Q4 2023 Regal Rexnord Corp Earnings Call

Okay.

Good morning.

Operator: Good morning. And welcome to the Regal Rexnord fourth quarter 2023 earnings conference call. All participants will be in listen-only mode.

And welcome to the.

Regal Rexnord fourth quarter 2023 earnings conference call.

All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Now, I would like to turn the conference over to Robert Barry, Vice President of Investor Relations. Please, go ahead.

Should you need assistance, please signal what conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Please note this event is being recorded.

Now I would like to turn the conference over to Robert Barry Vice President of Investor Relations. Please go ahead.

Robert Barry: Great. Thank you operator, and good morning, and welcome to <unk> fourth quarter 2023 earnings Conference call. Joining me today are Louis Pinkham, our Chief Executive Officer, and Rob <unk>, Our Chief Financial Officer.

Robert Barry: Great. Thank you, operator. Good morning, and welcome to Regal Rexnord's fourth quarter 2023 earnings conference call. Joining me today are Louis Pinkham, our Chief Executive Officer, and Rob Rehard, our Chief Financial Officer. I'd like to remind you that during today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the regalrexnord.com website. On slide three, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials.

Robert Barry: I'd like to remind you that during today's call you may hear forward looking statements related to our future financial results plans and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC which are available.

Robert Barry: Oh on the Regal Rexnord Dot com website.

Robert Barry: On slide three we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors and we have included reconciliations between the non-GAAP financial information in the GAAP equivalent in the press release and in these presentation materials.

Robert Barry: Turning to slide four, let me briefly review the agenda for today's call. Louis will lead off with his opening comments and an overview of our 4Q performance. Rob Rehard will then provide our fourth quarter financial results in more detail and lay out our 2024 guidance. We'll then move to Q&A, after which Louis will have some closing remarks. And with that, I'll turn the call over to Louis. Thanks, Rob. And good morning, everyone.

Robert Barry: Turning to slide four let me briefly review the agenda for today's call Lewis will lead off with his opening comments and an overview of our <unk> performance. Rob <unk> will then provide our fourth quarter financial results in more detail and lay out our 2024 guidance. We'll then move to Q&A after which Louis will have some clothing.

Robert Barry: And with that I'll turn the call over to Louis Thanks.

Louis V. Pinkham: Thanks, Rob and good morning, everyone.

Louis V. Pinkham: Thanks for joining us to discuss our fourth quarter earnings to get an update on our business and for your continued interest in Regal Rexnord. Our team ended 2023 on a high note, achieving fourth quarter adjusted diluted earnings per share of $2.28, in line with our guidance midpoint. We also delivered very strong adjusted free cash flow of $171 million, which exceeded our expectations, and we realized 40 basis points of adjusted EBITDA margin expansion on a pro forma basis, despite continuing to confront destocking and end market headwinds that weighed on our sales. For the year, the Regal Rexnord team delivered $683 million of adjusted free cash flow, firmly above our $650 million-plus commitment and nearly double. In 2022,

Lewis: Thanks for joining us to discuss our fourth quarter earnings to get an update on our business and for your continued interest in Regal rationally.

Lewis: Our team ended 2023 on a high note achieving fourth quarter adjusted diluted earnings per share of $2 28.

Lewis: In line with our guidance midpoint.

Lewis: We also delivered very strong adjusted free cash flow of $171 million, which exceeded our expectations and we realized 40 basis points of adjusted EBITDA margin expansion on a pro forma basis, despite continuing to confine destocking.

Lewis: And end market headwinds that weighed on our sales.

Lewis: For the year, the Regal Rexnord team delivered $683 million of adjusted free cash flow firmly above our $650 million plus commitment and nearly double 2022.

Louis V. Pinkham: This allowed us to make significant progress paying down debt and lowering our interest costs. Truly outstanding performance, much of it due to the team's disciplined execution on working capital. We also made significant progress on margins, with adjusted gross margins up 150 basis points versus prior year, and adjusted EBITDA margins on a pro forma basis were down 10 basis points versus prior year, even while facing market headwinds. There were many drivers of this strong margin performance. But a key contributor was our IPS and AMC teams achieving $65 million in cost synergies in 2023. They are on track to deliver another $90 million in 2024. The past year has also been one of transformational portfolio changes for Regal Rexnord. We added ULTRA, while also reaching an agreement to sell the motors and generators businesses that comprise the majority of our industrial systems segment.

Lewis: This allowed us to make significant progress paying down debt and lowering our interest costs.

Lewis: Truly outstanding performance.

Louis V. Pinkham: Much of it due to the team's disciplined execution on working capital.

Louis V. Pinkham: We also made significant progress on margins with adjusted gross margins up 150 basis points versus prior year.

Louis V. Pinkham: And adjusted EBITDA margins on a pro forma basis were down 10 basis points versus prior year, even while facing market headwinds.

Louis V. Pinkham: There were many drivers of this strong margin performance, but the key contributor was our Ips and AMC teams, achieving $65 million of cost synergies in 2023.

Louis V. Pinkham: They are on track to deliver another $90 million in 2024.

Louis V. Pinkham: The past year. It has also been one of transformational portfolio change for Regal rash Nord.

Louis V. Pinkham: We added all truck.

Louis V. Pinkham: I'll also reaching an agreement to sell the motors and generators businesses that comprise the majority of our industrial systems segment.

Louis V. Pinkham: We now have line of sight to the portfolio we plan to grow with going forward. It is one where our IPS segment, which will represent roughly 40% of our pro forma sales, has unrivaled scale and scope across the industrial powertrain market. A powerful advantage that should allow us to provide a differentiated offering and service levels to our customers, helping us grow. In 2023, we saw approximately $70 million of incremental sales from cross-marketing and the industrial powertrain subsystem solution, which beat our expectations by roughly 10%. We also now have a meaningful presence in motion control with our AMC segment, representing roughly 25% of our pro forma sales, which has highly attractive secular growth characteristics, exceptional product and technology differentiation, and provides a platform to support strong organic and inorganic growth opportunities.

Louis V. Pinkham: We now have line of sight to the portfolio, we plan to grow with going forward.

Louis V. Pinkham: It is one where our Ips segment, which will represent roughly 40% of our pro forma sales is.

Louis V. Pinkham: As the unrivaled scale and scope across the industrial powertrain market.

Louis V. Pinkham: A powerful advantage that should allow us to provide a differentiated offering and service levels to our customers, helping us grow.

Louis V. Pinkham: In 2023, we saw approximately $70 million of incremental sales from cross marketing and the industrial powertrain sub system solution, which beat our expectations by roughly 10%.

Louis V. Pinkham: We also know have a meaningful presence in motion control with our AMC segment, representing roughly 25% of our pro forma sales, which has highly attractive secular growth characteristics.

Louis V. Pinkham: Exceptional product and technology differentiation and provides a platform to support strong organic and inorganic growth opportunities.

Louis V. Pinkham: In short we are proud of all that we have achieved in the past year, but more importantly, extremely excited about our future prospects.

Louis V. Pinkham: In short, we are proud of all that we have achieved in the past year but, more importantly, extremely excited about our future prospects. Helping drive this progress and poised to execute so much value creation in 2024 and beyond is our dedicated global team of Regal Rexnord associates. For their hard work and disciplined execution, I want to thank them for a strong fourth quarter, which capped off a very positive 2023. Turning back to our fourth quarter performance, sales in the quarter were up 29.2%, but down 6.9% on a pro forma organic basis as we continue to see destock headwinds and weaker end market demand, particularly in our PES segment and in our factory automation business within AMC. Orders in the quarter were down 6% on an organic daily basis, and while January was off to a somewhat stronger start, we expect first quarter orders to be down at a mid-single-digit rate versus the prior year.

Louis V. Pinkham: Helping drive this progress and poised to execute so much value creation in 2024 and beyond is our dedicated global team of Regal Rexnord associates.

Speaker Change: For their hard work and disciplined execution I want to thank them.

Louis V. Pinkham: For a strong fourth quarter, which capped off a very positive 2023.

Louis V. Pinkham: Turning back to our fourth quarter performance sales in the quarter were up 29, 2%, but down six 9% on a pro forma organic basis as we continued to see destock headwinds and weaker end market demand, particularly in our <unk> segment.

Louis V. Pinkham: And in our factory automation business within AMC.

Louis V. Pinkham: Orders in the quarter were down 6% on an organic daily basis, and while January was off to a somewhat stronger start we expect first quarter orders to be down at a mid single digit rate versus prior year.

Louis V. Pinkham: Despite fourth quarter topline pressures margins in the quarter were strong.

Louis V. Pinkham: Despite fourth-quarter top line pressures, margins in the quarter were strong. Our adjusted gross margin came in at 35.7%, reflecting synergy gains, 80-20 in lean actions, as well as some favorable segment mix. Our adjusted EBITDA came in at $346.5 million.

Louis V. Pinkham: Our adjusted gross margin came in at 35, 7%, reflecting synergy gains 80, 20, and lean actions as well as some favorable segment mix.

Louis V. Pinkham: Our adjusted EBITDA came in at $346.5 million.

Louis V. Pinkham: This translates to roughly a $1.4 billion annual run rate and highlights how we have built scale and scope into what we believe is a sustainable competitive advantage. Adjusted EBITDA margin of 21.5% was up 40 basis points versus the prior year on a pro forma basis. That translates to a deleverage rate of 14.6%, a solid performance by our team. Lastly, what I believe was the key highlight of the quarter. We delivered $171 million of free cash flow, resulting in $683 million for the year, aided by overdriving working capital improvement, in addition to the strong operational execution I have been sharing. We paid down $117 million of debt in the quarter, and our net debt fell by over $153 million.

Louis V. Pinkham: This translates to roughly a $1 $4 billion annual run rate and highlight how we have built scale and scope into what we believe is a sustainable competitive advantage.

Louis V. Pinkham: Adjusted EBITDA margin of 21, 5% was up 40 basis points versus the prior year on a pro forma basis.

Louis V. Pinkham: That translates to a deleverage rate of 14, 6% solid performance by our team.

Louis V. Pinkham: Lastly, what I believe was the key highlight of the quarter, we delivered $171 million of free cash flow, resulting in $683 million for the year aided by over driving working capital improvements.

Louis V. Pinkham: In addition to the strong operational execution I have been sharing.

Louis V. Pinkham: We paid down $117 million of debt in the quarter and our net debt fell by over $153 million.

Louis V. Pinkham: We remain laser-focused on paying down our debt, and I believe we can be close to three times levered at the end of 2024. Strong free cash flow is a fundamental attribute of our Regal Rexnord portfolio. It long has been, and we are accelerating it.

Louis V. Pinkham: We remain laser focused on paying down our debt and I believe we can be close to three times levered at the end of 2024.

Louis V. Pinkham: Strong free cash flow is a fundamental attribute of our Regal rexnord portfolio.

Louis V. Pinkham: Long has been and we are accelerating it.

Louis V. Pinkham: With this strong free cash flow, we anticipate substantial value creation tied to capital deployment for many years to come. Shifting focus, you may recall that each quarter I've been spending a few minutes introducing our principal AMC businesses to help investors better appreciate how we are well positioned to accelerate profitable growth. This quarter, I would like to spend a couple of minutes discussing micromotion, where we make small, ultra-high-performance motors, controllers, and encoders, primarily for the medical, aerospace, and industrial markets. Our micromotion division grew 22% in 2023, and roughly 15 points of that growth can be directly tied to share gains, supported by a robust pipeline of new products and improved service levels. This is important because it reinforces the success that comes from being part of Regal Rexnord.

Louis V. Pinkham: With this strong free cash flow, we anticipate substantial value creation tied to capital deployment for many years to come.

Louis V. Pinkham: Shifting focus you may recall that each quarter I've been spending a few minutes introducing our principal AMC businesses to help investors better appreciate how we are well positioned to accelerate profitable growth.

Louis V. Pinkham: This quarter I would like to spend a couple of minutes discussing micromotion, where we make small ultra high performance motors controllers, and Encoders, primarily for the medical aerospace and industrial markets.

Louis V. Pinkham: Our micro motion Division grew 22% in 2023, and roughly 15 points of that growth can be directly tied to share gains supported by a robust pipeline of new products and improve service levels.

Louis V. Pinkham: This is important because it reinforces the success that comes from being part of Regal Rexnord.

Louis V. Pinkham: This division had relatively flat sails for more than five years, mainly due to operational obstacles. We rigorously applied the Regal Rexnord business system, addressed capacity constraints, and improved service levels since the acquisition, which allowed the MicroMotion team to work down a significant backlog. Service levels that had once restrained growth have now become a competitive advantage and are helping the business take share. In addition, as part of our Regal Rexnord business system, we have been investing in this business, and in just a few quarters, we accelerated key product launches and built a solid organic growth funnel to drive long-term growth. The divisions markets are also well-positioned to benefit from strong secular growth tailwinds tied to increased access to medical care, the transition to battery-powered equipment, and making air travel more sustainable.

Louis V. Pinkham: This division had relatively flat sales for more than five years, mainly due to operational obstacles.

Louis V. Pinkham: We rigorously applied the Regal rexnord business system address capacity constraints and improve service levels since the acquisition, which allowed the micro motion team to work down our significant backlog.

Louis V. Pinkham: Service levels that had once restrained growth have now become a competitive advantage and are helping the business take share.

Louis V. Pinkham: In addition, as part of our Regal Rexnord business system, we have been investing in this business.

Louis V. Pinkham: And one only a few quarters, we accelerated key product launches and built a solid organic growth funnel to drive long term growth.

Louis V. Pinkham: The division's markets are also well positioned to benefit from strong secular growth tailwind tied to increased access to medical care transition to battery powered equipment and making air travel more sustainable.

Louis V. Pinkham: In addition to leveraging our micro motion divisions long standing technology leadership and deep application expertise, we have been making meaningful investments in R&D to significantly raise our new product vitality.

Louis V. Pinkham: In addition to leveraging our micro motion division's longstanding technology leadership and deep application expertise, we have been making meaningful investments in R&D to significantly raise our new product vitality. As our growth and outgrowth metrics demonstrate, we have solid momentum. Some examples of the innovations driving these results are pictured along the bottom of this slide, starting on the left. Our products are new medical injector pens, devices used for injecting medication under the skin. We have started providing customers with a complete drive subsystem solution, which includes a micromotor, encoder, gearing, and lead screw. Providing this solution makes assembling these pens easier for our customers while also helping to optimize their performance. Orthoscopic shavers are highly engineered surgical tools used to perform orthoscopic surgeries by cleaning and removing soft tissues between bone joints.

Louis V. Pinkham: As our growth and outgrowth metrics demonstrate we have solid momentum. Some examples of the innovation is driving these results are pictured along the bottom of this slide.

Louis V. Pinkham: Starting on the left our products for new medical injector pens devices used for injecting medication under the skin.

Louis V. Pinkham: We are starting to providing customers with a complete drive sub system solution, which includes a micro motor encoder gearing and leads group.

Louis V. Pinkham: Providing the solution makes us assembling these pens easier for our customers, while also helping to optimize their performance.

Louis V. Pinkham: Arthroscopic Shaver is our highly engineered surgical tools used to perform arthroscopic surgery by cleaning and removing soft tissues between bone joints.

Louis V. Pinkham: Our durable, high-precision motor at the heart of this device has doubled the product life as compared to competing products. The bone meal application contains our unique micromotor developed for a customer that wanted to shift from a manual to an automated device. This required a precisely controlled power output range and an ability to withstand autoclaving, a combination of attributes that our competitors were not able to provide. This is a great example of how our application expertise, plus our broader high-precision motor and controls technology, resulted in a highly value-add and differentiated product. Lastly, battery torque wrenches are used in industrial applications where a precise application of torque is critical. Our next generation solution is a micromotor that meets all standard performance criteria, but is also 50% faster, 15% lighter, 5% smaller, and 20% more energy efficient than the next leading competitor.

Louis V. Pinkham: Our durable high precision motor at the heart of this device has doubled the product life as compared to competing products.

Louis V. Pinkham: The bone mill application contains our unique micro motor develop where a customer that wanted to shift from a manual to an automated device.

Louis V. Pinkham: This required a precisely controlled power output range and an ability to withstand auto Cleveland.

Louis V. Pinkham: A combination of attributes that our competitors were not able to provide.

Louis V. Pinkham: This is a great example, where our application expertise plus our broader high precision motor and controller technology, resulting in a highly value add and differentiated product.

Louis V. Pinkham: Lastly, battery torque wrenches are used in industrial applications, where a precise application of torque is critical.

Louis V. Pinkham: Our next generation solution as a micro motor that meets all standard performance criteria, but is also 50% faster.

Louis V. Pinkham: Teen percent lighter, 5% smaller and 20% more energy efficient than the next leading competitor.

Louis V. Pinkham: So stepping back when I consider this division's robust new product pipeline and the progress we have made on the operational excellence and service levels.

Robert J. Rehard: So, stepping back. When I consider this division's robust new product pipeline and the progress we have made on operational excellence and service levels, I see a business well positioned for strong and accelerating outgrowth with confidence that we will grow at high single digits or better for the next few years. With that said, I will now turn the call over to Rob to take you through our fourth quarter segment, Financial Performance, and discuss our 2024 guidance. Thanks, Louis, and good morning, everyone.

Louis V. Pinkham: I see a business well positioned for strong and accelerating outgrowth with confidence that we will grow at high single digits or better for the next few years.

Louis V. Pinkham: With that said I will now turn the call over to Rob to take you through our fourth quarter segment financial performance.

Rob: And discuss our 2020 for guidance.

Rob: Thanks, Leslie and good morning, everyone.

Robert J. Rehard: I'd also like to thank our global team for their hard work right up to year-end to deliver a strong close to 2023 while continuing to drive the many initiatives we have underway to accelerate profitable growth. Now, let's review our operating performance by second. Starting with Automation and Motion Control, or AMC, organic sales in the fourth quarter, pro forma for the Altra acquisition, were down 3% to the prior year, reflecting strength in aerospace, data center, and medical, tempered by weakness in the global discrete automation in food and beverage, notably for the full year 2000. However, organic sales growth for the AMC segment is up 3.1% in April.

Rob: I'd also like to thank our global team for their hard work right. After year end to deliver a strong close to 2023, while continuing to drive the many initiatives, we have underway to accelerate profitable growth.

Rob: Now, let's review our operating performance by segment.

Louis V. Pinkham: Starting with automation and motion control, our AMC organic sales in the fourth quarter pro forma for the ultra acquisition were down 3% in the prior year.

Louis V. Pinkham: Strength in the aerospace datacenter and medical markets tempered by weakness in the global discrete automation and beverage markets.

Louis V. Pinkham: Notably for the full year 2023 organic sales growth for the AMG segment up three 1% on a pro forma basis.

Robert J. Rehard: Adjusted EBITDA margin in the quarter was 24.8%, in line with our expectations and up 90 basis points, prior on a comparable proforma basis. The margin performance reflects favorable price costs and pockets of strength in mixed positive markets such as data center, aerospace, and medical, along with Synergy Realization and Good Discretionary Cost Management. Order is an and, on a pro forma organic basis.

Louis V. Pinkham: Adjusted EBITDA margin in the quarter was 24, 8%.

Louis V. Pinkham: In line with our expectations.

Louis V. Pinkham: 90 basis points versus the prior year period on a comparable pro forma basis.

Louis V. Pinkham: The margin performance reflects favorable price cost.

Louis V. Pinkham: Pockets of strength and mix positive markets, such as data center aerospace and medical.

Louis V. Pinkham: Along with synergy realization anchored discretionary cost management.

Louis V. Pinkham: Orders in AMC on a pro forma organic basis or down just under 5% in the fourth quarter on a daily basis.

Robert J. Rehard: We're down just under 5% in the fourth quarter on a daily basis, a significant improvement versus recent for Perspectives. We expected orders to decline in the quarter versus prior year, driven by a couple of factors. One, as supply chains and lead times normalize. We have been addressing customer demand by working down an elevated AMC backlog. We made good progress on this front in the fourth quarter, though AMC's backlog still remains roughly 35% above normal, a factor we think bodes well for top-line improvement.

Louis V. Pinkham: A significant improvement versus recent quarters.

Louis V. Pinkham: For perspective.

We expected orders to decline in the quarter versus prior year, driven by a couple of factors.

Our supply chain and lead times normalized.

Louis V. Pinkham: We have been addressing customer demand by working down and elevated AMC backlog. We made good progress on this front in the fourth quarter, though AMC back Amg's backlog still mean remains roughly 35% above normal.

Louis V. Pinkham: Factor.

Louis V. Pinkham: Well for top line improvement as 2024 unfolds.

Louis V. Pinkham: Second as anticipated when we reported third quarter, we continued to see softness in our short cycle discrete factory automation business.

Robert J. Rehard: Second, as anticipated when we reported third... We continue to see softness in our short-cycle discrete factory automation. While short-cycle automation orders stabilized in the quarter, which helped overall segment orders, short-cycle orders are still not growing, and we do not expect to see growth in short-cycle automation until later in 2024, consistent with our priority. In January, booked a bill, and tracked it roughly 1.14.., with orders down approximately $5. Turning to Industrial Powertrain Solutions, or IPS, pro forma organic sales in the fourth quarter were down 1.5% versus the prior year, and slightly above our expectations. Growth in the quarter mainly reflects strength in the aerospace and energy sectors, partly offset by weakness in alternative energy and the food and beverage industry. Adjusted EBITDA margin in the quarter for IPS was 24%, in line with our expectations on a 20 basis, prior year on a pro forma basis.

Louis V. Pinkham: While short cycle automation orders it stabilized in the quarter, which helped overall segment order rates short cycle orders are still not growing and we do not expect to see growth in short cycle automation until later in 2024.

Robert J. Rehard: With our prior expectations.

Louis V. Pinkham: In January book to Bill trapped at roughly 114 with orders down approximately 5%.

Robert J. Rehard: Turning to industrial powertrain solutions or Ips.

Louis V. Pinkham: Organic sales in the fourth quarter were down one 5% versus the prior year.

Louis V. Pinkham: And slightly above our expectations.

Rob Rehard: Growth in the quarter, mainly reflects strength in the aerospace and energy markets, partly offset by weakness in alternative energy and the food and beverage markets.

Louis V. Pinkham: Adjusted EBITDA margin in the quarter for Ips was 24%.

Robert J. Rehard: In line with our expectations and up 20 basis points versus the prior year on a pro forma basis.

Robert J. Rehard: We are very pleased to see a nice sequential improvement in IPS's adjusted EBITDA margin. Margin performance in the quarter reflects tailwinds from synergies along with continued discretionary cost management. And, as anticipated last quarter, costs to maintain quality and service levels for our customers during a period of peak synergy release. Proforma Organic Orders in IPS were down 1.9% in the fourth quarter on a daily basis.

Louis V. Pinkham: We are very pleased to see a nice sequential improvement.

Robert J. Rehard: Adjusted EBITDA margins.

Robert J. Rehard: Margin performance in the quarter reflects tailwind from synergies along with continued discretionary cost management.

Louis V. Pinkham: Net of headwinds from lower volumes weaker mix and as anticipated last quarter cost to maintain quality and service levels for our customers. During this period of peak synergy related footprint dose.

Louis V. Pinkham: Pro forma organic orders in the Ips were down one 9% in the fourth quarter on a daily basis and.

Robert J. Rehard: In January, we booked a bill, tracked at 1.16, and orders were up just over $1 million. Turning to Power Efficiency Solutions. The end. End. End. Organic sales in the fourth quarter were down 16% from the prior year, below our expectations.

Robert J. Rehard: In January book to Bill at 1.16, and orders were up just over 1%.

Robert J. Rehard: Turning to power efficiency solutions or P. S O.

Louis V. Pinkham: Sales in the fourth quarter were down 16% from the prior year and below our expectations.

Robert J. Rehard: The shortfall in performance was driven almost entirely by continued channel de-stocking activity and weaker demand for North America residential furnaces, which we attribute to warmer weather, higher than estimated channel inventories, and weaker underlying demand. We expect furnaces to remain a headwind in the first, and while weather appears to have tracked more favorably in January, we think furnace de-stock pressure will remain, given channel inventories were quite elevated in 2020. The adjusted EBITDA margin in the quarter for PES was 18.1%, up 10 basis points versus the prior year period and in line with our expectations. Key contributors to the PES margin performance were improved operational efficiencies net of lower volume. We also continue to selectively deploy 80-20 across the business to move away from lower margins and focus the majority of resources on growing our most attractive quadwundah. As we reflect on 2020, We are very pleased with the disciplined execution of our P.E., which achieved relatively stable margins at a healthy high teens level despite sizable top, shifting orders. Orders of P.S.

Robert J. Rehard: The shortfall in performance was driven almost entirely by continued channel destocking activity and weaker demand in the North America residential furnace market, which we entered into warmer weather.

Louis V. Pinkham: Then estimated to channel inventories and weaker underlying demand.

Robert J. Rehard: We expect <unk> to remain a headwind in the first quarter, while weather appeared to have tracked more favorably in January we think Vernon destock pressure will remain given channel inventories were quite elevated entering this year.

Robert J. Rehard: The adjusted EBITDA margin in the quarter for <unk> was 18, 1% up 10 basis points versus the prior year period and in line with our expectations.

Robert J. Rehard: Key contributors to the P. S margin performance were improved operational efficiencies net of lower volumes.

Robert J. Rehard: We also continue to selectively deploy 80 20 across the business to move away from lower margin business and focus the majority of resources on growing our most attractive one one business.

Louis V. Pinkham: As we reflect on 2023, we're very pleased with the disciplined execution of our P. S T.

Robert J. Rehard: [noise] achieved relatively stable margins.

Robert J. Rehard: At a healthy high teens level, despite sizable top line headwinds.

Robert J. Rehard: Shifting to orders.

Robert J. Rehard: Orders in PFS for the fourth quarter were down just under 10% on a daily basis.

Robert J. Rehard: for the fourth quarter were down just under 10% on a daily basis. However, booked a bill tracked at 1.2 in January, and orders were up just over $3,000. While it is encouraging to see this inflection in PDS orders, it is still early, and therefore, we will remain conservative in our expectations until we see that these improve on the following slide. We highlight some additional financial updates for your reference. Notably, on the right side of this page... You'll see we ended the quarter with total debt of $6.38 billion, down $117 million, and Net Debt of $5.7 billion, down $150 billion, versus the end of the year. The Leading Synergy is now 3.0, and our interest coverage ratio is approximately... Adjusted free cash flow in the quarter was very strong, coming in at $170.9 million and Nicely Above Our Expectations.

Robert J. Rehard: Book to Bill tracked at 1.2 in January and orders were up just over 3%.

Louis V. Pinkham: While it is encouraging to see this inflection in P. S orders. It is still early and therefore, we will remain conservative in our expectations until we see that these improved rates are sustainable.

Louis V. Pinkham: On the following slide.

Robert J. Rehard: We highlight some additional financial updates for your reference.

Louis V. Pinkham: Notably on the right side of this page.

Robert J. Rehard: You'll see we ended the quarter with total debt of $6, three 8 billion down $117 million.

Robert J. Rehard: And net debt of $5 $7 million down $153 million versus the end of the third quarter.

Louis V. Pinkham: Net debt to pro forma adjusted EBITDA, including synergies is now $3 eight and our interest coverage ratio is approximately $3 four.

Robert J. Rehard: Adjusted free cash flow in the quarter was very strong.

Robert J. Rehard: Coming in at $179 million.

Robert J. Rehard: And nicely above our expectations for the year, we generated adjusted free cash flow of $683 $1 million nearly double the prior year level.

Robert J. Rehard: For the year, we generated adjusted free cash flow of $683.1 million, nearly double the prior year level. Throughout the year, the teams continued to do a great job driving strong free cash flow performance, in particular by lowering investment costs, a performance that has allowed us to make significant progress paying down our debt. Moving to the outside. Do markets and D-stock dynamics remain volatile? and we are a fairly short cycle business. We set our initial 2024 outlook with incremental conservative, and so biased, our 2024 growth rate towards Reflecting the Current in Market. As you can see on this, we are introducing guidance for 2024 adjusted earnings per share to be in a range of $9.75 to $10, which implies a midpoint value of $10.

Robert J. Rehard: We're out the year. The teams continue to do a great job driving strong free cash flow performance in particular by lowering inventories.

Robert J. Rehard: <unk> that has allowed us to make significant progress paying down our debt.

Robert J. Rehard: Moving to the outlook.

Robert J. Rehard: Okay.

Robert J. Rehard: Since market and destock dynamics remain volatile and we are a fairly short cycle business. We set our initial 2024 outlook with incremental conservatism and so biased our 2024 growth rate assumptions towards reflecting current market conditions.

Robert J. Rehard: As you can see on this slide we are introducing guidance for 2024 adjusted earnings per share to be in a range of $9 75 to $10 55, which implies a midpoint value of $10 15 tests.

Robert J. Rehard: Underpinning the guidance mid point is an assumption that revenue was down slightly to prior year.

Robert J. Rehard: Underpinning the guidance midpoint is an assumption that revenue is down slightly to the prior year, to approximately $6.65 billion, and adjusted EBITDA margin is up just over 100 basis points prior to the process. Note that this guidance factors a full year of performance for the industrial model, announced late last year. Schell.

Robert J. Rehard: To approximately 665 billion and adjusted EBITDA margin is up just over 100 basis points versus the prior year to approximately 22%.

Robert J. Rehard: Note that this guidance factors in full year of performance for the industrial Motors and generators businesses, which we announced late last year that we are selling the transaction still on track to close in the first half of this year.

Robert J. Rehard: Action is still on track to close in the first quarter. The table on the right-hand side of this slide outlines these key guidances, as well as the sales growth assumptions at the low and high end of our EPS range. Note that the primary difference between the low and high ends of our Adjusted Earnings Guidance is the assumption for the top line, which is also noted. For 2024, we also expect to generate at least $700 million of free cash. The combination of the cash flow we expect to generate this year plus anticipated net cash proceeds from selling the industrial assets should allow us to pay down most of our variable rate debt in 2024, which in turn would lower our net debt to an even duration, from 3.8 at the end of 2012 to approximately three at the end of 2011. Finally, at the bottom of the table, the table includes assumptions to help investors model below-the-line items. Once again, all of these modeling items factor in a full year of performance for the industry.

Robert J. Rehard: The table on the right hand side of this slide outlines these key guidance points as well as the sales growth assumptions at the low and high end of our EPS range.

Robert J. Rehard: Note that the primary difference between the low and high ends of our adjusted earnings guidance range is the assumption for topline performance, which is also noted on this slide.

Robert J. Rehard: Our 2024, we also expect to generate at least $700 million of free cash flow.

Robert J. Rehard: The combination of the cash flow, we expect to generate this year.

Robert J. Rehard: Plus anticipated net cash proceeds from selling the industrial businesses.

Robert J. Rehard: Should allow us to pay down most of our variable rate debt in 2024, which in turn will lower our net debt to adjusted EBITDA ratio from three eight at the end of 2023 to approximately three <unk> at the end of 2024.

Robert J. Rehard: Finally at the bottom of the table.

Robert J. Rehard: <unk> assumptions to help investors model below the line items. Once again all of these modeling items tax rate full year performance for the industrial motors and generators businesses.

Robert J. Rehard: Yeah.

Robert J. Rehard: On this slide.

Robert J. Rehard: On this slide, we provide more specific expectations for our first quarter and full year performance by segment. Revenue and Adjusted, Note that the performance indicated for these metrics is on a year-over-year proforma basis. We're in.

Robert J. Rehard: To provide more specific expectations for our first quarter and full year performance by segment on our revenue and adjusted EBITDA margin.

Robert J. Rehard: Note that the performance indicated for these metrics on a year over year pro forma basis.

Robert J. Rehard: For AMC.

Robert J. Rehard: We anticipate a low to mid-single-digit sales decline in the first quarter, with margins up modestly. We expect modest growth in sales and margins for the year, implying incremental strength in the second half, mainly as our results in discrete automation are expected. Overall, we see continued strength in Center, Aerospace, and Medical Markets within a year. Net of Headwinds in Factory Automation, and Fluttershy for

Robert J. Rehard: Anticipate a low to mid single digit sales decline in the first quarter with margins up modestly.

Robert J. Rehard: We expect modest growth in sales and margins for the year, implying incremental strength in the second half mainly as a result in discrete automation are expected to improve.

Robert J. Rehard: Overall, we see continued strength in the data center aerospace and medical markets within AMC net of headwinds in factory automation and food and beverage.

Robert J. Rehard: For Ips.

Robert J. Rehard: We also expect a low to mid-single-digit sale decline in the first quarter and roughly flat margins. This year, we expect sales to be down low single digits and for just an even margin, up roughly 200. Broadly sluggish in-markets, especially food and beverage and general industrial, are expected to weigh on top-line performance, while tailwinds from Synergy's net of anticipated mix pressure should drive margins, or PEF.

Robert J. Rehard: We also expect a low to mid single digit sales declines in the first quarter and roughly flat margins.

Robert J. Rehard: For the year, we expect sales to be down low single digits and for adjusted EBITDA margins to be up roughly 200 basis points.

Robert J. Rehard: Well at least sluggish end markets, especially food and beverage and general industrial are expected to weigh on top line performance, while tailwind from synergies net of anticipated mix pressure and select growth investments should drive nice margin gains.

Robert J. Rehard: Or P S.

Robert J. Rehard: We anticipate a low, double-digit-to-low teens top-line decline in the first quarter, largely tied to furnace de-stocking and weak underlying HVAC in March. Margins are expected to be up roughly 300 bases from prior year to a level in the mid-teens, which is slightly below performance, mostly due to Mitch. For the year, we assume sales are flat, and margins are up roughly 50%. Within PES, we assume a low single-digit decline in the RESI HVAC business on Furnace D Stock and week underlying in March, first quarter down, quarter up slight, in the back half of the year, based on the absence of destocking head. We assume the commercial HVAC business is up slightly for the year, growth in North America, but declines in Asia. Lastly, for industrial, we expect a low double-digit top-line decline in the first quarter but stable margins versus the comparable prior year. For the year, we expect low to mid-single-digit top-line declines.

Robert J. Rehard: We anticipate a low double digit to low teens top line decline in first quarter, largely tied to furnace destocking and a weak underlying age back in markets.

Robert J. Rehard: Margins are expected to be up roughly 300 basis points versus the prior year to a level in the mid teens, which is slightly below recent segment performance, mostly due to mix.

Robert J. Rehard: For the year, we assume sales are flat and margins are up roughly 50 basis points.

Robert J. Rehard: With N P. S. We assume a low single digit decline and they're ready to in fact portion of the business on furnace destock and a weak underlying end market demand with first quarter down.

Robert J. Rehard: Second quarter up slightly in the back half up mid single digits on the absence of Destocking headwinds.

Robert J. Rehard: We assume the commercial HVAC business is up slightly for the year with growth in North North America, but declines in Europe.

Robert J. Rehard: Lastly for industrial we expect a low double digit top line decline in first quarter, but stable margins versus the comparable prior year period.

Robert J. Rehard: For the year, we expect low to mid single digit topline declines. However, we expect margins to be up slightly in the year.

Operator: However, we expect margins to be up slightly in the year. We assume ongoing cost actions and operational improvements will help improve margins, despite top-line headwinds tied to de-stocking and a weak global industry. Before turning the call over to the operator, I'd like to acknowledge that while 2023 challenged us with often significant in-market and destocking headwinds, I think our teams did a great job executing many permanent structural improvements to our project, ranging from significantly enhancing our cost structure by 80-20, and Lina, to managing the significant portfolio transformation we achieved by closing the Alter Acquisition and announcing the sale of our industry, as we look ahead to 2024. Our teams remain excited about the opportunities in front of them, controllable opportunities to drive significant margin upside, meaningfully lower our leverage, and to advance our organic growth initiatives, many of which are tied to a healthy pipeline of different and often more environmentally friendly new products. With that, Operator, we are ready to take questions. Thank you very much, and we will begin the question and answer session. Reminding you that to ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key.

Operator: We assume ongoing cost actions and operational improvements will help improve margins. Despite top line headwinds tied to destocking and weak global industrial end markets.

Operator: Before turning the call over to the operator for questions I'd like to acknowledge that while 2023 challenged us with often significant end market any destocking headwinds I think our teams did a great job executing many permanent structural improvements to our business ranging from significantly enhancing our COO.

Operator: Cost structure by executing synergies.

Operator: 80 20.

Operator: To managing the significant portfolio transformation, we achieved by closing the altera acquisition and announcing the sale of our industrial business.

Operator: As we look ahead to 2024.

Operator: Our teams remain excited about the opportunities in front of us.

Operator: Controllable opportunities to drive significant margin upside to meaningfully lower our leverage and to advance our organic growth initiatives.

Operator: Many of which are tied to a healthy pipeline of differentiated and often more environmentally friendly new products.

Speaker Change: And with that operator, we are ready to take questions.

Speaker Change: Thank you very much and we will begin the question and answer session.

Operator: Reminding you that to ask a question you May Press Star then one on your Touchtone phone.

Operator: If you're using a speaker phone please pick up your handset before pressing the keys.

Mike Halloran: And to withdraw your question, if need be, please press star then 2. At this time, we'll pause momentarily to assemble our roster. And our first question is coming from Mike Halloran from Baird. Mike, please go ahead. All right. Good morning, everyone.

Operator: To withdraw your question if need be please press star then two.

Operator: At this time, well pause momentarily to assemble our roster.

Mike Halloran: And our first question is coming from Mike Halloran from Baird.

Operator: Mike. Please go ahead.

Mike Halloran: Hi, good morning, everyone.

Mike Halloran: Good morning, Mike.

Louis V. Pinkham: Morning. So first, just on the expectations laid out in the guidance and kind of what's changed here. You know, if I listen to comments, it sounds like a conservative approach makes sense.

Mike Halloran: So first just on the expectations laid out in the guidance.

Mike Halloran: Kind of what's changed here.

Mike Halloran: And the comments it sounds like Conservative approach makes sense you know.

Louis V. Pinkham: You know, has anything really changed in your thought process over the last three months? or so? It doesn't seem like it.

Mike Halloran: Has anything really changed in your thought process over the last three months or so.

Speaker Change: It doesn't seem like it I mean, if anything you've seen a little better orders start to the year, which you just hesitant to roll through too quickly.

Louis V. Pinkham: I mean, if anything, you've seen a little better order start to the year, which you're just hesitant to roll through too quickly. And then, related, how do you think about the sequentials through the year? Is there fundamental improvement embedded in the guide as you get to the back half of the year? Or is this just constantly easier, D-stock goes away, and kind of relatively normal sequentials from the, Yeah, Mike, great questions

Louis V. Pinkham: And then related how do you think about the sequentially through the year as the fundamental improvement embedded in the guidance you get to the back half of the year or is this just comps getting easier destock goes away and kind of relatively normal sequential is from here.

Speaker Change: Yeah, Mike Great questions. Thank you. So first what has changed I would say in fourth quarter, our teams performed extremely well.

Louis V. Pinkham: Thank you. So first, what has changed? I'd say in the fourth quarter, our teams performed extremely well.

Louis V. Pinkham: IPS in particular executed very nicely. We the margin lift is exactly what we expected. Really solid performance. AMC as well.

Speaker Change: Ips in particular executed very nicely the margin lift is exactly what we expected really solid performance AMC as well.

Louis V. Pinkham: A bit more headwind, though, for PES. And really, it was the residential HVAC, but the de-stock of furnaces that is extending beyond what we anticipated. And we believe that that will continue into 24, with residential HVAC, which is about 30% of that segment being down. So that would be the main surprise for us. And then, as we think about the planning for 24, We expect our first half and second half sales levels to be weighted about 49% and 51%, first half and second half, about a two and a half point spread.

Speaker Change: Bit more headwind, though for PFS and really it was the residential HVAC, but the destocking furnished that is extending beyond what we anticipated and we believe that that will continue into 'twenty for with resin HVA C, which is about 30 <unk>.

Louis V. Pinkham: Of that segment being down.

Louis V. Pinkham: Uh huh.

Louis V. Pinkham: Hi.

Louis V. Pinkham: Double digit so 15% to 20% in first quarter, and then improving through the year, but down overall for the year.

Louis V. Pinkham: That would be the main <unk>.

Louis V. Pinkham: Surprise for US and then as we think about the planning for 'twenty four.

Louis V. Pinkham: We expect our first half and second half sales levels to be weighted about 49%, 51% first half second half about two and a half point spread.

Louis V. Pinkham: Now, the driver of that is we expect destocking to end in the first half, both in residential HVAC and in factory automation, and so then a slight uplift in the second half. We're not banking on a significant uplift in the second half, but that could be a catalyst for us if that changes, but right now, it's, like I said, $49.51-ish. Of course, that would mean for us first-half sales growth would be down year over year, and second half growth would be up year over year. Hopefully, that helped. No, it didn't.

Louis V. Pinkham: Now the driver of that is we expect destocking to end.

Louis V. Pinkham: And in the first half both in residential HVAC and in a factory automation and so then.

Louis V. Pinkham: Slide up lift in the second half, we're not banking on a significant uplift in the second half, but that could be a catalyst for us if that changes, but right now it's like I said 40, 950 <unk> of course that would mean for us first half sales growth.

Louis V. Pinkham: Would be down year over year, and second half growth would be up year over year.

Louis V. Pinkham: That help.

Speaker Change: No. It did and then maybe stick stick to that factory automation piece you know, that's one where you look back last quarter the shorter cycle side was softer.

Louis V. Pinkham: And then maybe stick stick to that factory automation piece. You know, that's one where, when you look back last quarter, the shorter cycle side was softer. But your project, or at least the front log of opportunity, was still really strong. Maybe you could talk about what you're seeing there? And then what gives you confidence in how you think about the back half of the year? Yeah, so you kind of hit the nail on the head with that, the way you described it. sequentially, we saw orders improve in that factory automation business. A lot of the longer cycle, though, orders are stronger, and that gives us confidence in the second half, although the shorter cycle did improve quarter over quarter, but not yet to a year-over-year improvement. And so we see destocking continuing into the first half and then slightly rebounding in the second half, and that's really, again, the longer cycle orders and the destocking strengthening H2 for us. Great. I really appreciate it.

Louis V. Pinkham: But your project or at least the front log of opportunity was still really strong, but maybe you could talk about what you're seeing there and then what gives you the confidence and how you think about the back half of the year.

Speaker Change: Yeah. So you kind of hit the nail on the head with that with the way you described it sequentially we saw orders improve.

Speaker Change: That factory automation business.

Louis V. Pinkham: A lot of the longer cycle, though orders are stronger and so it gives us confidence in the second half, although the shorter cycle did improve quarter over quarter, but not yet to a year over year improvement and so we see destocking continuing into the first half and.

Louis V. Pinkham: Then slightly rebounding in the second half and that's really again the longer cycle orders and the destocking strengthening our acute H two for us.

Speaker Change: Great really appreciate it thanks guys. Thank.

Louis V. Pinkham: Thanks, guys. Thanks, Mikey. And our next question comes from Nigel Coe from Wolf Research. Nigel, you may proceed. Thanks. Good morning, everyone. Good morning. You're in a really good mood today.

Speaker Change: Thanks, Mike.

Louis V. Pinkham: And our next question comes from Nigel Coe from Wolfe Research.

Nigel Coe: Nigel you May proceed.

Nigel Coe: Thanks, Good morning, everyone. Good.

Nigel Coe: Good morning, everybody good color, thanks, and Rob now you're getting into quarterly guidance, there's no going back.

Nigel Coe: Thanks. And Rob, now you're given quarterly guidance, so there's no going back. So I just want to pick up on your assumptions around Resi HVAC.

Nigel Coe: [laughter], so I'm just sort of pick up on on your assumptions around whereas the HVAC I know, it's a subset of PFS, which is a subset of your business but.

Louis V. Pinkham: I know it's a subset of PES, which is a subset of your business, but the down for the full year, down volumes for the full year, I understand 1Q is driving that, but that seems a lot more conservative than perhaps your customers' outlooks and, for example, carriers', I think, guidance for mid- to low-digit volume growth in 2024. So I would have thought that you would outperform the OEMs given the inventory destock you're lapping in 2023. So maybe just talk about what's informing your opinion on that outlook for 2024, and are you seeing any benefits from the transition to 454B refrigerants, anything like that? Thank you. Thank you. Yeah, so Nigel, it's a great question.

Louis V. Pinkham: Down for the full year down importantly for the full year I understand <unk> is driving that but that seems a lot more conservative than perhaps your customers outlook. For example carriers I think guidance of mid single digit volume growth in 2020.

Louis V. Pinkham: So I would have thought that you would outperform the Oems given the inventory destocking mapping in the in <unk> and 2023 so maybe just talk about what's informing your opinion.

Louis V. Pinkham: On that I'd look for between three and 24, what are you seeing any benefits from the transition to full pipe will be vigilant.

Nigel Coe: Anything like that.

Speaker Change: Yes, so Nigel it's a great question and I would tell you the markets are still murky here.

Louis V. Pinkham: And I tell you, the markets are still murky here. And when you think about how we entered Q4, we were expecting even more strength than we saw, and Furnas-D-Stock extended beyond Q4. Now we're saying first half.

Nigel Coe: When you think about how we entered Q4 we were expecting.

Louis V. Pinkham: Even more strength than we saw in furnished destock extended beyond Q4, and now we're saying first half.

Louis V. Pinkham: Until we see some good trends that would support volume growth in 24, we're not going to model that. We're going to take a prudent approach and plan for what we're seeing in the market today. Even what we're seeing in the market today, though, given what we forecast for the first quarter, we're going to need an uplift in the second half of about six points. So could it be more? Maybe.

Speaker Change: Until we see some good trends that that would support volume growth in 'twenty four we're not going to model that we're going to take a prudent approach.

Louis V. Pinkham: And plan for what we're seeing in the market today.

Louis V. Pinkham: Even what we're seeing in the market today, though given what were the first quarter forecast for us we're going to need an uplift in the second half of about six points. So could it be more maybe.

Louis V. Pinkham: So that would be an upside for us. And when we see that trend, we'll certainly go with it. But for now, we're not confident enough.

Louis V. Pinkham: So that would be upside for us and when we see that trend, we'll certainly guide to it but for now we're not confident enough and so we're not guiding beyond what we've what I've already stated.

Louis V. Pinkham: And so we're not guiding beyond what I've already stated. And then specific to your question on the GWP implementation, really, we're not factoring in any impacts of that transition at this time. We're not seeing any upside or benefit from it yet.

Speaker Change: And then specific to your question sorry, sorry, Nigel I was specific to your question on the DWP implementation really where we're not factoring in.

Louis V. Pinkham: Any impacts to that transition at this time, we're not seeing any upside or benefit from it yet and as you probably know the final rule.

Louis V. Pinkham: And as you probably know, the final rule would require that you can't install anything manufactured after January 1st, 2025 after January 1st, 2025. That's going to put a lot of pressure on the supply chain. And so our guess is that the final rule will be modified so that you can install what's manufactured through January 1st, 2026. So right now, we're not expecting any major implications from the GWP implementation.

Louis V. Pinkham: Would require that.

Louis V. Pinkham: You you can't install anything manufactured after January one 2025. After January one 2025, that's been put a lot of pressure on the supply chain and so are our guess is that the final rule will be modified so that you can.

Louis V. Pinkham: Install through January 1st 2026, what's manufactured through January 2025, So right now we're not expecting any major implications from the G WP implementation.

Nigel Coe: Okay. That's great. Tell us.

Speaker Change: Okay. That's great color. Thanks, Louis and then on the four key restructuring pretty pretty heavy hum sort of infrastructure investment and full Q is that all you know.

Robert J. Rehard: Thanks, Louis. And then, on the 4Q restructuring, pretty heavy restructuring investment in 4Q, is that all M&A integration related, or are there additional restructuring actions open above the PMC and ALTRA integrations? Just wondering if there's anything dialed in for over and above that $90 million.

Robert J. Rehard: M&A integration related so is there additional restructuring actions over and above.

Robert J. Rehard: The PMC and ER and Altura integration just wondering if there's anything dialed in for you know open about that $19 million of integration savings.

Louis: Yeah, so the restructuring and related and they in the quarter was really mostly around the integration type work that we're doing for Ips and AMC. There was some in N. P. S. As we have done some product line setups.

Robert J. Rehard: Yeah, so the restructuring and related work in the quarter was really mostly around the integration type work that we're doing for IPS and AMC. There was some in PES as we did some product line setups associated with some SCOFR moves that we're doing there that were also embedded in the quarter. But aside from that, it's really all around integration.

Robert J. Rehard: And with some sculpsure moves that we're doing there that were also embedded in the quarter, but aside from that it's all it's really all around our integration activities.

Robert J. Rehard: Okay, that's great. Thank you. Okay. Thanks, Nigel. And we have a question now from James Picariello from KeyBank. James, please go ahead. This is actually Jeff Hammond. I don't know what happened there.

Jeffrey D. Hammond: Okay. That's great. Thank you.

Robert J. Rehard: Yeah.

Jeffrey D. Hammond: Great. Thanks.

Jeffrey D. Hammond: And we have a question now from James Picariello from Keybanc.

Jeffrey D. Hammond: Please go ahead.

Robert J. Rehard: This is actually Jeff Hammond.

Robert J. Rehard:

Jeffrey D. Hammond: Can you hear me? Good morning. Just on the EBITDA margins, I think you're guiding to 22. I think at a conference in the fall you said, hey, we can get to 25 by 25, so you know, big leap. But I understand, you know, industrial comes out. So I'm just wondering if you could level set us on that.

Jeffrey D. Hammond: Can you hear me good morning.

Speaker Change: Just to.

Jeffrey D. Hammond: EBITDA margins I think you're guiding to 'twenty, two I think it.

Jeffrey D. Hammond: Conference in the fall you said, Hey, we can get to 25 525, So you know big leap, but I understand.

Jeffrey D. Hammond: Dusty real comes out so I'm just wondering if you can level set us on it.

Louis V. Pinkham: You know, one, your confidence in that 25 by 25, and two, what 24 would look like if you kind of, you know, took out industrial for the full year. Yeah, so Jeff, thanks for the question. The comment that was made in the fall was exiting at 25. But, nevertheless, we feel very confident in our ability to get to that 25% EBITDA margin. So the way to just do the math very quickly is 22 and 24.

Jeffrey D. Hammond: One your confidence in that 25 about 25 and two what 'twenty four would look like if you. If you kind of you know took out industrial for the full year.

Speaker Change: Yeah, So Jeff thanks.

Speaker Change: Thanks for the question.

Louis V. Pinkham: The comment that was made in the fall was exiting 'twenty five but nevertheless, we feel very confident in our ability to get to that 25% EBITDA margin. So that's the way to just do the math very quickly is.

Louis V. Pinkham: 22% and 24.

Louis V. Pinkham: Industrial will actually help our about 100 basis points of uplift and so call it 23 and 24.

Louis V. Pinkham: Industrial will actually help about 100 basis points of uplift, and so call it 23 in 24. We will expect another $65 million of synergies in 2025. And then assume some growth because we would expect 25 to start to rebound as our markets start to return, and then we'll continue to do what we do. We'll drive 80-20, we'll drive lean.

Louis V. Pinkham: We will expect.

Louis V. Pinkham: Another $65 million of synergies in 'twenty five.

Louis V. Pinkham: And then assume some growth because we would expect 25 to two start to rebound as our markets start to return and then we'll continue to do what we do wheel drive 80, 20 will dry Duane I feel really good about our new product development and the mixed process.

Louis V. Pinkham: I feel really good about our new product development and the mixed positive gross margins. As a reminder, we expect to double our vitality coming out of 25. And so all of those things, plus a normalization of markets, in particular, through short cycle industrial, Resi, and HVAC, all that gives us confidence in our ability to execute to a 25% EBITDA margin. Okay, that's really helpful, Louis.

Louis V. Pinkham: <unk> gross margins as a reminder, we expect to double our vitality coming out of 25 and showed all of those things plus a normalization of markets in particular sort of short cycle industrial Reds the HVAC.

Louis V. Pinkham: All of that gives us confidence in our ability to.

Louis V. Pinkham: Execute to a 25% EBITDA margin.

Louis: Okay, that's really helpful Lewis.

Louis V. Pinkham: You know, last quarter you called out some challenges with plant moves, and I'm just wondering, you know, one, what the impact was in 4Q, and two, if you feel confident that's all behind you. Yeah, we did, we did indicate that we had some costs that we expected them to be of about $6 million at the time, but we actually tracked closer to $4 million in the quarter. So below our initial expectations, and yet those costs are now behind us, and we don't expect that to repeat as we move through 2020.

Louis: I know last quarter, you called out some some.

Louis V. Pinkham: Some challenges with with plant moves and I'm just wondering.

Louis V. Pinkham: One what the impact was in for Q2, if you feel confident that's you know that's all behind you.

Louis V. Pinkham: Yeah, we get we get indicated we had some costs that we expected to know a lot about $6 million at the time, we actually track closer to $4 million in the quarter sell below our initial expectations and yes. Those costs are now behind us and we don't expect that to repeat as we move through 2024.

Louis V. Pinkham: Okay, and then just last one on free cash. I think you were saying earlier maybe $800 million of free cash flow for this year. But I think you said $700.

Louis V. Pinkham: Okay, and then just last one on free cash I think you were saying earlier, maybe $800 million of free cash flow for this year. I think you said 700 is that just timing around working capital and maybe just speak to you know the the upside around continuing to pull working capital out of the business. Thanks.

Louis V. Pinkham: Is that just timing around working capital, or maybe just speak to the upside around continuing to pull working capital out of the business? Thanks. Sure. First of all, similar to the way we're approaching earnings guidance in 2024, we're being a bit conservative in our free cash flow guidance as we start the year. But adding to that, some of the decline is due to the outperformance we saw in 2023 around inventory reductions. If you recall, we said we would expect about $200 million to $225 million in cash from inventory in 2023, and we actually ended the year with inventory-related inflows of about $255 million, so a significant improvement from what we had originally thought. Again, we still expect another $50 million in 2024, but that is a bit of a year-over-year headwind. The other side of this is that our guidance is aligned now to the $700 million, in addition to what I just talked about. When we think about cash here at our level, we're also thinking about free cash flow per share, and that's above $10, and our free cash flow yield is now over 7%. Cash is incredibly important to us.

Louis V. Pinkham: Sure.

Louis V. Pinkham: First of all you know somebody the way we're approaching you know earnings guidance in 'twenty, four we're being a bit conservative in our free cash flow guidance as we start the year, but adding to that you know some of the decline is due to the outperformance. We saw in 2023 around inventory reduction. If you recall, we said, we would expect about 200 and $225 million in cash from inventory.

Louis V. Pinkham: In 2023, and we actually ended the year with inventory related inflows of about $255 million. So significant improvement there from what we had originally thought and you know again, we still expect another $50 million in 'twenty, four but that is a bit of a year over year headwind.

Louis V. Pinkham: On the other side. This is just our guidance is aligned now to the $700 million. In addition to what I just talked about I mean, when you when we think about cash here at the you know at our level. You know we're also thinking about you know free cash flow per share in it that's about $10 and our free cash flow yield.

Louis V. Pinkham: There's now over 7% and you know so what where cash is incredibly important to us we're going to continue to drive that every year and pay down our debt and AR and but really it.

Louis V. Pinkham: We're going to continue to drive that every year and pay down our debt. But really, from the standpoint of looking to drive an investment opportunity for us, as we look at our business, we think that this is a compelling investment opportunity for our RX. Based on what I just talked about, over $10 a share and a yield.

Louis V. Pinkham: From the standpoint of looking to.

Louis V. Pinkham: Looking to drive an investment opportunity for us.

Louis V. Pinkham: As we look at our business. We think that this is a compelling investment opportunity for our Rx and based on what I, just talked about 10 over $10 a share and a yield of over 7%.

Speaker Change: Great. Thanks, guys.

Louis V. Pinkham: Great. Thanks, guys. Yeah, thanks, Jeff. We have a question now from Deepak Mathivanan from Barclays. Deepak, please go ahead.

Deepak Mathivanan: Yeah. Thanks, Jeff.

Deepak Mathivanan: We have a question now from Deepak <unk> from Barclays. Please.

Deepak Mathivanan: Please go ahead.

Julian Mitchell: Hi, it's Julian here. Just a quick question first off around maybe earning seasonality. You talked about the revenue progression earlier in this call, but I guess if I'm thinking about the first quarter, it looks like maybe flattish EBITDA sequentially, sort of, you know, 345 to 350 or something dollars company-wide, and then just trying to understand sort of how we think about the second quarter. You know, you classically get that nice sequential lift from PES, but maybe that's more muted this year for the well-rehearsed Resi HVAC headwinds.

Deepak Mathivanan: Hi, It I'd said Julian here, just two quick questions first off around maybe earning seasonality you talked about the revenue.

Julian Mitchell: Regression earlier in this call, but I guess, if I'm thinking about the first quarter. It looks like maybe flattish EBIT sequentially sort of $3 45 to $3 50 or something dollars companywide.

Julian Mitchell: And then just trying to understand sort of how do we think about the second quarter. You know your classic they get that nice sequential lift from P. S. Maybe that's more muted this year for the well rehearsed.

Julian Mitchell: The HVAC headwinds.

Robert J. Rehard: Maybe just some help around, you know, how much of the year are we getting in the first half on EBITDA? and anything moving around below the line, aside from interest expense reduction through the years. Yeah, you know, I, first of all...

Julian Mitchell: So maybe just any help around how much of the year or are we getting in the first half on EBIT.

Robert J. Rehard: And anything moving around below the line.

Robert J. Rehard: Aside from interest expense reduction through the year.

Speaker Change: Yeah, you know I have first of all your first quarter I think.

Robert J. Rehard: Your first quarter, you know, I think you should think about it maybe a little bit less on the sequential side, it may be on a year-over-year pro forma flat from an EBITDA perspective with margins, you know, roughly in line, you know, with, you know, maybe a hundred basis points on a pro forma basis versus the prior year. So, think about the first quarter like that, and then progression as we move through the So, to your point, would we expect to see a nice progression as we move into the second quarter? Yes, off of that first quarter, but we still expect growth rates to be down in the second quarter and not move to positive until we get to the back half. But we would absolutely expect to see progression from Q1.

Robert J. Rehard: You would think about it maybe a little bit less on the sequential side.

Robert J. Rehard: Maybe on a year over year pro forma flat.

Robert J. Rehard: From an EBITDA perspective with with margins.

Robert J. Rehard: But roughly in line with with that.

Robert J. Rehard: Maybe 100 basis points on a on a pro forma basis versus prior year.

Robert J. Rehard: Think about first quarter like that and then progression as we move through the year. So to your point would we expect to see nice progression as we move into the second quarter.

Robert J. Rehard: Yes, we would off of that first quarter, but we still expect growth rates to be down in the second quarter and not moved to positive until we get to the back half, but we would absolutely expect to see progression from Q1 into Q2.

Robert J. Rehard: And then just my second question would be around, you know, if we're trying to think about sort of IPS, you know, what's happening there. You've talked about that mix, headwind, on the slides a bit. So maybe go into some detail there.

Speaker Change: That's helpful. Thank you and then just my second question would be around.

Robert J. Rehard: You know if we're trying to think about sort of I P. S. You know, what's happening there and you've talked about that mix.

Robert J. Rehard: Duane.

Robert J. Rehard: On the slides a bit so maybe go into some detail there and I guess, when you're thinking about that sort of margin.

Robert J. Rehard: And I guess when you're thinking about that sort of margin progression through the year, you know, your sort of, I think, flattish guide for Q1 on margins, decent increase for the year. So, is that kind of assuming that the mixed headwinds, you know, dissipate through the year as it goes? Maybe just any help around that?

Robert J. Rehard: You know progression through the year.

Robert J. Rehard: And I guess sort of I think flattish guide for Q1 on margins decent increase for the year.

Robert J. Rehard: So is that kind of assuming that the mix headwinds dissipate.

Robert J. Rehard: Through the year as it goes maybe just any help around that.

Robert J. Rehard: Yeah, Julian, there are some mixed headwinds that will dissipate, but a big driver is the synergies and the benefits from the synergies on gross margins. That's where we're seeing 75-80% of all of our synergies in the IPS segment. Teams are executing incredibly well on the footprint rationalization and the product line simplifications, and that's really the majority of the driver of the margin uplift in IPS in 24.

Speaker Change: Yeah, So julien.

Robert J. Rehard: There is some mixed headwinds that dissipate, but.

Robert J. Rehard: Big driver there.

Robert J. Rehard: The synergies and the benefits from the synergies on the gross margin, that's where we're seeing 70, 580% of all of our synergies in the Ics segment teams are executing incredibly well on the footprint rationalization and the product line simplifications and that's really the majority of the drive.

Robert J. Rehard: Or the margin uplift in Ics in 'twenty four.

Speaker Change: That's great. Thank you.

Robert J. Rehard: That's great. Thank you. Our next question comes from Vivek Sri from Goldman Sachs. Vivek, please go ahead.

Vivek Sri: Our next question comes from Vivek <unk> from Goldman Sachs. Please.

Vivek Sri: Please go ahead.

Vivek Sri: Hey, guys you got the you Gotta go from Goldman How're you doing.

Joseph Ritchie: Hey guys, you got Joe from Goldman. How are you doing? Hey, good Joe. Good to have you back. Yeah, yeah, thanks, guys. So, hey, I just want to say that I think that there's some confusion around the 1Q, guys. I'm just going to try to clarify it here. When you talk through pro forma Q4 margins, and you baseline it in both the IPS segment and the AMC segment, we're baselining off of an IPS margin of 24.6, and we're baselining off of an AMC margin of 22.4. Is that correct? Yes, if you go back to the 8k file on September 8th, you know, of 23. Yes, those would be the margins on the pro forma.

Speaker Change: Good Joe good to have you back.

Speaker Change: Yeah, Yeah. Thanks, guys.

Joseph Ritchie: Hey, I just wanted to I think that there's some confusion around the one you guys I'm just going to try to clarify it here when.

Joseph Ritchie: When you when you talk through pro forma Q4 margins.

Joseph Ritchie: A new baseline it in and both the.

Joseph Ritchie: The Ips segment as well as the AMC segment, where base lining off of an Ips margin of 24, six and where we're and where base finding often been amc's margin of 22 four is that correct.

Joseph Ritchie: Yes, if you if you go back to the 8-K filed September eight two.

Joseph Ritchie: 23, yes, those would be the margins on a pro forma basis.

Robert J. Rehard: Got it. All right, Crystal. And then really just my only other question, again, just more around like the guidance for the year, I was a little confused on the commentary around industrial. It sounds like industrial is in for the year, but then there's a debt paydown associated with the proceeds from the industrial sale. So I just want to I want to make sure that I've clarified that. Is industrial in for the full year? And then are you assuming that the financing from the deal is also going to help pay down debt?

Joseph Ritchie: Got it Alright, Crystal and then and then and then really just my only other question again, it's more around like the guidance for the year.

Robert J. Rehard: A little confused on the commentary around industrial it sounds like industrial then for the year, but then there's a debt paydown associated with the proceeds from the industrial fail. So I just wanted to I want to make sure that I clarified that is industrial in for the full year and then are you assuming.

Robert J. Rehard: Is that the financing from the deal is also going to help pay down debt.

Speaker Change: Okay, great and thanks for the question.

Robert J. Rehard: Okay, great. And thanks for the question. We do assume the motor generators business, which comprises the majority of the industrial sector, contributes about $500 million on the top line in the year fully embedded in our guidance as well as about $40 to $45 million of adjusted EBITDA in 2024.

Robert J. Rehard: We do assume.

Robert J. Rehard: Motor generators goodness.

Robert J. Rehard: And that.

Robert J. Rehard: It comprises the majority of the industrial system segment contributes about $500 million on the topline in the year fully embedded in our guidance as well as.

Robert J. Rehard: $40 million to $45 million of adjusted EBITDA in 2024 that is fully embedded on a full year basis in our guide now.

Robert J. Rehard: That is fully embedded on a full year basis in our guide. Now. While that is embedded in the guide, when we close the transaction, there will be proceeds from that transaction expected to be approximately $360 million net of taxes and fees. And so if you assume that you lose the $40 million or $45 million or so of EBITDA and offset that by an equivalent maybe $26 million on an annualized basis of interest savings, the net impact to our guidance is a negative $0.10 or so.

Robert J. Rehard: While that is embedded in the guide when we close the transaction there will be proceeds from that transaction expected of approximately $360 million net of interest and MSR taxes and fees and so if you assume that you lose the $40 million of $45 million or so of EBIT.

Robert J. Rehard: And offset that by an equivalent maybe $26 million on an annualized basis of interest savings that net impact to our guidance is a negative 10 cents or so so depending on when the transaction closes you can work from that back.

Joseph Ritchie: So depending on when the transaction closes, you can work from that back. Okay, wonderful. Great. Thank you very much. Great, thank you. And we now have a question from Christopher Glynn from Oppenheimer.

Joseph Ritchie: Okay wonderful great. Thank you very much.

Christopher Glynn: Great. Thank you.

Joseph Ritchie: Okay.

Christopher Glynn: And we now have a question.

Joseph Ritchie: From Christopher Glynn from Oppenheimer.

Christopher Glynn: Christopher, please proceed. Thank you. Correctly identified.

Christopher Glynn: Mr. <unk>. Please proceed.

Christopher Glynn: Thank you Craig correctly identified nice to say.

Louis V. Pinkham: Nice to say. I was curious, guys, just from an end market perspective, what do you think the biggest kinds of variables and opportunities as you go from 1Q into 2Q are for, you know, demand and revenue? I don't know what the exact January order's comp is, the year-over-year sounds nice, but, you know, we can't correlate that to revenue. So yeah, just kind of some of the subtleties that might be particularly interesting and key variables in the 2Q end market. Yeah, I mean, the drivers of our business by market that could see some implication quarter to quarter, Chris, would be general industrial. Right now, we're seeing some sluggishness in machinery, some destock. If that improves faster, that would see a bit of an uplift from Q1, Q2.

Louis V. Pinkham: Was curious.

Louis V. Pinkham: Guys just from end market perspective, what do you think the biggest kind of variables and opportunity as you go from one <unk> to two <unk> or for <unk>.

Louis V. Pinkham: Demand in revenue.

Louis V. Pinkham: I don't know what the exact January orders comps year over year sounds nice, but you know.

Louis V. Pinkham: If we can't correlate that to revenue.

Louis V. Pinkham: So, yes, just kind of you know.

Louis V. Pinkham: Some of the subtleties that might be particularly interesting and key variables into.

Louis V. Pinkham: Into the second quarter and markets.

Louis V. Pinkham: Yeah, I mean, I think the drivers of our business by market, but that could see.

Louis V. Pinkham: Some implication quarter to quarter, Chris would be general industrial with Reno right now, we're seeing some sluggish and machinery some destock if that if that.

Louis V. Pinkham: <unk> improves faster that would see a bit of an uplift from from Q1 Q2 are really the same commentary around rugby HVA see that could show a nice uplift from Q1 Q2 of course, we've got some really strong market right now that we think are going to continue.

Louis V. Pinkham: Really, the same commentary around Resi HVAC could show a nice uplift from Q1, Q2. Of course, we've got some really strong markets right now that we think are doing continued great momentum. Medical, data center, aerospace are really strong. I'd tell you, alternative energy, if the incentives get fully figured out and the project's released, perhaps that could show a nice uplift from Q1, Q2.

Louis V. Pinkham: Great momentum medical data center aerospace are a really strong until your alternative energy if the incentives get fully figure it out and the projects released perhaps that could show a nice uplift Q1 Q2.

Louis V. Pinkham: That's how I would think about it between those two quarters. Okay, great. Thanks. And, you know, as you're driving the organization hard, you know, what do you do when, you know, signs of strain pop up? You know, you've got large organizations and you're doing a lot of work. The pro forma EBITDA margin growth was great.

Louis V. Pinkham: That's how I would think about it between those two quarters.

Louis V. Pinkham: Okay, great Thanks and.

Louis V. Pinkham: You know as you're driving the organization hard you know what.

Louis V. Pinkham: What do you do when you know signs of strain pop up.

Louis V. Pinkham: You know you've got large organizations and you're doing a lot of work the pro forma.

Louis V. Pinkham: EBITDA margin growth was was great.

Louis V. Pinkham: And, yeah, just curious about the strain risk as you drive the organization. Hey, Chris, I think it's a great question. Thank you. Um, you know, it's all about living by Regal Rexnord's values. We have a set of values and 35,000 associates worldwide that know them and live by them. And that's how we represent them every day. We also over communicate. We did an employee survey in the second half of 2023, and there are opportunities for us to improve, and there are opportunities that we're going to further leverage. And it's over communicating what our goals and objectives are and what it's going to take to achieve them and working with our teams to, when there are challenges and headwinds, put forward mitigating plans. And so we're a very plan, do, check, act culture, and we do that with our culture as well.

Speaker Change: And yes.

Louis V. Pinkham: Just curious about the strange risk as you drive the organization.

Speaker Change: Hey, Chris I think it's a great question. Thank you you know, it's all about living by Regal Rexnord values, we have a set of values and 35000 associates worldwide that know them and live by them and that's how we represent every day.

Chris: We also over communicate.

Chris: We did an employee survey in the second half of 2023, and there is opportunities for us to improve and there's opportunities that we're going to further leverage.

Speaker Change: And it's over communicating what our goals and objectives are and what its going to take to achieve them and working with our teams to when there are challenges and headwinds to put forward a mitigating plans and so we're very plan do check Act culture, and we do that.

Speaker Change: With our culture as well and so we have a plan to improve and we'll work with our our organization worldwide to ensure that we're executing on that plan and partnering with everyone for a great success.

Louis V. Pinkham: And so we have a plan to improve, and we'll work with our organization worldwide to ensure that we're executing on that plan and partnering with everyone for great success. Great. Thanks, Dr. Culler.

Speaker Change: Great Thanks for that color.

Walter Liptak: Yeah, thank you. Okay, we have one more question from Walter Liptak from Seaboard. Walter, you may now proceed. Hey, good morning, Walt. Perhaps you're on mute.

Speaker Change: Thank you.

Walter Liptak: Yeah.

Walter Liptak: Okay, we have.

Walter Liptak: One more question from Walter Liptak from Seaport.

Walter Liptak: You May now proceed.

Walter Liptak: Hey, good morning Walt.

Walter Liptak: Perhaps you're on mute.

Walter Liptak: Okay.

Walter Liptak: Oh, sorry about that. Okay, yeah, sorry about that. Yeah, so very clear today, so thank you very much for that. But a couple of things, just to clarify. So the timing you're still saying for the industrial businesses in the first half, like, you know, why is the volatility around the calendar on when you close? You know, Walt, the process is proceeding nicely and as we expected, and, you know, we guided the first half previously, and so we're on that path. We have most of our approvals at this point, but there are still a couple, a few outstanding, and so as those approvals come in, then we'll be able to close. So, again, right on our expectations of a close first half.

Walter Liptak: Oh, sorry about that.

Walter Liptak: No.

Speaker Change: Okay, Yep, sorry about that sure.

Walter Liptak: Yeah, so very clear today. So thank you very much for that.

Walter Liptak: But a couple of things just to clarify so the timing you're still saying for the industrial businesses in the first half when you don't why is the.

Walter Liptak: Whats the volatility around the calendar and when you close it.

Walter Liptak: Well the process is proceeding nicely and as we expected and you know we guided first half previously and so we're on that path. We have most of our approvals at this point, but there are still a couple a few outstanding and so as those.

Walter Liptak: Approvals come in then we'll be able to close so again right on our expectations of a first half close.

Louis V. Pinkham: Okay. And then, and then another little thing, just, you know, you talked about how January was a little bit better, but mid single-digit declines. I didn't quite catch on, you know, if January is starting to get a little bit better, aren't those tough comps? Or is it, you know, things started turning down in February? Why, why is it going to be down mid single digits for oranges? Yeah, it's really visibility at this point.

Walter Liptak: Okay.

Speaker Change: Okay, and then and then another little thing just you know you talked about how January was a little bit better, but mid single digit declines I didn't quite catch.

Louis V. Pinkham: You know if January is starting to get a little bit better or is it tough comps or is it you know.

Louis V. Pinkham: He started turning down in February why why is it going to be down mid single digit for orders.

Louis V. Pinkham: Yeah.

Louis V. Pinkham: It's really visibility at this point well you know I I would say one month does not make a trend.

Louis V. Pinkham: Well, you know, I would say one month does not make a trend. And if you recall, we started October a little strong, and then, at the end, we ended the fourth quarter down mid-single digit. So we believe it's a prudent approach to plan for orders to decline. And if they do turn, of course, that will be a benefit for Regal. But right now, that's not what we're

Louis V. Pinkham: And if you recall, we were we started October a little strong and then in the end we ended fourth quarter down mid single digits. So we believe it's a prudent approach to planning for orders down and if they if they do turn of course that would be a benefit for regal.

Louis V. Pinkham: But right now that's not what we're modeling.

Louis V. Pinkham: Okay. All right. Great. Thank you. Sure. Thank you. Thanks, Walt. And this concludes our question and answer session. Thank you very much. I would like to turn the conference over to Louis Pinkham, CEO, for any closing remarks. Please go ahead.

Speaker Change: Okay, Alright, great. Thank you.

Louis V. Pinkham: Sure. Thank you thanks a lot.

Louis V. Pinkham: Thank you.

Louis V. Pinkham: This concludes our question and answer session. Thank you very much I would like to turn the conference over to Louise Thank him CEO for any closing remarks. Please go ahead.

Louis V. Pinkham: Great. Thank you, operator. And thanks to our investors and analysts for joining us today. As we embark on 2024, our team remains excited about the value creation opportunities in front of us. Even as certain of our end markets remain choppy, we will be focused on three key things. One, achieving our targeted $90 million of synergies. Two, delivering at least $700 million of free cash flow, which we expect to use in combination with the industrial motors and generator sale proceeds to reduce our debt and meaningfully shift the mix of our capital structure towards equity. And three, continuing to mature our many growth initiatives. Driving 80-20, better leveraging our scale and scope, especially in IPS, and executing on our multi-year pipeline of differentiated new product launches. In short, tremendous opportunities for our associates, our customers, and our shareholders.

Louis V. Pinkham: Great. Thank you operator, and thanks to our investors and analysts for joining us today.

Louis V. Pinkham: As we embark on 2024 hour team remains excited about the value creation opportunities in front of us.

Louis V. Pinkham: Even as certain of our end markets remain choppy, we will be focused on three key things.

Louis V. Pinkham: One achieving our targeted $90 million of synergies.

Louis V. Pinkham: To delivering at least $700 million of free cash flow, which we expect to use in combination with the industrial motors and generators sale proceeds to reduce our debt and meaningfully shift the mix of our capital structure towards equity.

Louis V. Pinkham: And three continuing to mature our many growth initiatives driving 80, 20, better leveraging our scale and scope, especially in Ips and executing on our multiyear pipeline of differentiated new product launches.

Louis V. Pinkham: In short tremendous opportunities for our associates, our customers and our shareholders.

Operator: Thank you again for joining us today and thank you for your interest in Regal Rexnord. And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Enjoy the rest of your day.

Speaker Change: Thank you again for joining us today and thank you for your interest in Regal Rexnord.

Operator: Yeah.

Operator: Yeah.

Operator: And the conference has now concluded. Thank you for attending today's presentation. You may now disconnect enjoy the rest of your day.