jeff Hammond with Keybanc capital markets on the line with your question. Please go ahead.

Hey, good morning, guys how are you.

Good morning, Jeff.

So I think the thing that sticks out the most is the resilience and certainly the snap back in water can you we've heard some broader weakness and some other nonresi businesses can you talk about whats driving that kind of snap back in the order rates and how sustainable you feel that is.

Well I think you get it.

Start with.

Our March quarter.

We grew 7% core.

And I.

I think some of the next closest people were flat to down.

So we had seen strength.

Really I.

I mean for years substantially ahead of competition that accelerated and widened into March and the specification work the adjacent see work.

Some of the.

Strategic synergies with the acquisitions we've done.

And obviously, the Hydrogenics solutions and packages that weve.

Now created that are frankly unparalleled, we're all things that we're creating positive momentum.

And continue to create positive momentum for us and so you know as job sites around the country open up.

I think we're going to see that continue for a little bit of time here.

What we've got to do is continue to watch starts and we've got to continue to watch what it looks like down the road for the time being you know our outperformance of the market and our outperformance of competition has been the way strategic win and share gain versus where in some pocketed secular growth.

Okay.

So that's that's how I think you should interpret it.

Okay, Great and then it looks like as you add in some of these additional cost saves you in your guide you're kind of low to mid Twentys decremental margins and just trying to get a sense is if these kind of trends continue is that a sustainable decremental margin into the latter part of the year.

Yes. It is.

Again, I think the actions.

That we took in and you really when you really study those charts.

We we went about it assuming that things were going to be really bad.

And we size all of the cost reductions and plans we had to deliver.

Again that $51 million over the next nine months freely eight months when you factor in when it was implemented and as result of that the momentum on those will carry us all the way through the December quarter.

And so the decrementals.

The cost structures in place it really comes down to what happens to order rates over the course of the next.

Six to seven months, but without question, that's what we endeavor to do and that's where we've cut our cost.

Okay. Thanks, a lot guys.

You bet.

Joe again with critical research brightness is on the line with your question. Please go ahead.

Hi, good morning, everyone.

And Joe.

On the cost.

What's in the 51 million 68 annualized can you give any context in terms of Youre planning for what kind of range of demand declines that addresses and how far you need to move outside of those ranges either to the upside or downside.

To start making changes to your.

Cost out plans.

Well, we're refining it as as necessary starting today tighter as the last several weeks.

And.

If you're if you're below the factory line, we're asking you to think about what else we need to do and respond real time as opposed to try to project when order rates are going to be.

Four five months about it would certainly.

Be our assumption that some of these declines moderate to a degree.

But that being said you know we've got to just be vigilant about it and so we're not giving guidance now for the December quarter, what we're talking about is.

We're we're already cut below what we hope to be pretty pretty tough quarter.

When we get to July and we'd give you. The next update we will have a hopefully slightly better view, we may not but nonetheless, the cost structure that weve.

Gotten ourselves too is very durable across pretty big declines for awhile.

Way to think about it.

We didnt happen.

We don't have a view recovery in the September and December quarter.

The approach of.

Lower for longer force ourselves to cut our cost of that level, and then work our tails off to do better than that as we take share and.

And again I think thats, that's the prudent thing to do and that's that's the way we've approached.

And then as you think about that part of the year into the back half of the calendar year could you talk a little bit about end markets, both within PMC and water management.

That.

Might be poised for more of an improvement post June and those that would be more positioned to.

In do or a sort of lower for longer type of environment.

Aerospace kind of curious about what your expectations are there versus other markets that you see could be kind of more resilient or more kind of V shaped.

Well again, we're taking approached in aerospace is going to be lower for longer.

We think some of the.

Some of the MRO activity right. If you think about in the last two or three months, there's been a lack of them Aro activity just because people have been doing it hasn't been spending money.

As people get back to work as general.

General industry starts to.

I think things manufacture things were going to be.

We're going to see MRO improve we think relatively quickly I do think that things like food production beverage production power generation and all those you know that that are just fundamental infrastructure essential industries.

They are being consumed everyday everywhere around the world no matter.

We're in a crisis or not those are things that are going to come back sooner than later I don't think this hydrogenics.

Period is going to go away anytime soon in fact, I think it's going to amplify and accelerate and so and then on the other under the BARDA you highlighted which is aerospace and so we've got a number of different announced an exposure some are going to do quite well.

As things begin to.

Moderate and ultimately recover and some aerospace is is in a tough spot.

I think were alone in saying that.

But that being said, we think it's a terrific opportunity to take share we have it's part of our spoken to initiative implemented.

World Class facility with World class cost structure and this is a great time for us to go in and work with Oems and pick off people with the competitive advantage that we've created lead time service levels and cost and so.

We're not trying to.

Predict.

Anything specifically, but that's how we think about it.

And that's what our plans.

And then.

Lastly, just to understand the days impact I think you talked about April down 21, but down 12 days adjusted.

For the full June quarter, what is the year over year days impact.

No there's no Dave's effective June quarter, Joel the phenomenon power our fiscal year ended and where April started so for the quarter days are consistent year over year.

Gotcha and so the down 18 to 23 is an acceleration in declines from the April level.

That's what our vessel tight puts it does.

Yeah, all right.

Thank you very much.

Ryan Blair with Oppenheimer is on the line with your question. Please go ahead.

Good morning, everyone sort of general.

One of us.

Hello.

Little more color on segment order trends and specifically the split of OE versus MRO, and TMC and the new construction versus retrofit and return to the extent you can parse out those trends.

Oh, we have end user is higher than what is on the chart and tomorrow is lower meeting the declines in our MRO are far lower today OE and then use are higher in PMC with respect to new construction.

And retrofit retrofit is growing new constructions them.

Okay fair enough.

And then you've called out the SKU reduction impact to date.

And specifically noted the skews in both platforms.

How much of a skew SKU reduction impact is expected in 2020, and how should we think about that.

All else equal relative to year.

Share gain forget Graham.

The the impact in our.

Calendar year, 20 will be less than what it was last year.

For the year, it was probably 150 basis points.

Maybe a touch more all in.

It will be modestly less than that.

Probably closer to a point.

Gilbert one in calendar 2000 definitely think about.

Okay and then the second part of that was.

Share again, I know, that's that's not the easiest thing to parse out at all times, but are you confident that the share you're gaining via these.

Initiatives is offsetting.

That figure manually.

100%.

Yes.

I think it's somewhat obvious right.

Our closest market competitors and water are flat we're growing seven.

So yeah, I think were more than offsetting appointive.

I have a.

Simplification.

Okay very good.

Just to level set on the 2020 cost savings to 10 million from workforce reductions are called 13 million annualized.

Is that truly structural or is there some variability in that number.

Structural.

Yes.

Okay. Thanks, guys.

John Walsh with credit Suisse is on the line with your question. Please go ahead.

Hi, good morning.

Good morning, good morning, and a thing for us for running through all that detail on the fly very helpful.

I guess two questions here one.

Obviously, you talked about your liquidity position position of strength.

I know what are you looking for.

From a either if its macro if it's something internal to kind of get more offensive on the other side of the code at 19 disruption.

'cause it would seem like you're in a position that you could probably go faster than some others.

Well again I think we.

Talked about this maybe in one of the earlier calls maybe then in March.

We have a very strong funnel of ER.

Activity on the water management side, I think out of the abundance of.

Just.

Basic Street Smarts.

We added some things that we probably could have done towards the end of our March quarter. We chose jointly to just take a step back and see where our numbers.

Both our numbers and their numbers sort of.

Pull out over the next several months, but I do believe that once we once we see some level of stabilization.

And are confident and the targets and we are.

We all agree that thousand right time, I think you'll see us.

Do some things, but it's not something that were racing to do we're going to be cautious. We've got these are these proprietary deals. So these are not auctions.

We we sort of had a handshake, where the one and on the other side of this or amidst this or some something like that I'm pretty sure we're going to be able to do some really really smart things in good things that complement.

What we put together.

Great and then maybe a bigger picture question you spent time talking about connected.

On the industrial sites, we've heard that from several other players in the industry that it's moving that way.

Maybe if you could compare and contrast on the construction side I would think it's more mixed and I'm curious what you're hearing from your customers, but are they using this more as a temporary dislocation or they actually having conversations that they need to move to.

Touchless that they need to make buildings more seamless kind of maybe where's the traction greatest at this point, if you had a compare versus the two segments if that.

Captures the spirit of the question.

Well I would.

I would answer it this way the long term secular trend towards remote monitoring reliability and uptime on the PMC side is unchanged and likely accelerates.

On the water side.

A number of conversations we're having with.

Hospitals universities schools other health care facilities.

His vertical.

And I don't think Thats, a trend that is going to change anytime soon and so I mean.

One example is major retailers, who are really struggling as they consider.

Opening stores.

The one place their spending money is retrofitting.

There.

Philippines.

Hi Tech solution, so people feel safe.

And so that's an indication of where you think about.

Some of these retailers are struggling.

But they're willing to spend money in one spot.

To bring the consumer back and Thats.

With the solutions, we have and then if you just think about adding back to school University any at some point.

This is going to be a little more.

Easy to see we're going to get through the cold and prices whether it's in the next nine months or 18 months, but I do think that.

Hey, Hydrogenics solution that's connected.

Into the building management system to something this is not going to go away.

And this is.

This is something that.

We have that's unique the breadth of product we have the ability for them to work together and us to specify value engineer.

As we think is incredible strategic advantage not just in the moment, but for a long long period of time, So I would tell you that.

I think the adoption curve on the construction side is going to go much faster quicker.

Great. Thanks for taking the questions.

Maybe give great Barry is on the line with your question. Please go ahead.

Thank you good morning.

I also want to stick with that but very last topic on hygienic.

55% of me is what I heard which is which is quite a number can you maybe help size. This business that we understand kind of what would you guys are are currently working with.

Wondering the.

Significant growth that you saw in May here, when you give us some contracts or some color as to what's been driving it and as you think at the next.

612 18 months.

What do you see as did total addressable market that that your sales people would be going after here.

Well make what we're not going to give you the size of it.

But the addressable market is probably in the millions when you measure it today and going to grow overtime.

So.

When you when you look at when you look at the major competitors Theres not many.

And this is a business that we created organically.

Starting about 10 years ago, and it's becoming a bigger and bigger and bigger piece and certain.

And the addressable market is getting bigger and bigger and bigger.

And you know from a technology standpoint.

You've got your driven technology in our sensor and touchless products, which is.

The only one of the market that has and so it's a bullet proof solution on top of this growing market.

So we think this is a real opportunity and.

Something that will differentiate our growth per watt.

I.

I see I'd.

Sorry, the press younger.

Does that number is kinda eye popping for me and I'm just trying to figure out of this is maybe.

That's something that's off a very low base with a couple of customers or.

That are placing orders or if this is something broader I mean.

Is it that you're seeing healthcare and related type demand that could potentially expand more broadly or.

The retail example that you talked about earlier I'm, just looking for some context here.

Well I'll, you can sort of triangulate right, our certain core growth last year was 4%.

And this grew 16%.

So it's not off a very small number is small number but it's not a tiny number by the especially imagination.

And.

Hi.

Our health care facilities going to convert.

Scrubber surgical rooms, restrooms common areas to stainless or copper six with touch this technology that produce.

The ability to.

Execute a CDC compliant handwashing the answer is yes, as retail, yes, right our high traffic areas, Yes, I mean.

Business very there's very little from an end markets standpoint that we can't address.

Yes.

Hi, Chinacache awareness makes it was.

National hygiene.

Right and we had people speaking with huge University forums, where we where the industry expert on what they need to do.

When students eventually return the dorms.

And campus buildings and things like that we were on these panels and so it's virtually every end market we have.

Across certain both new.

And for the for the moment retrofit.

So.

I'm going to give you much more than that other than.

We're not cherry picking a number here to make an eye popping.

It's the real deal.

Hi, I'm sure. It is we're just trying trying to understand kind of what the moving pieces are here.

And then my last question on on a cross the motion control.

You give good color on aerospace I'm wondering if there's some other end markets that you can maybe call out in terms of progress and how you're thinking about demand going forward I'm, particularly interested in how do you think about process automation and food and beverage. Thank you.

Right.

Yes, I think we already covered that right.

On the consumer side of things.

Food production.

Power generation.

Marine all things that are.

Our growing.

And obviously the broader MRO activity around all those industries. So I.

Yes, Eric Aerospace is down.

But there's a lot of other levers we have.

That we think.

Our driving some of the maybe surprisingly to you reasonable performance to date.

Okay. Thanks.

Helium Mitchell with Barclays is on the line with your question. Please go ahead.

Hi, good morning, and congratulations call. It on the chairmanship grow I think it was announced yesterday.

[music].

Maybe just the first question around a water you gave some very good color on the sub pieces earlier and the tone is pretty upbeat around share gains.

Maybe just help me understand what are you seeing in the way of sort of backlog development that and the extent to which is seeing a project and or the push outs kind of where we are in that cycles in what is a very sort of sauce changing environment.

So order delays and push outs.

Very bad in April to now that easing or it just depends state by state.

Maybe just any context on that.

Well, we crossed over March with a record backlog for our zurn business, which is for us somewhat unusual right. It's a much more book ship business.

On.

And within our financial results that being said we knew.

The strength based on the specification work that we had done.

Years in months before.

As you think about different work sites.

Obviously.

The northeast corridor has been shut down and tough.

California, as well, but if you think about places like Florida and Texas.

I agree that the middle of the country. Many job sites, it's continued to stay open.

But those two large no regions of the countries, where most of the people arent good percentage of the building happens those are essentially shut so we would expect.

You know as those open back up really over the course of this summer.

Resume work, we know we'll get the activity there.

But we have not seen.

Any meaningful push outs.

Cancellation of orders I mean, if we were going to ship something to a worksite in New York City obviously.

With the job sites, because we're not sure. So if you want to call that push out you call it push out but you know.

Those are going to get finish.

Once it safe for people to do so.

So.

Nothing nothing.

On the cancellation or anything like that I'm sorry.

Thanks, and then just a quick follow up on the the cost out initiatives. So I just wanted to double check that the the 51 million of cost savings you talk about over the next sort of eight months. So the last nine months of the year.

Just wanted to check if that's excluding the scope for savings and then what the scope for savings off for this current calendar year I saw you said what it was last fiscal year. When next calendar year, just wanted to think about the scope of progress and what we get Intel.

Into 20.

Yes wins as Mark.

So calendar 20 is really more of a a year of a lot of heavy looking for us as Tom noted earlier, we've made some announcements, but we're going to be used in this calendar year.

We love the heavy lifting on the project the savings will really start.

During our you know like as we highlighted the slides starting what would be calendar 21, and probably even more so in that June quarter versus the March quarter. So think of things. This year is up I get the work done year for us on school for Threed benefits starting to increase the personnel in the in calendar 21, so that when the $51 million here is just actions we've taken near term.

From NRP now know school for three in that number.

Great. Thanks, No bad right Yep.

Thank you.

Because your blessed with great bankers on the line with your question. Please go ahead.

Yeah. Thanks, good morning.

Good morning.

Hi, there so I guess, maybe I'm thinking about you know looking past doesn't until a little hopefully the a decent recovery. How do you guys think about you know what your incremental margins can look quite coming out just tying together all the work you guys have done around cost the scope for programs seems to me.

Potentially incrementals could look better in a recovery than they've looked in past cycles, but just want to talk through that.

Well that are incrementals.

Frankly, a pretty good now 43% in our March quarter.

Uh huh.

I think it depends on.

The shape of the recovery, obviously earlier in a recovery.

Before we would add that Kennedy's variable expenses and things like.

The margins are going to be better.

And we were going to continue to endorse a normalized 30 to 35 overtime.

But without question.

No.

I think we've demonstrated really good incremental margins last three or four years.

And scope for three is another 15 to.

20 million so.

And that structural and permanent so there's a.

There's a compounding effect of scope for one scope for too.

80 20.

Scope for free.

And.

We think thats more than underwrites you know.

The 30 to 35.

We're not going to commit to what that looks like at this point, but I think you can you you can get pretty comfortable that.

We're doing 43 in a march quarter, where most people would posting decrementals.

And we've got this compounding effect of all the work done and there's still more to go I think you can feel pretty good about.

Underwriting that 30 to 35, and maybe some touch pad.

Got it. Thanks, that's helpful. And then secondly, I think you know there's growing concern around prospects for non residential construction over the next several years totally get the hydronic discussion that sounds really interesting.

It's they might be a little bit too early to tell but I guess you know in dessert business outside of hydronic, the more traditional darn, but that's how concerned are you about nonresidential trends over the next several years, maybe just maybe based on the customer conversations you're having about new projects entering the pipeline.

I think is to be determined.

Right I.

Let me.

This really started.

The hit home in January.

The pandemic in the U.S. was declared on March 12.

What's today May 13 make for thing.

I don't think customers and people were talking to our making multiyear decisions based on a two month period.

So we think activity in conversations for me and I I think our entire sweet connected water products.

He is going to resonate.

In any environment.

And it's certainly an opportunity picture.

As we as we go forward, but I think it's a little bit premature to Mickey multi year projection.

On a very short.

Sample.

Understood. Thanks, I'll pass it on.

We have no further questions at this time.

So thanks, everybody was able to join us on the call.

Appreciate your interest in Rexnord of course, we look forward to providing or next update around.

Around our June quarter results, which will occur in late July we stay safe and stay well.

Thank you ladies and gentlemen, this completes today's conference. Thank you for your participation participating you may now disconnect.

[noise].