Regal Rexnord Q4 2025 Regal Rexnord Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Regal Rexnord Corp Earnings Call
Speaker #1: Good day, and welcome to the REGAL REXNORD 4th quarter 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker #1: today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, phone. To withdraw your question, please press star then one on your touch-tone then two. is being recorded.
Speaker #1: I would now
Speaker #1: like to turn the conference over to Rob After Barry, Vice President Investor Relations. Please go ahead.
Robert Barry: Great. Thank you, Operator. Good morning, and welcome to Regal Rexnord's Q4 2025 Earnings Conference Call. Joining me today are Louis Pinkham, our Chief Executive Officer, and Rob Rehard, our Chief Financial Officer.
Speaker #2: morning and welcome to REGAL REXNORD's 4th Great. Thank you, Operator. call. Good Pinkham, our Chief Executive Officer, and Rob Rehard, our Chief Financial Officer.
Operator: I would like to remind you that during today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the RegalRexnord.com website. Also, on this slide, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials. During this slide 3, let me briefly review the agenda for today's call. Louis will lead off with opening comments and overview of our Q4 and full-year performance, and the discussion of our recent data center wins.
Robert Barry: I would like to remind you that during today's call, you may hear forward-looking statements related to our future financial results, plans, and business operations. Our actual results may differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in today's press release and in our reports filed with the SEC, which are available on the RegalRexnord.com website. Also, on this slide, we state that we are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included reconciliations between the non-GAAP financial information and the GAAP equivalent in the press release and in these presentation materials. During this slide 3, let me briefly review the agenda for today's call. Louis will lead off with opening comments and overview of our Q4 and full-year performance, and the discussion of our recent data center wins.
Speaker #2: during today's call, you may hear forward-looking statements related to our future financial results, plans, and business differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in quarter 2025 earnings conference I would like to remind you that with the SEC.
Speaker #2: during today's call, you may hear forward-looking statements related to our future financial results, plans, and business differ materially from those projected or implied due to a variety of factors, which we describe in greater detail in quarter 2025 earnings conference I would like to remind you that today's press release and in our reports filed Which are available on the REGAL REXNORD.com are presenting certain non-GAAP financial measures that we believe are useful to our investors, and we have included information and the GAAP equivalent in the press reconciliations between the non-GAAP financial release, and in these presentation website.
Speaker #2: materials. During this slide three, let me Also, on this slide, we state that we briefly review the agenda for today's call. Louis will lead off with opening comments and overview of our 4th quarter and full-year performance, and a discussion of our recent data center wins.
Operator: Rob Rehard will then present our fourth quarter financial results in more detail and introduce our 2026 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. Thanks for joining us to discuss our fourth quarter results and to get an update on our business. We appreciate your continued interest in Regal Rexnord. Before we get into the quarter, I want to provide you with an update on the CEO search. The board search committee has been working diligently, and our process is progressing as expected. We will update you as new information becomes available. Now, onto our results. Our team delivered solid fourth quarter performance, ending the year on a high note. Fourth quarter aligned with our expectations on Adjusted Earnings Per Share.
Robert Barry: Rob Rehard will then present our fourth quarter financial results in more detail and introduce our 2026 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.
Speaker #2: Fourth quarter financial results. And then Rob Rehard will present more detail and introduce our 2026 guidance. We'll then move to Q&A, after which Louis will have some closing remarks.
Speaker #2: And with that, I'll turn the call over to Louis.
Louis Pinkham: Thanks, Rob, and good morning, everyone. Thanks for joining us to discuss our fourth quarter results and to get an update on our business. We appreciate your continued interest in Regal Rexnord. Before we get into the quarter, I want to provide you with an update on the CEO search. The board search committee has been working diligently, and our process is progressing as expected. We will update you as new information becomes available. Now, onto our results. Our team delivered solid fourth quarter performance, ending the year on a high note. Fourth quarter aligned with our expectations on Adjusted Earnings Per Share.
Speaker #3: Thanks, Rob. And good morning, everyone. Thanks for joining us to discuss our 4th quarter results and to get an update on our business. We appreciate your continued interest in REGAL quarter, I want to provide you with an update on the CEO search.
Speaker #3: REXNORD. business is clearly performing exceptionally well, we also saw healthy orders in other parts of our business, especially discreet automation and aerospace and defense.
Speaker #3: Before we get into the begin thank our 30,000 REGAL REXNORD associates for their hard work and aligned with our expectations on discipline execution. In particular, driving our new product pipelines, our cross-sell initiatives, and building our commercial funnels to drive stronger and more profitable growth.
Speaker #3: The board search committee has been working diligently, and our process is progressing as expected. We will update you as information becomes available. Now, onto our results. Our team delivered solid fourth quarter performance, ending the year on a high note.
Speaker #3: 4th quarter adjusted earnings per share. We saw tremendous order strength and a backlog exiting 2025 up 50% versus prior year. extremely positive momentum as we Giving us 2026.
Operator: We saw tremendous order strength and a backlog exiting 2025 up 50% versus prior year, giving us extremely positive momentum as we begin 2026. While our data center business is clearly performing exceptionally well, we also saw healthy orders in other parts of our business, especially discrete automation and aerospace and defense. Before continuing, I want to take a moment to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution, in particular driving our new product pipelines, our cross-sell initiatives, and building our commercial funnels to drive stronger and more profitable growth. Now, let me provide some specifics on our fourth quarter performance, starting with orders. Orders in the quarter on a daily basis were up 53.8% versus prior year, and Book-to-Bill was 1.48.
Louis Pinkham: We saw tremendous order strength and a backlog exiting 2025 up 50% versus prior year, giving us extremely positive momentum as we begin 2026. While our data center business is clearly performing exceptionally well, we also saw healthy orders in other parts of our business, especially discrete automation and aerospace and defense. Before continuing, I want to take a moment to thank our 30,000 Regal Rexnord associates for their hard work and disciplined execution, in particular driving our new product pipelines, our cross-sell initiatives, and building our commercial funnels to drive stronger and more profitable growth. Now, let me provide some specifics on our fourth quarter performance, starting with orders. Orders in the quarter on a daily basis were up 53.8% versus prior year, and Book-to-Bill was 1.48.
Speaker #3: Now, let me provide some specifics on our 4th quarter performance, starting with orders. Orders in the quarter on a daily basis were up 53.8% versus prior year, and book-to-bill was 1.48.
Operator: In the quarter, we booked orders worth approximately $735 million for our new ePOD solution, which comprises our proven power management content, including switchgear, automatic transfer switches, and power distribution units. You may remember we discussed ePODs on our third quarter call when we dimensioned an opportunity funnel worth over $400 million and a billion-dollar funnel for our data center business more broadly. In Q4, we also built momentum in discrete automation, which saw orders grow 9%, in aerospace and defense with orders up 21%, and in IPS where orders grew over 3%, and which we believe reflects outperformance in end markets that were challenged by a sub-50 ISM. Excluding the large ePOD orders, our enterprise orders grew 2.7% in the quarter. Shifting to sales. Our sales in the quarter were up 2.9% versus the prior year on an organic basis, demonstrating accelerating organic growth.
Louis Pinkham: In the quarter, we booked orders worth approximately $735 million for our new ePOD solution, which comprises our proven power management content, including switchgear, automatic transfer switches, and power distribution units. You may remember we discussed ePODs on our third quarter call when we dimensioned an opportunity funnel worth over $400 million and a billion-dollar funnel for our data center business more broadly. In Q4, we also built momentum in discrete automation, which saw orders grow 9%, in aerospace and defense with orders up 21%, and in IPS where orders grew over 3%, and which we believe reflects outperformance in end markets that were challenged by a sub-50 ISM. Excluding the large ePOD orders, our enterprise orders grew 2.7% in the quarter. Shifting to sales. Our sales in the quarter were up 2.9% versus the prior year on an organic basis, demonstrating accelerating organic growth.
Speaker #3: booked orders worth approximately In the quarter, we $735 million for our new EPOD solution which comprises our proven power management content, including switch gear, automatic transfer switches, and power distribution units.
Speaker #3: You may remember we discussed EPODs on our 3rd quarter call when we mentioned an opportunity funnel worth over $400 million and a billion-dollar funnel for our data center business more broadly.
Speaker #3: built momentum in discreet In Q4, we also automation, which saw orders grow 9% in aerospace and defense with orders up 21%, and in IPS where orders grew over 3% and which we believe reflects were challenged by a outperformance in end markets that ISM.
Speaker #3: Excluding the large EPOD orders, our enterprise orders grew 2.7% in the quarter. Shifting to sales. Our sales in the quarter were up 2.9% versus the prior year on an organic basis, demonstrating accelerating organic growth.
Speaker #3: We saw particular strength in AMC, which grew over 15% organically. The AMC team did an excellent job executing its backlog and benefiting from share gains in its largely secular markets.
Operator: We saw particular strength in AMC, which grew over 15% organically. The AMC team did an excellent job executing its backlog and benefiting from share gains in its largely secular markets. We saw weakness in PES in the quarter, which was more severe than expected given headwinds in the residential HVAC market. IPS continued to achieve steady growth, outperforming sluggish industrial markets. Turning to margins, our Q4 Adjusted Gross Margin was 37.6%, up 50 basis points versus the prior year. Our teams overcame tariff and mixed headwinds with continued strong execution on synergies, good price realization, and benefits from volume leverage. Adjusted EBITDA margin was 21.6%, roughly flat versus prior year, reflecting our gross margin expansion, volume leverage, and disciplined discretionary cost management, which offset higher growth investments. Adjusted Earnings Per Share for the quarter was $2.51, up 7.3% versus the prior year.
Louis Pinkham: We saw particular strength in AMC, which grew over 15% organically. The AMC team did an excellent job executing its backlog and benefiting from share gains in its largely secular markets. We saw weakness in PES in the quarter, which was more severe than expected given headwinds in the residential HVAC market. IPS continued to achieve steady growth, outperforming sluggish industrial markets. Turning to margins, our Q4 Adjusted Gross Margin was 37.6%, up 50 basis points versus the prior year. Our teams overcame tariff and mixed headwinds with continued strong execution on synergies, good price realization, and benefits from volume leverage. Adjusted EBITDA margin was 21.6%, roughly flat versus prior year, reflecting our gross margin expansion, volume leverage, and disciplined discretionary cost management, which offset higher growth investments. Adjusted Earnings Per Share for the quarter was $2.51, up 7.3% versus the prior year.
Speaker #3: We saw weakness in PES in the quarter, which was more severe than expected, given headwinds in the residential HVAC market. IPS continued to achieve steady growth, outperforming sluggish industrial markets.
Speaker #3: Turning to margins. Our 4th quarter adjusted gross margin was 37.6%, up 50 basis points versus the prior year. Our team's overcame tariff and mixed headwinds with continued on synergies, good strong execution price realization, and benefits from volume leverage.
Speaker #3: Adjusted EBITDA margin was 21.6%, roughly flat versus prior year, reflecting our gross margin expansion, volume leverage, and discipline discretionary cost management, which offset higher growth investments.
Speaker #3: Adjusted earnings per share for the quarter was $2.51, up year over year. Lastly, we generated $141 million of free cash flow in the fourth quarter. We ended the quarter with our net debt leverage coming down to 3.1.
Operator: Lastly, we generated $141 million of free cash flow in Q4. We ended the quarter with our net debt leverage coming down to 3.1. In summary, a strong Q4 characterized by solid adjusted EPS growth, exceptionally strong orders, and a rising backlog, giving us positive momentum as we begin 2026. At the beginning of a new year, it is always good to reflect on the success of the prior year. In 2025, our orders grew 15.5% for the year on a daily basis, led by AMC, up 53%, followed by IPS, up 4%, and PES, which was down 5%. Sales for the year were up 80 basis points on an organic basis with acceleration as the year progressed.
Louis Pinkham: Lastly, we generated $141 million of free cash flow in Q4. We ended the quarter with our net debt leverage coming down to 3.1. In summary, a strong Q4 characterized by solid adjusted EPS growth, exceptionally strong orders, and a rising backlog, giving us positive momentum as we begin 2026. At the beginning of a new year, it is always good to reflect on the success of the prior year. In 2025, our orders grew 15.5% for the year on a daily basis, led by AMC, up 53%, followed by IPS, up 4%, and PES, which was down 5%. Sales for the year were up 80 basis points on an organic basis with acceleration as the year progressed.
Speaker #3: In summary, a strong fourth quarter characterized by solid adjusted EPS growth, exceptionally strong orders, and a rising backlog, giving us positive momentum as we begin 2026.
Speaker #3: At the beginning of a new year, it is always good to reflect on the success of the prior year. In grew 15.5% for the year on a daily basis, led by AMC up 53%, followed by IPS up 4%, and PES, which was down 5%.
Speaker #3: Sales for the year were 2025, our orders up 80 basis points on an organic basis, with acceleration as the year progressed. Strength in aerospace and defense, discreet automation, energy.
Operator: Strength in aerospace and defense, discrete automation, energy, data center, commercial HVAC, and an incremental $90 million of cross-sell and powertrain synergies were partially offset by headwinds in general and industrial and medical. Turning to margins for 2025, our Adjusted EBITDA margins were 22%, roughly flat to the prior year on a comparable basis, reflecting good execution in a tough operating environment. Our teams overcame headwinds from tariffs, rare earth magnet availability, and mix by effectively executing on synergies worth $54 million in addition to price realization discipline and good discretionary cost management. Adjusted Earnings Per Share for the year was $9.65, up nearly 6% versus the prior year. Adjusted free cash flow was $893 million, including the ARS program we launched in Q2. Our cash flow allowed us to pay down over $700 million of debt in 2025.
Louis Pinkham: Strength in aerospace and defense, discrete automation, energy, data center, commercial HVAC, and an incremental $90 million of cross-sell and powertrain synergies were partially offset by headwinds in general and industrial and medical. Turning to margins for 2025, our Adjusted EBITDA margins were 22%, roughly flat to the prior year on a comparable basis, reflecting good execution in a tough operating environment. Our teams overcame headwinds from tariffs, rare earth magnet availability, and mix by effectively executing on synergies worth $54 million in addition to price realization discipline and good discretionary cost management. Adjusted Earnings Per Share for the year was $9.65, up nearly 6% versus the prior year. Adjusted free cash flow was $893 million, including the ARS program we launched in Q2. Our cash flow allowed us to pay down over $700 million of debt in 2025.
Speaker #3: Data center, commercial HVAC, and an incremental $90 million in powertrain synergies were partially offset by headwinds in general and industrial, and medical. Turning to margins for 2025.
Speaker #3: Our adjusted EBITDA margins were flat to the prior year on a comparable 22%. Roughly basis, reflecting good execution in a of cross-sell and tough operating environment.
Speaker #3: Our team's overcame headwinds from tariffs, rare earth magnet availability, and mix, by effectively executing on synergies worth $54 million in addition to price realization discipline and good discretionary cost management.
Speaker #3: Adjusted earnings per share for the year was $9.65, up nearly 6% versus the prior year. Adjusted free cash flow was $893 million, program we launched in 2nd including the ARS quarter.
Speaker #3: Our cash flow allowed us to pay down over $700 million of debt in 2025. In summary, I would characterize 2025 as a year of executing a wide range are starting to pay off, giving us increasingly positive momentum.
Operator: In summary, I would characterize 2025 as a year of executing a wide range of growth initiatives, which are starting to pay off, giving us increasingly positive momentum. It was also a year of achieving margin stability in the face of external pressures outside of our control. As we enter 2026, I believe we are extremely well positioned, in particular given traction on our growth initiatives. One of these initiatives in the data center market is where I'd like to turn next. On this slide, we are providing additional details on the orders we received during Q4 for our ePOD offering. As discussed on our Q3 call, these turnkey power management solutions, which we launched in early 2025, are designed to expedite data center construction by making the installation of power management content more plug-and-play.
Louis Pinkham: In summary, I would characterize 2025 as a year of executing a wide range of growth initiatives, which are starting to pay off, giving us increasingly positive momentum. It was also a year of achieving margin stability in the face of external pressures outside of our control. As we enter 2026, I believe we are extremely well positioned, in particular given traction on our growth initiatives. One of these initiatives in the data center market is where I'd like to turn next. On this slide, we are providing additional details on the orders we received during Q4 for our ePOD offering. As discussed on our Q3 call, these turnkey power management solutions, which we launched in early 2025, are designed to expedite data center construction by making the installation of power management content more plug-and-play.
Speaker #3: It was also a year of achieving margin stability in the face of external control. As we enter, we are extremely well-positioned, in particular given traction on our growth initiatives.
Speaker #3: One of these initiatives, in the data center 2026, I believe next. On this slide, we are providing additional details on the orders we received during 4th quarter for our EPOD offering.
Speaker #3: As discussed on our 3rd quarter call, these turnkey power management solutions, which we launched in early 2025, are designed to expedite data center construction by making the installation of power management content more plug-and-play.
Speaker #3: The PODs, which are needs, comprise content drawn from our longstanding power management portfolio, which includes switchgear, transfer switches, and power distribution units, as well as from our thermal management offering, which includes hermetic motors and air-moving solutions.
Operator: The ePODs, which are tailored to specific customer needs, comprise content drawn from our longstanding power management portfolio, which includes switchgear, transfer switches, and power distribution units, as well as from our thermal management offering, which includes hermetic motors and air-moving solutions. Regal is also project managing assembly of the ePODs, including content from third parties. So part of our value proposition is providing a single source of contact for the customer and allowing customers to procure a suite of power management content with a single SKU. As you can see on this slide, we were awarded orders for ePODs with a base value of approximately $735 million. So why are we winning this business? It starts with our 50-year track record of quality and performance in power management. Our product solutions are tried and true. Second, our customization capabilities.
Louis Pinkham: The ePODs, which are tailored to specific customer needs, comprise content drawn from our longstanding power management portfolio, which includes switchgear, transfer switches, and power distribution units, as well as from our thermal management offering, which includes hermetic motors and air-moving solutions. Regal is also project managing assembly of the ePODs, including content from third parties. So part of our value proposition is providing a single source of contact for the customer and allowing customers to procure a suite of power management content with a single SKU. As you can see on this slide, we were awarded orders for ePODs with a base value of approximately $735 million. So why are we winning this business? It starts with our 50-year track record of quality and performance in power management. Our product solutions are tried and true. Second, our customization capabilities.
Speaker #3: REGAL is also project managing assembly of the PODs, including content from value proposition is providing a third parties so part of our single source of contact for the customer and allowing customers to procure a suite of power management content with a single SKU.
Speaker #3: As you can see on this slide, we were awarded orders for EPODs with a base value of approximately $735 business? It starts with quality and performance in power management.
Speaker #3: Our product solutions are tried and true. Second, our customization capabilities. This is a differentiator for REGAL and the ability and willingness to customize the system design to best meet the needs of our customer.
Operator: This is a differentiator for Regal, an ability and willingness to customize the system design to best meet the needs of our customer. Third, the strength and durability of our supply chain relationships, which help enable the next success factor, are high service levels around on-time delivery and lead times. Equally important, we have shown across our business an ability to support high service levels while manufacturing at scale. Another driver of these wins, the scale and scope of Regal Rexnord. Orders of this magnitude are facilitated by the backing of our $6 billion enterprise. Customers value our ability to balance agility and velocity with disciplined execution as they contend with a feverish pace of AI-driven development. In short, we are seeing the power of our evolved Regal Rexnord portfolio to support differentiated growth.
Louis Pinkham: This is a differentiator for Regal, an ability and willingness to customize the system design to best meet the needs of our customer. Third, the strength and durability of our supply chain relationships, which help enable the next success factor, are high service levels around on-time delivery and lead times. Equally important, we have shown across our business an ability to support high service levels while manufacturing at scale. Another driver of these wins, the scale and scope of Regal Rexnord. Orders of this magnitude are facilitated by the backing of our $6 billion enterprise. Customers value our ability to balance agility and velocity with disciplined execution as they contend with a feverish pace of AI-driven development. In short, we are seeing the power of our evolved Regal Rexnord portfolio to support differentiated growth.
Speaker #3: Third, the strength and durability of our supply chain relationships, which help enable the next success factor, are high service levels around on-time delivery and lead times.
Speaker #3: Equally important, we have shown across our business an ability to support high service levels while manufacturing at these wins: the scale and scope of REGAL RESHNORD.
Speaker #3: Orders of this magnitude are facilitated by the backing of our $6 billion enterprise. Customers value our ability to balance agility, velocity with disciplined execution, as they contend with a feverish pace of AI-driven development.
Speaker #3: In short, we are seeing the power of our evolved REGAL RESHNORD portfolio to support differentiated growth. As part of the new REGAL RESHNORD, what was a $30 million power management business five years ago and a $120 million business today, has a defined path to roughly $1 billion in sales over the next two years.
Operator: As part of the new Regal Rexnord, what was a $30 million power management business 5 years ago and a $120 million business today has a defined path to roughly $1 billion in sales over the next 2 years. Viewed more holistically, these wins demonstrate that our enterprise growth strategy is gaining momentum, in particular investing to address rising demand in targeted secular markets. We are working the strategy in many areas, which is where I would like to turn next. On this slide, we highlight key secular growth verticals where we are directing the majority of our new product, e-commerce, and channel investments. In the middle column, we provide examples of new products we have launched to address relevant customer needs in each vertical. On the right, we highlight a few notable examples where we are seeing traction in the marketplace.
Louis Pinkham: As part of the new Regal Rexnord, what was a $30 million power management business 5 years ago and a $120 million business today has a defined path to roughly $1 billion in sales over the next 2 years. Viewed more holistically, these wins demonstrate that our enterprise growth strategy is gaining momentum, in particular investing to address rising demand in targeted secular markets. We are working the strategy in many areas, which is where I would like to turn next. On this slide, we highlight key secular growth verticals where we are directing the majority of our new product, e-commerce, and channel investments. In the middle column, we provide examples of new products we have launched to address relevant customer needs in each vertical. On the right, we highlight a few notable examples where we are seeing traction in the marketplace.
Speaker #3: Viewed more holistically, these wins demonstrate that our enterprise growth strategy is gaining momentum. In particular, investing to address rising demand in targeted secular markets.
Speaker #3: We are working the strategy in many areas, which is where I would like to turn next. On this slide, we highlight key secular growth verticals where we are directing the majority of our new product investments.
Speaker #3: In the middle column, we provide examples of new products we have launched to address relevant customer needs in each vertical. And on the right, we highlight a few notable examples where we are seeing traction in the marketplace.
Speaker #3: We already discussed EPODs and the data center market. Our electromechanical actuators for the emerging EVTEL market, which we developed through a partnership with Honeywell, is another great for significant growth in example.
Operator: We already discussed ePODs and the data center market. Our electromechanical actuators for the emerging eVTOL market, which we developed through a partnership with Honeywell, is another great example. Various third-party forecasts are calling for significant growth in eVTOL unit volumes in the coming years, and we are well positioned with over $200,000 of ship set potential per plane. Next, our Kollmorgen Essentials product, which launched at the end of 2025, where we are leveraging our motion control technology for the ultra premium market in an offering designed for the much larger high and mid premium market segments. Initial market reception has been strong, and we believe we are on track to meet our goal for $50 million of sales from this new offering by 2028. Finally, we have developed a range of differentiated solutions to support robotic actuation, which spans humanoids, cobots, and robotic surgery applications.
Louis Pinkham: We already discussed ePODs and the data center market. Our electromechanical actuators for the emerging eVTOL market, which we developed through a partnership with Honeywell, is another great example. Various third-party forecasts are calling for significant growth in eVTOL unit volumes in the coming years, and we are well positioned with over $200,000 of ship set potential per plane. Next, our Kollmorgen Essentials product, which launched at the end of 2025, where we are leveraging our motion control technology for the ultra premium market in an offering designed for the much larger high and mid premium market segments. Initial market reception has been strong, and we believe we are on track to meet our goal for $50 million of sales from this new offering by 2028. Finally, we have developed a range of differentiated solutions to support robotic actuation, which spans humanoids, cobots, and robotic surgery applications.
Speaker #3: EVTEL unit volumes in the coming Various third-party forecasts are calling years, and we are well-positioned. With over 200,000 dollars of ship set potential per plane.
Speaker #3: Next, our Cole Morgan Essentials product, which launched at the end of 2025, where we are leveraging our motion-controlled technology for the ultra-premium market in an offering designed for the much larger high and mid-premium market segments.
Speaker #3: Initial market reception has been strong, and we believe we are on track to meet our goal of $50 million in sales from this new offering by 2028.
Speaker #3: Finally, we have developed a range of differentiated solutions to support robotic actuation, which spans robotic surgery applications. Our teams are currently humanoids, cobots, and working on opportunity funnel and excess of $200 million across these applications, and have already been experiencing strong double-digit compounded growth in robotic actuation in recent years.
Operator: Our teams are currently working an opportunity funnel in excess of $200 million across these applications and have already been experiencing strong double-digit compounded growth in robotic actuation in recent years. The common theme here is Regal Rexnord making a range of growth investments in high potential secular markets, which are starting to pay off. What we are experiencing in data center is, one, more advanced example. Positively, we see tremendous additional upside as both our offerings and earlier stage markets such as eVTOL, and humanoids continue to mature. And with that, I will turn the call over to Rob. Thanks, Louis. And good morning, everyone. Now let's review our operating performance by segment. Starting with automation and motion control, or AMC, sales in Q4 are up 15.2% versus the prior year period on an organic basis, which was ahead of our expectations.
Louis Pinkham: Our teams are currently working an opportunity funnel in excess of $200 million across these applications and have already been experiencing strong double-digit compounded growth in robotic actuation in recent years. The common theme here is Regal Rexnord making a range of growth investments in high potential secular markets, which are starting to pay off. What we are experiencing in data center is, one, more advanced example. Positively, we see tremendous additional upside as both our offerings and earlier stage markets such as eVTOL, and humanoids continue to mature. And with that, I will turn the call over to Rob.
Speaker #3: The common theme here is REGAL RESHNORD making a range of growth investments in high-potential secular markets, which are starting to pay off. What we are experiencing in data center is, one, more advanced example.
Speaker #3: Positively, we see tremendous additional upside, as both our offerings and earlier-stage markets, such as EVTEL and that, I will turn the call over to mature.
Speaker #3: Rob. And with
Speaker #2: Thanks, Lewis, and good morning, everyone. Now let's review our offering performance by segment. Starting with automation and motion control, or AMC, sales in the fourth quarter are up year period on an on- or inorganic 15.2% versus the prior basis, which was ahead of our expectations.
Robert Rehard: Thanks, Louis. And good morning, everyone. Now let's review our operating performance by segment. Starting with automation and motion control, or AMC, sales in Q4 are up 15.2% versus the prior year period on an organic basis, which was ahead of our expectations.
Operator: The performance reflects broad-based growth, but with particular strength in data center, in aerospace and defense, and in discrete automation. We would attribute the strength to underlying in-market momentum in these secular markets, as well as to our outgrowth initiatives, including cross-sell activities, which continue to gain traction. I would also point out that the medical market was flat after four quarters of destocking-related declines. This is another secular market where we are extremely well positioned with high margin, technology-rich products, and are very happy to see this market appearing poised to improve. We continued to face headwinds in the quarter related to rare earth magnet availability, but these were in line with our expectations, and our plans to secure alternative sources of supply are on track.
Robert Rehard: The performance reflects broad-based growth, but with particular strength in data center, in aerospace and defense, and in discrete automation. We would attribute the strength to underlying in-market momentum in these secular markets, as well as to our outgrowth initiatives, including cross-sell activities, which continue to gain traction. I would also point out that the medical market was flat after four quarters of destocking-related declines. This is another secular market where we are extremely well positioned with high margin, technology-rich products, and are very happy to see this market appearing poised to improve. We continued to face headwinds in the quarter related to rare earth magnet availability, but these were in line with our expectations, and our plans to secure alternative sources of supply are on track.
Speaker #2: particular strength in data reflects broad-based growth, but with center. In aerospace and defense, and in discrete automation. We would attribute the strength to underlying in-market momentum in these secular markets, as well as to our outgrowth initiatives, including cross-sell activities, which continue to gain traction.
Speaker #2: I would also point out that the medical market was flat after four quarters of destocking-related declines. This is another secular market where we are extremely well-positioned.
Speaker #2: And our plans to secure alternative sources of supply are on track. Turning to margins, AMC's adjusted EBITDA margin in the quarter was 20.5%, which was below our expectations and down roughly 1 point versus the prior year.
Operator: Turning to margins, AMC's adjusted EBITDA margin in the quarter was 20.5%, which was below our expectations and down roughly 1 point versus the prior year. While we were pleased to see the team overexecute on its backlog during the fourth quarter, some of the incremental volume, which was weighted to OEM versus distribution sales, created mixed headwinds. Orders in AMC in the fourth quarter were up 190%, primarily reflecting the large ePOD orders Louis discussed earlier. Excluding the ePOD orders, AMC's orders were up 19.2% versus the prior year on a daily basis, primarily reflecting strength in data center, aerospace and defense, and discrete automation. Notably, orders in discrete automation were up just over 9% in the quarter and are up about 6% on a rolling 12-month basis, reflecting growing momentum in this market.
Robert Rehard: Turning to margins, AMC's adjusted EBITDA margin in the quarter was 20.5%, which was below our expectations and down roughly 1 point versus the prior year. While we were pleased to see the team overexecute on its backlog during the fourth quarter, some of the incremental volume, which was weighted to OEM versus distribution sales, created mixed headwinds. Orders in AMC in the fourth quarter were up 190%, primarily reflecting the large ePOD orders Louis discussed earlier. Excluding the ePOD orders, AMC's orders were up 19.2% versus the prior year on a daily basis, primarily reflecting strength in data center, aerospace and defense, and discrete automation. Notably, orders in discrete automation were up just over 9% in the quarter and are up about 6% on a rolling 12-month basis, reflecting growing momentum in this market.
Speaker #2: While we were pleased to see the team over-execute on its backlog during the fourth quarter, some of the incremental volume, which was weighted to OEM versus distribution sales, created mixed headwinds.
Speaker #2: Orders in AMC in the fourth quarter were up 190%, primarily reflecting the large EPOD orders Lewis discussed earlier. Excluding the EPOD orders, AMC's orders were up 19.2% versus the prior year on a daily basis.
Speaker #2: Primarily reflecting strength in data center, aerospace and defense, and discrete automation. Notably, orders in discrete automation were up quarter. And are up about just over 9% in the 6% on a rolling growing momentum in this 12-month basis, reflecting market.
Speaker #2: The momentum we are building in automation bodes well for our growth and margin outlook. Given the above-average conversion rates on these products. January orders for AMC were up 3.9% on a daily basis.
Operator: The momentum we are building in automation bodes well for our growth and margin outlook, given the above-average conversion rates on these products. January orders for AMC were up 3.9% on a daily basis. Before I leave AMC, I'd like to emphasize that the growth we saw as we exited the year reinforces our belief that the strength of the markets served, along with our differentiated products and solutions, helped set up AMC to consistently achieve the mid to high single-digit growth that we expect from this segment. Now turning to industrial powertrain solutions, or IPS. Sales in the fourth quarter were up 3.7% versus the prior year on an organic basis, which was in line with our expectations. The growth was broad-based, but with particular strength in the metals, mining, and energy markets.
Robert Rehard: The momentum we are building in automation bodes well for our growth and margin outlook, given the above-average conversion rates on these products. January orders for AMC were up 3.9% on a daily basis. Before I leave AMC, I'd like to emphasize that the growth we saw as we exited the year reinforces our belief that the strength of the markets served, along with our differentiated products and solutions, helped set up AMC to consistently achieve the mid to high single-digit growth that we expect from this segment. Now turning to industrial powertrain solutions, or IPS. Sales in the fourth quarter were up 3.7% versus the prior year on an organic basis, which was in line with our expectations. The growth was broad-based, but with particular strength in the metals, mining, and energy markets.
Speaker #2: AMC, I'd like to emphasize that the Now, before I leave growth we saw as we exited the year reinforces our belief that the strength of the markets served, along products and solutions, helped set up AMC to consistently achieve the mid to high single-digit growth that we expect from this segment.
Speaker #2: And now with our differentiated turning to industrial powertrain IPS. Sales in the fourth quarter were up 3.7% versus the prior year on line with our expectations.
Speaker #2: The growth was broad-based. But with particular energy markets. We are strength in the metals and mining and we believe evidence is share encouraged by this performance, which solutions, or gains, given the ISM remained in contraction as we exited 2025.
Operator: We are encouraged by this performance, which we believe evidences share gains, given the ISM remained in contraction as we exited 2025. In particular, the IPS team continues to work our various cross-sell and powertrain initiatives, and we can see these results showing up in our performance. Adjusted EBITDA margin for IPS in the quarter was 25.7%, within our expectations and just below the prior year. Performance versus prior year was impacted by weaker mix, the impact of tariffs, and higher growth investments partially offset by continued strong synergy gains. Orders in IPS, on a daily basis, were up 3.3% in the fourth quarter, the sixth quarter in a row of positive orders growth for this segment, which contributed to the backlog ending the year up 6% versus prior year. Book-to-Bill in the fourth quarter for IPS was 0.96. January orders were down 0.5% on a daily basis.
Robert Rehard: We are encouraged by this performance, which we believe evidences share gains, given the ISM remained in contraction as we exited 2025. In particular, the IPS team continues to work our various cross-sell and powertrain initiatives, and we can see these results showing up in our performance. Adjusted EBITDA margin for IPS in the quarter was 25.7%, within our expectations and just below the prior year. Performance versus prior year was impacted by weaker mix, the impact of tariffs, and higher growth investments partially offset by continued strong synergy gains. Orders in IPS, on a daily basis, were up 3.3% in the fourth quarter, the sixth quarter in a row of positive orders growth for this segment, which contributed to the backlog ending the year up 6% versus prior year. Book-to-Bill in the fourth quarter for IPS was 0.96. January orders were down 0.5% on a daily basis.
Speaker #2: In particular, the IPS team continues to work our various cross-sell and powertrain initiatives, and we can see these results showing up in our performance.
Speaker #2: Adjusted EBITDA margin for IPS in the quarter was 25.7%, within our expectations and just below the prior year. Performance versus prior year was impacted by weaker mix, the impact of tariffs, and higher growth investments partially offset by IPS on a daily basis gains.
Speaker #2: were up 3.3% in the Orders in fourth quarter. The sixth quarter in a row of positive orders growth for this segment, which contributed to the backlog ending the year up 6% versus prior year.
Speaker #2: Book to bill in the fourth quarter for IPS was 0.96. January orders were down 0.5% on a daily basis. Turning to power efficiency solutions, or PES, sales in the fourth quarter were down 10.7% versus the prior year on an our organic basis, which was below expectation.
Operator: Turning to power efficiency solutions, or PES, sales in the fourth quarter were down 10.7% versus the prior year on an organic basis, which was below our expectation. The shortfall was due to weaker performance in residential HVAC, which we would attribute primarily to more severe channel destocking after the A2L regulatory transition, which was partially offset by strength in commercial HVAC. Speaking further on the residential HVAC market, it is important to note that if you follow the AHRI market volume data, central air conditioners were down about 26% year to date through November, but Regal was only down about 7%. We don't believe all of this is due to share gain, but 2025 was clearly a year of strong market outperformance for PES in the resi HVAC space.
Robert Rehard: Turning to power efficiency solutions, or PES, sales in the fourth quarter were down 10.7% versus the prior year on an organic basis, which was below our expectation. The shortfall was due to weaker performance in residential HVAC, which we would attribute primarily to more severe channel destocking after the A2L regulatory transition, which was partially offset by strength in commercial HVAC. Speaking further on the residential HVAC market, it is important to note that if you follow the AHRI market volume data, central air conditioners were down about 26% year to date through November, but Regal was only down about 7%. We don't believe all of this is due to share gain, but 2025 was clearly a year of strong market outperformance for PES in the resi HVAC space.
Speaker #2: The shortfall was due to weaker performance in residential HVAC, which we would attribute primarily to more severe channel destocking after the A2L regulatory transition, which was partially offset by strength HVAC.
Speaker #2: in commercial Speaking further on the residential HVAC market, it is important to note that if you follow the AHRI market volume data, central air conditioners were down about through November, but regal was only down about 7%.
Speaker #2: We don't 26% year-to-date believe all of this is due to share gain, but 2025 was clearly a year of strong market outperformance for HVAC space.
Operator: Turning to margins, Adjusted EBITDA margin in the quarter for PES was 15.6%, which was above our expectations and up 30 basis points versus the prior year. This strong performance, achieved despite challenging in-market conditions, reflects both strong cost management by the team as well as mixed benefits. Orders in PES for Q4 were down 15.9% on a daily basis, directionally consistent with views we had previously articulated tied to channel destocking and weak consumer and housing metrics. Book-to-bill in the quarter for PES was 0.91. January orders in PES were up 3.8% on a daily basis. Turning to the outlook on slide 12. The table on the left outlines our principal assumptions for 2026.
Robert Rehard: Turning to margins, Adjusted EBITDA margin in the quarter for PES was 15.6%, which was above our expectations and up 30 basis points versus the prior year. This strong performance, achieved despite challenging in-market conditions, reflects both strong cost management by the team as well as mixed benefits. Orders in PES for Q4 were down 15.9% on a daily basis, directionally consistent with views we had previously articulated tied to channel destocking and weak consumer and housing metrics. Book-to-bill in the quarter for PES was 0.91. January orders in PES were up 3.8% on a daily basis. Turning to the outlook on slide 12. The table on the left outlines our principal assumptions for 2026.
Speaker #2: adjusted EBITDA margin in the Turning to margins, quarter for PES was 15.6%. Which was above our expectations, and up year. This strong 30 basis points versus the prior performance achieved despite challenging in-market conditions PES in the RESI the team as well as mixed benefits.
Speaker #2: Orders in PES for the fourth quarter were down 15.9% on a daily basis. Directionally consistent with views we had to channel destocking and weak consumer and housing metrics.
Speaker #2: Book to bill in the quarter for 0.91. January orders in PES were up 3.8% on a daily basis. Turning to the outlook on slide 12.
Speaker #2: The table on the left outlines our principal assumptions for Starting with sales, our guidance assumes growth of roughly 3%. Comprised of 1 to 1.5 points from the large data center projects we have won, and roughly 1.5 points from price, which is largely tariff-related.
Operator: Starting with sales, our guidance assumes growth of roughly 3%, comprised of 1 to 1.5 points from the large data center projects we have won, and roughly 1.5 points from price, which is largely tariff-related. Outside of data center, we assume that volume growth across all other in-markets is roughly flat on a net basis. Several of our in-markets have the potential for stronger growth in 2026, and we were pleased to see the January ISM above 50, which has generally been in contraction territory for roughly 3 years. That said, 1 month does not make a trend, and we are intentionally adopting a more measured approach at the beginning of the year. This allows us to carefully monitor developments and make adjustments to our assumptions and guidance only when justified by new information or changing market dynamics.
Robert Rehard: Starting with sales, our guidance assumes growth of roughly 3%, comprised of 1 to 1.5 points from the large data center projects we have won, and roughly 1.5 points from price, which is largely tariff-related. Outside of data center, we assume that volume growth across all other in-markets is roughly flat on a net basis. Several of our in-markets have the potential for stronger growth in 2026, and we were pleased to see the January ISM above 50, which has generally been in contraction territory for roughly 3 years. That said, 1 month does not make a trend, and we are intentionally adopting a more measured approach at the beginning of the year. This allows us to carefully monitor developments and make adjustments to our assumptions and guidance only when justified by new information or changing market dynamics.
Speaker #2: Outside of data center, we assume that volume growth across all other in-markets is roughly flat on a net basis. Several of our in-markets have the potential for stronger growth in 2026.
Speaker #2: the January ISM above And we were pleased to see 50, which has generally been in contraction territory for roughly three years. That said, one month does not make a trend, and we are intentionally adopting a more measured approach at the beginning of the year.
Speaker #2: This allows us to only when justified by new adjustments to our assumptions and guidance information or changing market dynamics. For example, we would like to see the ISM remain of time before becoming more constructive on our assumptions.
Operator: For example, we would like to see the ISM remain above 50 for a sustained period of time before becoming more constructive on our market growth assumptions. Another area we are carefully monitoring is our data center business. We continue to actively pursue a robust pipeline of bids, which could translate into orders eligible for shipment within 2026. Additionally, as delivery schedules for the ePOD orders already secured are finalized, there is the possibility that some of these sales may be recognized in late 2026 rather than in our current plan for 2027. Should these factors materialize, they could offer upside potential to our existing guidance. However, until delivery dates are confirmed, we will maintain our prudent and measured outlook. Our Adjusted EBITDA margin is forecast to rise 50 basis points to 22.5%. The increase reflects our mid-30s incremental margin applied to the growth we are forecasting.
Robert Rehard: For example, we would like to see the ISM remain above 50 for a sustained period of time before becoming more constructive on our market growth assumptions. Another area we are carefully monitoring is our data center business. We continue to actively pursue a robust pipeline of bids, which could translate into orders eligible for shipment within 2026. Additionally, as delivery schedules for the ePOD orders already secured are finalized, there is the possibility that some of these sales may be recognized in late 2026 rather than in our current plan for 2027. Should these factors materialize, they could offer upside potential to our existing guidance. However, until delivery dates are confirmed, we will maintain our prudent and measured outlook. Our Adjusted EBITDA margin is forecast to rise 50 basis points to 22.5%. The increase reflects our mid-30s incremental margin applied to the growth we are forecasting.
Speaker #2: Another area we are market growth carefully monitoring is our data center business. We continue to actively pursue a robust pipeline of bids, which above 50 for a sustained period could translate into orders eligible for shipment within 2026.
Speaker #2: Additionally, as delivery schedules for the EPOD orders finalized, there is the already secured our possibility that some of these sales may be recognized in late 2026 rather than in our current plan for 2027.
Speaker #2: Should these factors materialize, they could offer upside potential to our existing guidance. However, until delivery dates are confirmed, we will maintain our prudent and measured outlook.
Speaker #2: Our adjusted EBITDA margin is forecast to rise 50 basis points to our mid-30s incremental 22.5%. The increase reflects margin applied to the growth we are forecasting.
Speaker #2: Note that while we fully expect to realize $40 million of cost synergies this year, we are treating those as a contingency against unforeseen P&L pressures, which we believe helps guidance.
Operator: Note that while we fully expect to realize $40 million of cost synergies this year, we are treating those as a contingency against unforeseen P&L pressures, which we believe helps de-risk our guidance. The table also outlines relevant below-the-line items. These assumptions result in an adjusted earnings per share guidance range of $10.20 to $11. The low and high ends of the range factor a combination of slower or faster top-line growth and, to a lesser extent, modestly lower or higher adjusted EBITDA margins. The midpoint of the range of $10.60 equates to approximately 10% adjusted earnings per share growth. For 2026, our cash flow guidance is set at approximately $650 million. This figure reflects our need to invest in working capital throughout the year to support the robust growth occurring in our data center business. Finally, regarding tariffs, our guidance embeds all current tariffs in place today.
Robert Rehard: Note that while we fully expect to realize $40 million of cost synergies this year, we are treating those as a contingency against unforeseen P&L pressures, which we believe helps de-risk our guidance. The table also outlines relevant below-the-line items. These assumptions result in an adjusted earnings per share guidance range of $10.20 to $11. The low and high ends of the range factor a combination of slower or faster top-line growth and, to a lesser extent, modestly lower or higher adjusted EBITDA margins. The midpoint of the range of $10.60 equates to approximately 10% adjusted earnings per share growth. For 2026, our cash flow guidance is set at approximately $650 million. This figure reflects our need to invest in working capital throughout the year to support the robust growth occurring in our data center business. Finally, regarding tariffs, our guidance embeds all current tariffs in place today.
Speaker #2: The table also outlines relevant below-the-line items. These assumptions result in an adjusted earnings per share guidance range of $10.20 to $11. The low and high ends of the range factor a combination of slower or faster top-line growth and, to a lesser extent, modestly lower or higher adjusted EBITDA margins.
Speaker #2: The midpoint of the range of $10.60 equates to approximately 10% adjusted earnings per share growth. For 2026, set at approximately $650 our cash flow guidance is million.
Speaker #2: This figure reflects our need to invest in working capital throughout the year to support the robust growth occurring in our data center business. Finally, regarding tariffs, our guidance embeds all current tariffs in place today.
Speaker #2: It also reflects the recently announced update to India tariffs. With this update, our annualized unmitigated impact is now roughly $155 million. Consistent with our previous views, we expect to be dollar-cost neutral on tariffs by the middle of 2026 and to be end of this year.
Operator: It also reflects the recently announced update to India tariffs. With this update, our annualized unmitigated impact is now roughly $155 million. Consistent with our previous views, we expect to be dollar-cost neutral on tariffs by the middle of 2026 and to be margin neutral on tariffs by the end of this year. On slide 13, we provide more specific expectations for our performance by segment on revenue and Adjusted EBITDA margin for the first quarter and for the full year. Let me flag a few key assumptions that should help with modeling. One, we assume modestly lower revenue in the first quarter relative to fourth quarter, largely reflecting normal seasonality across our businesses and expected destocking pressures in Residential HVAC in PES. We expect annual sales to be weighted roughly 49% to 51% between the first half and the second half of the year.
Robert Rehard: It also reflects the recently announced update to India tariffs. With this update, our annualized unmitigated impact is now roughly $155 million. Consistent with our previous views, we expect to be dollar-cost neutral on tariffs by the middle of 2026 and to be margin neutral on tariffs by the end of this year. On slide 13, we provide more specific expectations for our performance by segment on revenue and Adjusted EBITDA margin for the first quarter and for the full year. Let me flag a few key assumptions that should help with modeling. One, we assume modestly lower revenue in the first quarter relative to fourth quarter, largely reflecting normal seasonality across our businesses and expected destocking pressures in Residential HVAC in PES. We expect annual sales to be weighted roughly 49% to 51% between the first half and the second half of the year.
Speaker #2: On slide 13, we provide more specific expectations for our performance by segment on margin for the first quarter and for the full year. Revenue and adjusted EBITDA modeling.
Speaker #2: One, we assume modestly low revenue in the first quarter relative to the fourth quarter, largely reflecting normal seasonality across our businesses, and a few key assumptions that should help with residential HVAC in PES.
Speaker #2: We expect annual sales to be weighted roughly 49% to 51% between the first half and the second half of the year. Second, we expect enterprise-adjusted EBITDA margins to be roughly 21% in the first quarter and to improve sequentially, tied primarily to improving tariff-related price cost, improving mix, as we gain top-line traction in our AMC segment, and other cost productivity actions.
Operator: Second, we expect enterprise-adjusted EBITDA margins to be roughly 21% in Q1 and to improve sequentially, tied primarily to improving tariff-related price-cost, improving mix as we gain top-line traction in our AMC segment, and other cost productivity actions. A more steady sequential trend is expected for IPS and AMC, while PES margins are seen tracking at a cadence similar to what we saw in 2025, with a peak in Q3 related to seasonality. Lastly, we expect Q1 to be the low point for adjusted EPS due to all of the items I just discussed and for our adjusted earnings per share to be weighted roughly 48% to 52% between the first half and second half of the year, which is comparable to the weighting we saw in 2025.
Robert Rehard: Second, we expect enterprise-adjusted EBITDA margins to be roughly 21% in Q1 and to improve sequentially, tied primarily to improving tariff-related price-cost, improving mix as we gain top-line traction in our AMC segment, and other cost productivity actions. A more steady sequential trend is expected for IPS and AMC, while PES margins are seen tracking at a cadence similar to what we saw in 2025, with a peak in Q3 related to seasonality. Lastly, we expect Q1 to be the low point for adjusted EPS due to all of the items I just discussed and for our adjusted earnings per share to be weighted roughly 48% to 52% between the first half and second half of the year, which is comparable to the weighting we saw in 2025.
Speaker #2: A more steady sequential trend is expected for IPS and AMC, while PES margins are seen tracking at a cadence similar to what we saw in 2025, with a peak in third quarter related to seasonality.
Speaker #2: Lastly, we expect first quarter to be the low point for adjusted EPS due to all of the items I just discussed, and for our adjusted earnings per share to be weighted roughly 48% to 52% between the first half and second half of the year, which is comparable to the weighting we saw in 2025.
Speaker #2: As I reflect on our guidance for the year, I believe we have outlined a compelling and achievable plan that delivers improved top-line growth, some margin expansion, and double-digit earnings per share. This balances our strong orders momentum, higher backlog, ample secular growth opportunities in markets largely at or near trough demand, and a path to further margin expansion with a degree of measured prudence.
Operator: As I reflect on our guidance for the year, I believe we have outlined a compelling and achievable plan that delivers improved top-line growth, some margin expansion, and double-digit earnings per share growth. We attempted to balance our strong orders momentum, higher backlog, ample secular growth opportunities, in-markets largely at or near trough demand, and a path to further margin expansion with a degree of measured prudence. This view anticipates persistent weakness in global industrial markets and volatile global geopolitical and trade policy environments. For example, our guidance does not embed any improvement to the 2025 ending ISM. Rest assured, our teams remain focused on executing the many compelling opportunities in front of them, and we are confident we can deliver a year that results in meaningful value creation for our shareholders. And with that, operator, we are now ready to take questions. Thank you.
Robert Rehard: As I reflect on our guidance for the year, I believe we have outlined a compelling and achievable plan that delivers improved top-line growth, some margin expansion, and double-digit earnings per share growth. We attempted to balance our strong orders momentum, higher backlog, ample secular growth opportunities, in-markets largely at or near trough demand, and a path to further margin expansion with a degree of measured prudence. This view anticipates persistent weakness in global industrial markets and volatile global geopolitical and trade policy environments. For example, our guidance does not embed any improvement to the 2025 ending ISM. Rest assured, our teams remain focused on executing the many compelling opportunities in front of them, and we are confident we can deliver a year that results in meaningful value creation for our shareholders. And with that, operator, we are now ready to take questions. Thank you.
Speaker #2: This view anticipates persistent weakness in global industrial markets and volatile global geopolitical and trade policy environments. For any improvement to example, our guidance does not embed India in the 2025 ISM.
Speaker #2: Rest assured, our teams remain focused on executing the many compelling opportunities in front of them, and we are confident we can deliver a year that results for shareholders. And with that, questions.
Speaker #2: operator, we are now ready to take
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question comes from Mike Halloran from Baird. Please go ahead. Hey. Good morning, everyone. Morning. Morning, Mike. Hey. So can we start on the data center side of thing and the ePOD wins? Maybe frame it up in a couple of ways. One, how do you think about the margin profile of this type of business? Is it comparative to the segment level as well? And then secondarily, could you just walk through what that opportunity looks like and frame it from here?
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question comes from Mike Halloran from Baird. Please go ahead.
Speaker #1: question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your hands up before pressing the keys.
Speaker #1: If at any time your question has been addressed and you would like to withdraw your question, please press star, then from Mike Halloran from Baird.
Speaker #1: Please go ahead.
Speaker #2: Hey, good morning,
Michael Halloran: Hey. Good morning, everyone.
Louis Pinkham: Morning.
Speaker #4: Good morning, Mike.
Robert Rehard: Morning, Mike.
Speaker #2: Hey, so can we start on the data everyone.
Michael Halloran: Hey. So can we start on the data center side of thing and the ePOD wins? Maybe frame it up in a couple of ways. One, how do you think about the margin profile of this type of business? Is it comparative to the segment level as well? And then secondarily, could you just walk through what that opportunity looks like and frame it from here?
Speaker #2: Maybe frame it up in a couple of ways. One, how do you think about the margin profile of this type of Morning. the segment level as well?
Speaker #2: And then through what that opportunity looks like and frame it from here? You're talking about north of a billion dollars secondarily, could you just walk last quarter.
Operator: You're talking about north of $1 billion last quarter. I mean, this is a $735 million transaction. Gets you pretty darn close to that. So what does this look like? What does this run rate look like from your perspective and how to think about the opportunity set after we just got such a great order number? Yeah, Mike. Thanks for the question. I'll start with the second question first. We're thrilled with the $735 million order, and we talked about a $400 million funnel in the last quarter call, and so clearly, we outperformed here. We want to build on that, and we believe we have the capability to do that, and hence, part of the reason why we started expanding capacity and announced our capacity expansion in the last quarterly call.
Michael Halloran: You're talking about north of $1 billion last quarter. I mean, this is a $735 million transaction. Gets you pretty darn close to that. So what does this look like? What does this run rate look like from your perspective and how to think about the opportunity set after we just got such a great order number?
Speaker #2: I mean, this is a in meaningful value creation for our transaction. It gets you pretty darn close to that. $735 million So what does this look like?
Speaker #2: What does this run rate look like from your perspective, and how should we think about the opportunity set after we just got such a great order number?
Robert Rehard: Yeah, Mike. Thanks for the question. I'll start with the second question first. We're thrilled with the $735 million order, and we talked about a $400 million funnel in the last quarter call, and so clearly, we outperformed here. We want to build on that, and we believe we have the capability to do that, and hence, part of the reason why we started expanding capacity and announced our capacity expansion in the last quarterly call.
Speaker #4: Yeah, Mike, thanks for the question. I'll start with the second question first. We're thrilled with the about a $400 million funnel in the last quarter call.
Speaker #4: And so clearly, we outperformed here. We want to build on that, and we believe we have the capability to do that. And hence, part of the reason why we started expanding capacity and announced last quarterly call.
Speaker #4: So we feel good about the offering here, and our future potential, and that it will grow from here. Now, specific to these projects, these orders, we would expect adjusted EBITDA margins to be in the top margins, and specifically in the 20% plus range.
Operator: So we feel good about the offering here and our future potential and that it will grow from here. Now, specific to margins and specific to these projects, these orders, we would expect Adjusted EBITDA margins to be in the 20%+ range. Our content is a little less than 50% of the bill of material, and we would expect our normal gross margins there. And then we are being compensated a fair margin for the product that's being sourced and then assembled and sold as the ePOD. So again, expect Adjusted EBITDA margin to be in the 20%+ range, but then expect also that in time, as we drive productivity and supply chain actions, that we would expect to ramp that program margins as well. Hopefully, that helps. Yep. Nope. It did, certainly.
Robert Rehard: So we feel good about the offering here and our future potential and that it will grow from here. Now, specific to margins and specific to these projects, these orders, we would expect Adjusted EBITDA margins to be in the 20%+ range. Our content is a little less than 50% of the bill of material, and we would expect our normal gross margins there. And then we are being compensated a fair margin for the product that's being sourced and then assembled and sold as the ePOD. So again, expect Adjusted EBITDA margin to be in the 20%+ range, but then expect also that in time, as we drive productivity and supply chain actions, that we would expect to ramp that program margins as well. Hopefully, that helps.
Speaker #4: Our content expect our normal gross margins there and then we are being compensated a fair margin for the product that's being the EPOD. So sourced and then assembled and sold as again, expect adjusted EBITDA margin to be in the 20% plus range but then expect also that in time, as we drive productivity and supply chain actions, that we would expect to ramp that program margins as well.
Speaker #4: helps.
Michael Halloran: Yep. Nope. It did, certainly.
Speaker #2: Certainly. Hopefully, that— And then if— Yep. Nope, it did. If you ignore the data center side of things and we think back to where we were in the third quarter, within the— think you’re seeing the right trend and trajectory to support a recovery?
Operator: If you ignore the data center side of things and we think back to where we were on Q3, within the industrial businesses as a whole, do you think you're seeing the right trend and trajectory to support a recovery? I know Rob's commentary said PMI 1 month doesn't make a trend, and it's not embedded in guidance necessarily, any sort of improvement from here. But I'm curious if you're seeing the right signs and what you would point to in your business to support that. It's mixed, honestly, Mike. We ended last quarter, and OEM started accelerating. Distribution slowed down. We didn't see much change of that in January, although we feel good about our order positions of January and our ability to make our guide for the year, but we didn't see a change of that.
Michael Halloran: If you ignore the data center side of things and we think back to where we were on Q3, within the industrial businesses as a whole, do you think you're seeing the right trend and trajectory to support a recovery? I know Rob's commentary said PMI 1 month doesn't make a trend, and it's not embedded in guidance necessarily, any sort of improvement from here. But I'm curious if you're seeing the right signs and what you would point to in your business to support that.
Speaker #2: I know Rob's commentary said one month of PMI data doesn't make a trend. But I'm curious if you're seeing the right guidance indicating any sort of improvement from signs, and what you would point to in your business to support that.
Speaker #2: that. No, it's mixed.
Louis Pinkham: It's mixed, honestly, Mike. We ended last quarter, and OEM started accelerating. Distribution slowed down. We didn't see much change of that in January, although we feel good about our order positions of January and our ability to make our guide for the year, but we didn't see a change of that.
Speaker #4: Honestly, Mike, we ended last quarter and
Speaker #4: That in January, although we feel good about our order positions for January, and our ability to make our guide for the year, we didn't see a change in that.
Speaker #4: We are optimistic about the trend. of January. strength of the ISM coming out
Operator: We are optimistic about the strength of the ISM coming out of January, but would like to see a couple more months of that strung together and then a little bit more strength in the distribution channel as well before we say we think we're on a path to strong recovery. But based on our measured approach to our guide, we feel really good. Great. Really appreciate it, Louis. Thanks. Thanks, Mike. The next question comes from Julian Mitchell from Barclays. Please go ahead. Thanks very much. Good morning. Good morning. You've given very good color on the top line, so thank you for that. Maybe my first question would be around the margin outlook because I guess the margins were sort of flatter down in AMC and IPS in the Q4. Looks like the Q1 is similar year-on-year decline with the solid revenue.
Louis Pinkham: We are optimistic about the strength of the ISM coming out of January, but would like to see a couple more months of that strung together and then a little bit more strength in the distribution channel as well before we say we think we're on a path to strong recovery. But based on our measured approach to our guide, we feel really good.
Speaker #4: in the distribution channel as And it's not embedded in well before we say we think we're on a path to strong recovery. But based on our measured approach to our guide, we feel really couple more months of that strung together
Michael Halloran: Great. Really appreciate it, Louis. Thanks.
Operator: The next question comes from Julian Mitchell from Barclays. Please go ahead.
Speaker #1: The next question comes
Speaker #1: from Julian Michael. I'm sorry, Mitchell from Barclays. Please go
Julian Mitchell: Thanks very much. Good morning.
Speaker #5: Thanks very much. Good morning.
Speaker #4: Good
Louis Pinkham: Good morning.
Julian Mitchell: You've given very good color on the top line, so thank you for that. Maybe my first question would be around the margin outlook because I guess the margins were sort of flatter down in AMC and IPS in the Q4. Looks like the Q1 is similar year-on-year decline with the solid revenue.
Speaker #5: Maybe my question you've given very
Speaker #5: good color on the top line, so thank you morning. for that. Maybe my first question would be around the margin outlook. Because I guess the margins are sort of down or flat to down in AMC and IPS in the fourth quarter.
Speaker #5: It looks like the first quarter is similar year-on-year decline with the solid revenue. Just trying to understand within IPS and improvement trajectory through the year and kind of tied to that, what are you expecting or assuming on cost just given what's been happening with prices and so forth.
Speaker #5: It looks like the first quarter is similar year-on-year decline with the solid revenue. Just trying to understand within IPS and improvement trajectory through the year and kind of tied to that, what are you expecting or assuming on cost just given what's been happening with prices and so metals prices?
Operator: Just trying to understand within IPS and AMC how we should think about the margin improvement trajectory through the year. And kind of tied to that, what are you expecting or assuming on price cost, just given what's been happening with metals prices, chip prices, and so forth? Just trying to understand what kind of operating leverage step-up we might get later in the year. That would be helpful, please. Yeah, Julian. Thanks for the question. Let me start with a little bit. I think AMC is more of the story here than IPS, in that IPS, we still see some strong margin moving forward and feel really good about where we're going there. I think AMC is one. Let me spend a minute here. Q4, product and channel mix certainly were the main factors.
Julian Mitchell: Just trying to understand within IPS and AMC how we should think about the margin improvement trajectory through the year. And kind of tied to that, what are you expecting or assuming on price cost, just given what's been happening with metals prices, chip prices, and so forth? Just trying to understand what kind of operating leverage step-up we might get later in the year. That would be helpful, please.
Speaker #5: Just trying to understand what kind of operating leverage step up we might price get later in the So chip year. That would be helpful,
Speaker #5: please. Yeah,
Robert Rehard: Yeah, Julian. Thanks for the question. Let me start with a little bit. I think AMC is more of the story here than IPS, in that IPS, we still see some strong margin moving forward and feel really good about where we're going there. I think AMC is one. Let me spend a minute here. Q4, product and channel mix certainly were the main factors.
Speaker #4: Julian. Thanks for the question. Let me start with a little bit. I think AMC
Operator: For example, we saw some slowdown in distributor sales into the year-end as customers, we saw them as managing their balance sheet. So that certainly played in. And we're seeing just stronger project growth. So for example, food and beverage, especially in Europe within our conveying division, is one where we're continuing to see more volume that has a little bit lower margin profile. The bottom line is that until we lap the mix impact from the medical and discrete automation side of the business, which is largely tied to rare-earth magnet availability, we're going to continue to see a bit of pressure on our AMC margins. Now, as you go into Q1 2026 and move into the back half, the first half of the year, and especially in the first quarter, we do expect to see continued pressure related to rare-earth magnets, especially in AMC.
Robert Rehard: For example, we saw some slowdown in distributor sales into the year-end as customers, we saw them as managing their balance sheet. So that certainly played in. And we're seeing just stronger project growth. So for example, food and beverage, especially in Europe within our conveying division, is one where we're continuing to see more volume that has a little bit lower margin profile. The bottom line is that until we lap the mix impact from the medical and discrete automation side of the business, which is largely tied to rare-earth magnet availability, we're going to continue to see a bit of pressure on our AMC margins. Now, as you go into Q1 2026 and move into the back half, the first half of the year, and especially in the first quarter, we do expect to see continued pressure related to rare-earth magnets, especially in AMC.
Speaker #4: in. And we're seeing just stronger project growth. So for example, food and beverage, especially in AMC, how we should think about the margin Europe, within our conveying division is one where we're continuing to see more volume that has a little bit lower margin profile.
Speaker #4: The bottom line is until we lap the mix impact from the medical business, which is largely tied to rare earth magnet availability, we're going to continue to see a bit of pressure on our AMC go into the first quarter of '26 and move to the back and margins.
Speaker #4: through into the back half, the first and discrete automation side of the first quarter, we do expect to see continued pressure related to rare earth magnets especially in AMC.
Operator: And that is, again, going to impact our medical side in particular as well as some defense, and discrete automation. So that will continue. However, as we move to the back half of the year, we do see that improving. And overall for the year, we see that at the midpoint, AMC margins should improve by about 40 basis points. Again, we are not embedding any improvement in our mix at this time because we are using our current mix to project future margins. So we just haven't embedded anything new. There is opportunity for that to improve. But at the same time, this is a business that we are going to continue to look to grow, and therefore, we do see that it could take a little bit longer to get back up to that range that we provided at investor day.
Robert Rehard: And that is, again, going to impact our medical side in particular as well as some defense, and discrete automation. So that will continue. However, as we move to the back half of the year, we do see that improving. And overall for the year, we see that at the midpoint, AMC margins should improve by about 40 basis points. Again, we are not embedding any improvement in our mix at this time because we are using our current mix to project future margins. So we just haven't embedded anything new. There is opportunity for that to improve. But at the same time, this is a business that we are going to continue to look to grow, and therefore, we do see that it could take a little bit longer to get back up to that range that we provided at investor day.
Speaker #4: that is, again, going half of the year and especially in the to impact our medical side in particular as well And as some defense and discrete Now, as you automation.
Speaker #4: So that will continue. However, as we move to the see that improving. And overall for the year, we see that at the midpoint, AMC margins should improve by about 40 basis points.
Speaker #4: Again, we are not embedding any improvement in our mix at this time because we are using our current mix to project future margins.
Speaker #4: So we just haven't embedded anything new. There is opportunity for that to improve. But at the same time, this is a business that we are going grow and therefore we do see to continue to look to that could take a little bit longer to get back up to that range that we provided at investor day.
Operator: There are really a few key things that need to happen in order to hit that number, which is about 24% or so. Number 1, we need some more volume. Number 2, we need the mix, especially in medical and defense and distribution, to get back on track, which I just talked about. Rare-earth magnets are about 50 basis points a headwind through 2025. That's expected to go away mid-year. Great. That should help us out. And then tariff margin becomes, tariffs become margin neutral by the end of the year. That's really what needs to happen in order to get back to that 24% range. Now, from a tariff impact and you asked a little bit about price cost, our assumption right now remains: mid-year, we will be price-cost dollar neutral; end of year until we get to margin neutral. That's very helpful. Thank you, Rob.
Robert Rehard: There are really a few key things that need to happen in order to hit that number, which is about 24% or so. Number 1, we need some more volume. Number 2, we need the mix, especially in medical and defense and distribution, to get back on track, which I just talked about. Rare-earth magnets are about 50 basis points a headwind through 2025. That's expected to go away mid-year. Great. That should help us out. And then tariff margin becomes, tariffs become margin neutral by the end of the year. That's really what needs to happen in order to get back to that 24% range. Now, from a tariff impact and you asked a little bit about price cost, our assumption right now remains: mid-year, we will be price-cost dollar neutral; end of year until we get to margin neutral.
Speaker #4: There are really a few key things that need to happen in order to hit that number. Which is about 24% or so. Number one, we need some more volume.
Speaker #4: Number two, we need the mix, especially in medical and defense and distribution to get back on track, magnets are about 50 basis points ahead win through '25.
Speaker #4: We need that. That's expected to go away That should help us out. And then tariff margin becomes tariffs become margin neutral by the end of the year.
Speaker #4: That's really what needs to happen in order to get back to that 24% range. Now, from a tariff impact and you asked a little bit about price cost, our assumption right now remains mid-year we will be price cost year until we get to margin
Speaker #4: neutral. That's very
Julian Mitchell: That's very helpful. Thank you, Rob.
Speaker #5: helpful. Thank you, Robin. And then just my follow-up. You of growth and fully mentioned sort of costs understand that approach. And you've laid it out very clearly on the P&L margins.
Operator: And then just my follow-up. You mentioned sort of costs of growth and fully understand that approach, and you laid it out very clearly on the P&L margins, maybe on the free cash flow side. I think you'd alluded a couple of times late last year to a $900 million-ish free cash number for this year. I think the formal guide is $650 million. So just trying to understand the delta there because it looks like the revenue and EBITDA outlooks are pretty similar, maybe, to what you'd thought a couple of months ago. So just maybe flesh out that delta in the free cash flow assumption today versus maybe what you were thinking a couple of months ago. Yeah. I think it's a great question, and let me draw it out for you. It really comes down to two main things.
Julian Mitchell: And then just my follow-up. You mentioned sort of costs of growth and fully understand that approach, and you laid it out very clearly on the P&L margins, maybe on the free cash flow side. I think you'd alluded a couple of times late last year to a $900 million-ish free cash number for this year. I think the formal guide is $650 million. So just trying to understand the delta there because it looks like the revenue and EBITDA outlooks are pretty similar, maybe, to what you'd thought a couple of months ago. So just maybe flesh out that delta in the free cash flow assumption today versus maybe what you were thinking a couple of months ago.
Speaker #5: Maybe on the you'd alluded a couple of times late free cash flow side, I think free cash number for this year. I last year to a 900 million-ish think the formal guide is delta there because it looks like the revenue and EBITDA outlooks are pretty similar maybe to what you'd thought a couple of months ago.
Speaker #5: Flesh out that delta in the free cash flow assumption today versus maybe what you were thinking a couple of months ago.
Robert Rehard: Yeah. I think it's a great question, and let me draw it out for you. It really comes down to two main things.
Speaker #4: Yeah. I think it's a great So just trying to question. And let me draw it out for you. It really comes down to two main things.
Operator: One is the investment that we're making that you just talked about, especially for this data center business. We expect about $50 to 100 million of investment there as we move through the year. That's embedded in our current cash flow projection. The other is we really at the time we set the forecast or the close to $900 million expectation, quite a bit has changed in terms of the current supply chain landscape, primarily due to tariffs, rare earths, and all the uncertainties that we're dealing with on a daily basis. We are taking a more measured approach to setting guidance for 2026, and therefore, we have created really a guide that we think we can absolutely hit without a lot of additional working capital benefit. So we reduced our working capital impact that was in the prior forecast by roughly half.
Robert Rehard: One is the investment that we're making that you just talked about, especially for this data center business. We expect about $50 to 100 million of investment there as we move through the year. That's embedded in our current cash flow projection. The other is we really at the time we set the forecast or the close to $900 million expectation, quite a bit has changed in terms of the current supply chain landscape, primarily due to tariffs, rare earths, and all the uncertainties that we're dealing with on a daily basis. We are taking a more measured approach to setting guidance for 2026, and therefore, we have created really a guide that we think we can absolutely hit without a lot of additional working capital benefit. So we reduced our working capital impact that was in the prior forecast by roughly half.
Speaker #4: One is the investment that we're making that you just talked about in especially for this data center business. We expect about 50 to 100 million dollars of investment there, as we move through the year.
Speaker #4: projection. The other is we really at the time we set that the forecast or the close to 900 million dollars expectation, quite a bit That's embedded has changed in terms of supply chain landscape primarily due to the current tariffs and rare earths and all the things the uncertainties that we're dealing with on a daily basis.
Speaker #4: We are taking a more measured approach to setting guidance for 2026, and therefore we have created, really, a guide that we think we can absolutely hit without a lot of additional working capital benefit.
Speaker #4: So we reduced our working was in the prior capital impact that forecast by roughly half, and that's the other side of what took down the guide from the prior 650 million.
Operator: And that's the other side of what took down the guide from the prior $900 million to the $650 million. Again, it would be closer to $750 million or so if it wasn't for the working capital investment we're making for data centers. So hopefully, that helps. It really is just those two things, and it's all around working capital. That's great color. Thank you. The next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead. Yeah. Hi. Good morning. Good morning, Jeff. Hey. So just back on this ePOD, it looks like you're going to ship all of the $7, $35, and $27. Is that correct? And then just on slide 7, maybe just level set us on individually or collectively how you think what your percentage of mix of businesses is kind of in the secular growth bucket. Yeah.
Robert Rehard: And that's the other side of what took down the guide from the prior $900 million to the $650 million. Again, it would be closer to $750 million or so if it wasn't for the working capital investment we're making for data centers. So hopefully, that helps. It really is just those two things, and it's all around working capital.
Speaker #4: Again, it 900 million to the would be closer to data centers. So hopefully that helps. capital investment we're making for It really is just those two things and it's all around working
Speaker #4: capital. That's great
Julian Mitchell: That's great color. Thank you.
Speaker #5: color. Thank
Speaker #5: you.
Operator: The next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead.
Speaker #1: The next
Speaker #1: question comes from Jeff Hammond from QBA Capital Markets. Please go ahead.
Jeffrey Hammond: Yeah. Hi. Good morning.
Speaker #6: Yeah. Hi. Good
Speaker #6: morning. Good morning, Jeff. Hey. So just back on this EPOD, it looks like you're going to ship all of this 735 and 27. Is that on slide 7, correct?
Robert Rehard: Good morning, Jeff.
Jeffrey Hammond: Hey. So just back on this ePOD, it looks like you're going to ship all of the $7, $35, and $27. Is that correct? And then just on slide 7, maybe just level set us on individually or collectively how you think what your percentage of mix of businesses is kind of in the secular growth bucket.
Speaker #6: maybe just level set us And then just on individually or collectively your percentage of mix of how you think what businesses is kind of in the secular growth bucket.
Louis Pinkham: Yeah.
Speaker #6: Yeah. So Jeff, we do not have a firm schedule at this time. The shipping and beginning of 2027. expectation is that we would start into '28.
Operator: So Jeff, we do not have a firm schedule at this time. The expectation is that we would start shipping in the beginning of 2027. It will probably hang over a little bit into 2028. There's also a possibility it could pull a little bit into 2026 as well. So as we get a more firm path, we would expect those orders would ship over a 15- to 18-month period in total. Specific to slide 7, we've talked about 40% to 50% of the markets that we serve are secular markets. Now, with this data center opportunity and our acceleration of growth, that's just expanding. And so this is why we're putting so much investment in these specific markets, with new product and solutions and commercial initiatives. And we feel that this is going to help accelerate our growth for the future. Okay. Great.
Louis Pinkham: So Jeff, we do not have a firm schedule at this time. The expectation is that we would start shipping in the beginning of 2027. It will probably hang over a little bit into 2028. There's also a possibility it could pull a little bit into 2026 as well. So as we get a more firm path, we would expect those orders would ship over a 15- to 18-month period in total. Specific to slide 7, we've talked about 40% to 50% of the markets that we serve are secular markets. Now, with this data center opportunity and our acceleration of growth, that's just expanding. And so this is why we're putting so much investment in these specific markets, with new product and solutions and commercial initiatives. And we feel that this is going to help accelerate our growth for the future.
Speaker #6: Possibility it could pull a little bit into '26 as well. So as we get more firm, it will probably hang over a little bit. Path, we would expect that those orders would ship over a 15 to 18 month period in total.
Speaker #6: Specific to slides 7, we've talked about 40 to 50 percent of the markets that we serve are secular markets. Now with this acceleration of growth, that's just expanding.
Speaker #6: And data center opportunity and ours, so this is why we're putting so much investment in these specific markets. It's with new product and solutions and commercial initiatives, and we feel that this is great.
Speaker #6: Future. Okay. And it is going to help accelerate our growth for then. Just on this rare earth dynamic, it sounds like—I just want to understand how buttoned up it is in terms of coming to a resolution.
Jeffrey Hammond: Okay. Great.
Operator: Then just on this rare-earth dynamic, it sounds like I just want to understand how buttoned up it is in terms of kind of coming to resolution. I know it's a headwind, maybe Q1 into Q2, but maybe just talk through resolution and then ultimately how much you can get back from the headwind you had in 2025. Yeah. Really, everything is proceeding as we talked about coming out of our Q3 call, Jeff. We remain on track to mitigate the majority of the exposure by end of 2026 with a combination of alternate sourcing, so sourcing outside of China, shift to HRE-free alternatives that don't require China approval for export as well as permissible exports. So that would be magnets that we can ship as well as subassemblies that we can ship out of China. Right now, we're absolutely, from a supply chain perspective, on path.
Jeffrey Hammond: Then just on this rare-earth dynamic, it sounds like I just want to understand how buttoned up it is in terms of kind of coming to resolution. I know it's a headwind, maybe Q1 into Q2, but maybe just talk through resolution and then ultimately how much you can get back from the headwind you had in 2025.
Speaker #6: I know it's a headwind—maybe one quarter into two quarters—but maybe just talk through resolution, and then ultimately how much you can get back from the headwind you had in.
Speaker #6: '25.
Louis Pinkham: Yeah. Really, everything is proceeding as we talked about coming out of our Q3 call, Jeff. We remain on track to mitigate the majority of the exposure by end of 2026 with a combination of alternate sourcing, so sourcing outside of China, shift to HRE-free alternatives that don't require China approval for export as well as permissible exports. So that would be magnets that we can ship as well as subassemblies that we can ship out of China. Right now, we're absolutely, from a supply chain perspective, on path.
Speaker #7: Yeah. Really, everything is proceeding
Speaker #7: as we talked about coming out of our third quarter call, Jeff. We remain on of the exposure by end of '26 with a combination of alternate sourcing.
Speaker #7: So China shipped to HRE free sourcing outside of alternatives. That don't require China track to mitigate the majority well as permissible exports. So that would be magnets that we can ship as well as subassemblies that we can ship out of China.
Speaker #7: Right now, we're absolutely from a supply chain perspective on path. The what we're working the defense areas, you can imagine the anytime you make any kind of change in the components of the bill of material, you have to go through a validation process.
Operator: What we're working with, though, and it's especially in the defense area, as you can imagine, anytime you make any kind of change in the components of the bill of material, you have to go through a validation process. And so we're working with a number of our OEM partners to get through that testing. And I would say it's going pretty much as expected, a little faster in some customers, a little bit slower in others. So that's what we're working through. I feel the teams are all over it. They're managing it well. And we should be well, we are improving as we, every quarter, getting more product, supply, and the ability to ship more. We do not feel that we have lost any material levels of share here. If anything, we feel like our supply chain has been very solid.
Louis Pinkham: What we're working with, though, and it's especially in the defense area, as you can imagine, anytime you make any kind of change in the components of the bill of material, you have to go through a validation process. And so we're working with a number of our OEM partners to get through that testing. And I would say it's going pretty much as expected, a little faster in some customers, a little bit slower in others. So that's what we're working through. I feel the teams are all over it. They're managing it well. And we should be well, we are improving as we, every quarter, getting more product, supply, and the ability to ship more. We do not feel that we have lost any material levels of share here. If anything, we feel like our supply chain has been very solid.
Speaker #7: And with, though, and it's especially in so we're working with a number of our OEM partners to get through that testing. And I would say it's going pretty much as expected.
Speaker #7: A little faster in some customers, a little bit slower in others. So that's what we're working through. I feel the teams are all over it.
Speaker #7: They're managing it well, and we should be—well, we are improving as we, every quarter, are getting more product and supply, and the ability to ship more.
Speaker #7: We do not feel that we have lost any material levels of share here. If anything, we feel like our supply chain has been very solid.
Operator: But again, you got to think about the markets that we're applying these products to, the medical market and defense markets in particular, where the validation process for our products are pretty onerous. And so once you're embedded in the platform, you stay on the platform. And so the teams are doing a nice job, and we feel like most of this will recover by the end of the year for sure. Okay. Thanks so much, Louis. Yeah. Thanks, Jeff. The next question comes from Kyle Menges from Citigroup. Please go ahead. Hi. Good morning. This is Randy off for Kyle. Just starting with automation, I mean, the strength in orders, again, in this quarter was good to see.
Louis Pinkham: But again, you got to think about the markets that we're applying these products to, the medical market and defense markets in particular, where the validation process for our products are pretty onerous. And so once you're embedded in the platform, you stay on the platform. And so the teams are doing a nice job, and we feel like most of this will recover by the end of the year for sure.
Speaker #7: But again, you got to think about the markets that we're applying these products to. The medical market and defense markets in particular, where the validation product process for pretty onerous.
Speaker #7: And so once you're embedded in the platform, you stay on the platform. And the teams are doing a nice job, and we feel like most of this will recover by the end of the year for sure.
Jeffrey Hammond: Okay. Thanks so much, Louis.
Speaker #6: Okay. Thanks so
Speaker #6: much, Lewis.
Louis Pinkham: Yeah. Thanks, Jeff.
Speaker #7: Yeah. Thanks,
Operator: The next question comes from Kyle Menges from Citigroup. Please go ahead.
Speaker #1: The Mendez Randy from Citigroup. Please go, Jeff. Next question comes from Kyle ahead.
Randy Binner: Hi. Good morning. This is Randy off for Kyle. Just starting with automation, I mean, the strength in orders, again, in this quarter was good to see.
Speaker #8: Kyle, just starting with hi. Automation—I mean, the strength in orders again in this—good morning. This is Randy. For the quarter, it was good to see.
Operator: I was just hoping you guys could give us some color on the underlying demand trends underpinning those orders and maybe by breaking out between some of your new products and the robotics opportunity between some of the more traditional automation markets and how to frame up their shippable backlog for 2026 in automation would be helpful. Yeah. So thanks for the question, Randy. Our orders were up roughly 9% in the quarter on automation. Our 12-month rolling is up about 6%. We talked about the Kollmorgen Essentials product launch in the quarter. We feel really good about that, gaining momentum and acceleration. But the reality is we only saw about $1 million of orders in the quarter from that, and so it wasn't a big part of the 9% up. We continue to gain traction with humanoid OEMs and selling our subassembled axis solutions.
Randy Binner: I was just hoping you guys could give us some color on the underlying demand trends underpinning those orders and maybe by breaking out between some of your new products and the robotics opportunity between some of the more traditional automation markets and how to frame up their shippable backlog for 2026 in automation would be helpful.
Speaker #8: I'm just hoping you guys could uld give us some color on the underlying demand trends underpinning those orders and maybe by forgetting between some of your new products and the robotics opportunity between some of the more traditional automation markets and how to frame up the shippable backlog for 2026 and automation would be helpful.
Louis Pinkham: Yeah. So thanks for the question, Randy. Our orders were up roughly 9% in the quarter on automation. Our 12-month rolling is up about 6%. We talked about the Kollmorgen Essentials product launch in the quarter. We feel really good about that, gaining momentum and acceleration. But the reality is we only saw about $1 million of orders in the quarter from that, and so it wasn't a big part of the 9% up. We continue to gain traction with humanoid OEMs and selling our subassembled axis solutions.
Speaker #7: question, Randy. Our orders were up roughly 9% in the quarter on automation. Our 12-month 6. We talked about the Cole Morgan Essentials product launch in the quarter.
Speaker #7: gaining momentum and acceleration, but the We feel really good about that million dollars of orders in the quarter from that. And so it wasn't a big part of up.
Speaker #7: the 9% We continue to gain reality is we only saw about a traction with humanoid OEMs and selling our subassembled axis solutions. And so from a perspective is double-digit growth in we expect to see it for the next few years as helps.
Operator: And so from a perspective of our expectation is double-digit growth in robotics. We've seen that for the last few years, and we expect to see it for the next few years as well. Hopefully, that helps. Yeah. Got it. That's super helpful. And then just shifting over to PES, I mean, it sounds like de-stocking was a little bit more than you expected in the fourth quarter. Just curious as to how that informs your outlook for Residential HVAC in particular in 2026, and what is your confidence level in some of that pressure starting to alleviate in the second half of the year? Yeah. So our outlook really doesn't change, even though we saw more pressure in fourth quarter than we thought. We're expecting Residential HVAC to be down high single digits for 2026.
Louis Pinkham: And so from a perspective of our expectation is double-digit growth in robotics. We've seen that for the last few years, and we expect to see it for the next few years as well. Hopefully, that helps.
Randy Binner: Yeah. Got it. That's super helpful. And then just shifting over to PES, I mean, it sounds like de-stocking was a little bit more than you expected in the fourth quarter. Just curious as to how that informs your outlook for Residential HVAC in particular in 2026, and what is your confidence level in some of that pressure starting to alleviate in the second half of the year?
Speaker #8: Yeah. it. Got That's super helpful. And then you're shifting over robotics.
Speaker #8: to PES. I mean, it sounds bit more than you expected in the fourth that informs your outlook for quarter. Just curious on it as to how Resy HVAC in particular in 2026 We've seen that for the last few years, and and what is your confidence level in some of that pressure starting to alleviate in the second half of the
Speaker #8: year? Yeah.
Robert Rehard: Yeah. So our outlook really doesn't change, even though we saw more pressure in fourth quarter than we thought. We're expecting Residential HVAC to be down high single digits for 2026.
Speaker #7: So our outlook really doesn't change. Even though we saw more pressure in fourth quarter than we thought, we're expecting Resy HVAC to be down high single digits for 2026.
Operator: The compare in Q1 is a tough compare for us, so the biggest part of that down is coming in first half with some rebounding in the second half. At some point, this business, when you think about the market, it was down significantly in 2025. And so when you ask me the question of your confidence in the second half, the confidence comes from the compare. It doesn't come from our ability to forecast this market effectively. And so hopefully, that's a helpful perspective. Got it. Thank you, guys. Thank you. Thank you. The next question comes from Tomo Sano from J.P. Morgan. Please go ahead. Hello, everyone. Good morning, Tomo. Morning. Regarding robotics actuators and $200 million+ pipeline, could you share the latest developments and your expectations for orders in 2026 and 2027, please? Yeah. No. We're really excited about our pipeline.
Robert Rehard: The compare in Q1 is a tough compare for us, so the biggest part of that down is coming in first half with some rebounding in the second half. At some point, this business, when you think about the market, it was down significantly in 2025. And so when you ask me the question of your confidence in the second half, the confidence comes from the compare. It doesn't come from our ability to forecast this market effectively. And so hopefully, that's a helpful perspective.
Speaker #7: The compare in so the biggest part of that down is coming in first half. With some rebounding in the second point, this business, it's half, at some when you think about the market, it was
Speaker #1: Down significantly when you ask me, of course, your confidence in the second half. Confidence comes from the compare. It comes from our ability to forecast the second half.
Speaker #1: The confidence comes compare . to confidence in It doesn't come from forecast this market hopefully And from that's helpful effectively . . .
Randy Binner: Got it. Thank you, guys.
Louis Pinkham: Thank you.
Robert Rehard: Thank you.
Operator: The next question comes from Tomo Sano from J.P. Morgan. Please go ahead.
Speaker #1: Perspective Got it .
Tomohiko Sano: Hello, everyone. Good morning, Tomo. Morning. Regarding robotics actuators and $200 million+ pipeline, could you share the latest developments and your expectations for orders in 2026 and 2027, please?
Speaker #2: Thank guys .
Speaker #3: Thank you Thank you .
Speaker #4: question
Speaker #4: Please go ahead .
Speaker #5: Hello everyone .
Speaker #1: Thomas Good morning . .
Speaker #5: Morning . Regarding robotics , actuations and 200 million plus share the you expectations latest developments pipeline . Could in orders for and 2027 ?
Louis Pinkham: Yeah. No. We're really excited about our pipeline.
Operator: We're excited about the new products we're launching, Tomo. And we talked about the Kollmorgen Essentials that moves us into a much larger TAM market. But right now, we're not suggesting anything different than what we've said in the past, which is low double-digit growth. There's also lots of potential in humanoids, and that's gaining traction. But it's a little early for us to say it's going to accelerate. And so although we were really pleased with the order rates we saw in 2025, we feel we're nicely and well-positioned with a number of OEMs in North America. But we're not going to provide any further guidance than low double digits for our automation business right now. Thank you, Louis. That's a helpful one. Just follow up on your net leverage target for 2026, and how are you thinking about the capital allocation priorities, please? Yeah.
Louis Pinkham: We're excited about the new products we're launching, Tomo. And we talked about the Kollmorgen Essentials that moves us into a much larger TAM market. But right now, we're not suggesting anything different than what we've said in the past, which is low double-digit growth. There's also lots of potential in humanoids, and that's gaining traction. But it's a little early for us to say it's going to accelerate. And so although we were really pleased with the order rates we saw in 2025, we feel we're nicely and well-positioned with a number of OEMs in North America. But we're not going to provide any further guidance than low double digits for our automation business right now.
Speaker #5: ?
Speaker #1: No , we're the
Speaker #1: launching . Tomo and we Kollmorgen essentials moves us into a much larger Tam market . But right , we're not the comes from what we've suggesting pipeline .
Speaker #1: which low double digit growth is . There's also lots in potential humanoids , and that's than it's it's a little early for going to accelerate .
Speaker #1: say it's we were And pleased with the order rates , we . But in 2025 . feel We and well positioned with a we're of OEMs in North number America we're we're not going to provide further any low than digits automation business right .
Tomohiko Sano: Thank you, Louis. That's a helpful one. Just follow up on your net leverage target for 2026, and how are you thinking about the capital allocation priorities, please?
Speaker #5: Thank you . Luis . That's a
Robert Rehard: Yeah.
Speaker #5: on your net target leverage for now 2026 and how helpful and are you thinking about the capital
Operator: Tomo, the net leverage target for 2026, as the guidance would suggest, is about 2.7 times by the end of the year. It means that by mid-part of the year, we should be right around 3 times. And then we're starting the year about 3.1 coming out of last year. From a capital allocation standpoint, we would certainly continue to prioritize debt paydown as we move through the year. Of course, we have other capital priorities as well as we've talked about earlier today in some of those investments that we're making in inventory and the like. So we expect to continue to do that and invest in great CapEx projects with very quick paybacks. But overall, that's the way we're thinking about it, and we'll continue down that path until we get to kind of a communicated range that we talked about.
Robert Rehard: Tomo, the net leverage target for 2026, as the guidance would suggest, is about 2.7 times by the end of the year. It means that by mid-part of the year, we should be right around 3 times. And then we're starting the year about 3.1 coming out of last year. From a capital allocation standpoint, we would certainly continue to prioritize debt paydown as we move through the year. Of course, we have other capital priorities as well as we've talked about earlier today in some of those investments that we're making in inventory and the like. So we expect to continue to do that and invest in great CapEx projects with very quick paybacks. But overall, that's the way we're thinking about it, and we'll continue down that path until we get to kind of a communicated range that we talked about.
Speaker #5: .
Speaker #3: Yeah the , the net target for 2026 , as the guidance would suggest , is about by the end of the means that by year .
Speaker #3: year , we part of the should be 2.7 times right around three times , and then we're starting the year about , 3.1 , last mid you know , It a capital year from allocation certainly continue to prioritize we would paydown debt as we move through year .
Speaker #3: Of the have we capital other priorities as we've earlier today standpoint , so although of those investments that we're in inventory making well . and like .
Speaker #3: Of the have we capital other priorities as we've earlier today standpoint , so although of those investments that we're in inventory making well .
Speaker #3: We continue to expect to do so, and great CapEx, with very quick invest in overall. That's the projects, but thinking it.
Operator: Our target is less than 2.5x until we start doing something that might include some other options on capital allocation. Thank you, Rob. Appreciate it. You got it. Thanks, Tomo. The next question comes from Nigel Coe from Wolfe Research. Please go ahead. Thanks. Good morning. Hope everyone's well. Good morning, guys. Capital allocation. Thanks for the details. So going back to the ePOD, I just want to just tie that one up. So I think you said 20% EBITDA margin sort of is what you expect. I'm guessing gross margin would be sort of close to the 30% there. But is that sort of what you expect to realize on an average basis or where you expect to be on a kind of as you ramp up and go to the learning curve?
Robert Rehard: Our target is less than 2.5x until we start doing something that might include some other options on capital allocation.
Speaker #3: continue path down that until we get to communicated kind of a about talked about . Our is target less than two and a half we start doing something until include some other options on capital
Tomohiko Sano: Thank you, Rob. Appreciate it.
Robert Rehard: You got it. Thanks, Tomo.
Operator: The next question comes from Nigel Coe from Wolfe Research. Please go ahead.
Speaker #5: appreciate Rob , .
Nigel Coe: Thanks. Good morning. Hope everyone's well.
Speaker #5: it next
Speaker #3: You got
Speaker #3: You got Thanks , Tim
Speaker #1: .
Speaker #4: The question comes from Nigel Coe go Research .
Robert Rehard: Good morning, guys.
Nigel Coe: Capital allocation. Thanks for the details. So going back to the ePOD, I just want to just tie that one up. So I think you said 20% EBITDA margin sort of is what you expect. I'm guessing gross margin would be sort of close to the 30% there. But is that sort of what you expect to realize on an average basis or where you expect to be on a kind of as you ramp up and go to the learning curve?
Speaker #4: .
Speaker #4: . from Thanks .
Speaker #4: . from
Speaker #6: . Hope well
Speaker #6: Kevin a lot of ground . go back want to iPad . to the I just . So just one up . So I said think you 20% EBITDA details like , you know margin what expect .
Speaker #6: I'm guessing gross tie that margin would . like Sort of
Speaker #6: be closer to 30% . There . But is that sort of Thank you . like what you that is to realize on an average where you expect to be on a ramp kind of to the learning curve ?
Operator: Because obviously, this is a fairly new business for you guys, so I wouldn't expect you to be at 20% on day one. Just maybe clarify that. And then secondly, do you have raw materials' inflation protection here? Because obviously, steel prices could move around pretty crazily between now and then. So just wondering what sort of protection you have on raws. Yeah. So actually, Nigel, we should start out at around 20 and then improve from there. But we don't see this as getting much beyond where our targets are for the AMC business. But our margin potential looks like it's going to start at around 20. Specific to hedging, we do hedge. Sorry, we hedge for copper and aluminum. You're right that steel would not be one that is on our program.
Louis Pinkham: Because obviously, this is a fairly new business for you guys, so I wouldn't expect you to be at 20% on day one. Just maybe clarify that. And then secondly, do you have raw materials' inflation protection here? Because obviously, steel prices could move around pretty crazily between now and then. So just wondering what sort of protection you have on raws. Yeah. So actually, Nigel, we should start out at around 20 and then improve from there. But we don't see this as getting much beyond where our targets are for the AMC business. But our margin potential looks like it's going to start at around 20. Specific to hedging, we do hedge. Sorry, we hedge for copper and aluminum. You're right that steel would not be one that is on our program.
Speaker #6: Because obviously fairly new business for you guys . So I wouldn't expect you to be a this is a on day one . Just , just maybe clarify that .
Speaker #6: And then secondly , do you have raw , you know , here ? Because basis or you know , protection prices inflation could move around pretty quickly between now and then .
Speaker #6: just So of protection you have raws on wondering what sort .
Speaker #1: Yeah . So actually , Nigel , out we should at around improve from 20 and then there . But see as , you know , getting this much targets beyond are for where the business .
Speaker #1: But our , our we potential margin at start looks like around specific to hedging , we do hedge . We hedge for steel .
Speaker #1: We hedge 20. Sorry. We hedge copper and aluminum. You're right, we do not hedge steel. That would be one that is not on our program.
Operator: But we feel good about how we planned ahead for this project, and we've embedded some risk around the supply chain and inflationary risk in the program. So right now, we feel good about the 20% margin starting point and then growing from there. Great. Thanks for listening. And Barclays, congratulations on the order. Fantastic news. And then maybe just to follow up on the CEO succession, obviously, it's now been several months in progress. So just wondering where you are on finding the person to fill those big shoes. Yeah. No. As I said in my prepared remarks, the search committee has been working hard at this, and they're making progress. We're down to a select few. And so our expectation is that we should be able to make an announcement in the near future. Okay. Great. Thank you. Thank you.
Louis Pinkham: But we feel good about how we planned ahead for this project, and we've embedded some risk around the supply chain and inflationary risk in the program. So right now, we feel good about the 20% margin starting point and then growing from there.
Speaker #1: you know we feel good how we plan about ahead for this project . embedded some we've risk around But the the supply chain and inflationary risk in the program .
Nigel Coe: Great. Thanks for listening. And Barclays, congratulations on the order. Fantastic news. And then maybe just to follow up on the CEO succession, obviously, it's now been several months in progress. So just wondering where you are on finding the person to fill those big shoes.
Speaker #1: So right now we feel good the 20% margin about then growing from there
Speaker #6: Lewis . And
Speaker #6: congratulations on the order . Fantastic news . And then maybe . just a follow up on Great . the the CEO You know , obviously it's now been succession .
Louis Pinkham: Yeah. No. As I said in my prepared remarks, the search committee has been working hard at this, and they're making progress. We're down to a select few. And so our expectation is that we should be able to make an announcement in the near future.
Speaker #6: a several months in progress . So wondering where you are on know , the person finding you those big just shoes .
Speaker #1: Yeah . No . as I said You know my prepared remarks , the search committee has been hard at this . And working they're making progress .
Speaker #1: We're down to a select few . And and so our expectation is that we should be able to make an in , you know , the the near future .
Nigel Coe: Okay. Great. Thank you. Thank you.
Operator: Next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Hey, guys. Good morning. Morning, Joe. Morning, Joe. So I'll focus my questions on the ePOD offering. So Louis, I'm curious too. I know you referenced multiple data center projects, but I'm curious, are you selling into multiple customers too, or is this one single customer? And who are your customers? Are you selling directly into just the integrators or the collocators, hyperscalers? Just any color you can give to that would be great. Joe, thanks for the question. Consistent with our prior practices, though, here, we're not going to provide a lot of detail. And of course, we have confidentiality agreements in place as well, and so we wouldn't be able to provide specifics. But you answered the question correctly. We are selling into colo, hyperscaler.
Operator: Next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.
Speaker #6: Okay, great. Thank you.
Speaker #1: Thank you .
Joseph Ritchie: Hey, guys. Good morning.
Speaker #4: Next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.
Louis Pinkham: Morning, Joe.
Robert Rehard: Morning, Joe.
Joseph Ritchie: So I'll focus my questions on the ePOD offering. So Louis, I'm curious too. I know you referenced multiple data center projects, but I'm curious, are you selling into multiple customers too, or is this one single customer? And who are your customers? Are you selling directly into just the integrators or the collocators, hyperscalers? Just any color you can give to that would be great.
Speaker #7: Hey guys . Good morning .
Speaker #8: Good morning Joe .
Speaker #1: Morning Joe .
Speaker #7: So I'll focus questions on the iPad my offering . So so Lewis I'm curious you multiple referenced center projects , data curious . Are you selling into multiple customers too , or is this one single customer ?
Louis Pinkham: Joe, thanks for the question. Consistent with our prior practices, though, here, we're not going to provide a lot of detail. And of course, we have confidentiality agreements in place as well, and so we wouldn't be able to provide specifics. But you answered the question correctly. We are selling into colo, hyperscaler.
Speaker #7: And who are your customers? Are you directly selling into just them or integrators, the co-located hyperscalers? Just any color you can give to that would be great.
Speaker #1: thanks for the know , Joe , question . You know , consistent with our prior practices , though , here we're we're we're not going to provide lot of a detail .
Speaker #1: of course , we have And confidentiality agreements in place as well . And so we wouldn't be able to provide specifics . But you kind of you you answered the question correctly .
Operator: It is multiple customers and multiple data center projects in North America. Okay. Great. That's helpful. And then how do I think about the content per megawatt? So it's a big number, right, the $735 million. How many what content per megawatt are you actually providing with these ePODs? And then also, I'm just very curious, is this mostly for low voltage, medium voltage type switchgear and other power equipment that's going inside of it? Thank you. Yeah. Joe, it's a great question. And unfortunately, I'm not going to be able to answer the first part of the question. I don't have the specifics there. But as we've talked about in the past, Regal has low voltage and medium voltage switchgear, paralleling switchgear, low voltage power distribution units, and automatic transfer switches. Our part of the bill of material is around 40% to 50%.
Louis Pinkham: It is multiple customers and multiple data center projects in North America.
Speaker #1: are We selling into colo hyperscaler . It is multiple customers and multiple data center projects in in North America .
Joseph Ritchie: Okay. Great. That's helpful. And then how do I think about the content per megawatt? So it's a big number, right, the $735 million. How many what content per megawatt are you actually providing with these ePODs? And then also, I'm just very curious, is this mostly for low voltage, medium voltage type switchgear and other power equipment that's going inside of it? Thank you.
Speaker #7: Okay , great . That's helpful . And then how do I think about the content per megawatt . So it's a big number right .
Speaker #7: The $735 million . How many like what content per are you actually with providing these . With megawatt iPads these . And then and then also I'm just very curious , is this mostly for low voltage medium voltage type switchgear and other power equipment that's going inside of it ?
Louis Pinkham: Yeah. Joe, it's a great question. And unfortunately, I'm not going to be able to answer the first part of the question. I don't have the specifics there. But as we've talked about in the past, Regal has low voltage and medium voltage switchgear, paralleling switchgear, low voltage power distribution units, and automatic transfer switches. Our part of the bill of material is around 40% to 50%.
Speaker #7: Thank you .
Speaker #1: Yeah , Joe , it's a great question . And unfortunately I'm not going to be able to answer the first part of the question .
Speaker #1: I don't have the specifics there , but but you know , as we've talked about in the past . Regal has low voltage and medium voltage switchgear paralleling switchgear , low voltage power distribution units and automatic transfer switches .
Operator: The other part of the bill of material is going to be things like the container, UPSs. And so that's what makes up the project offering. I'll make sure that I'm better prepared next time, though, on the power question you asked. But hopefully, that gives you a little perspective. Yeah. No worries. Appreciate the color. Thanks, guys. Yeah. Thanks, Joe. The next question comes from Christopher Glynn from Oppenheimer. Please go ahead. Yeah. Thanks. Sticking with the ePODs still. So $735 million out of a $400 million pipeline a few months ago. Curious if you could provide any color on what that pipeline looks like now, and could we see another quarter of orders like this or even more than one over the next year? Yeah. Chris, I appreciate the question. And my answer right now is likely not.
Louis Pinkham: The other part of the bill of material is going to be things like the container, UPSs. And so that's what makes up the project offering. I'll make sure that I'm better prepared next time, though, on the power question you asked. But hopefully, that gives you a little perspective.
Speaker #1: Our part of the bill of material is around 40% to 50%. The other part of the bill of material is going to be things like the container, UPSs.
Speaker #1: And so that's what makes up the what project offering . I'll make sure that better I'm prepared next time though . On the , the the question power you asked , but hopefully that gives you a little perspective
Joseph Ritchie: Yeah. No worries. Appreciate the color. Thanks, guys.
Louis Pinkham: Yeah. Thanks, Joe.
Operator: The next question comes from Christopher Glynn from Oppenheimer. Please go ahead.
Speaker #1: .
Speaker #7: No Yeah . color . appreciate the Thanks guys worries . I .
Christopher Glynn: Yeah. Thanks. Sticking with the ePODs still. So $735 million out of a $400 million pipeline a few months ago. Curious if you could provide any color on what that pipeline looks like now, and could we see another quarter of orders like this or even more than one over the next year?
Speaker #8: Joe Yeah . Thanks , .
Speaker #4: The next question comes from Christopher Glynn from Oppenheimer. Please go ahead.
Speaker #9: Yeah . Thanks . Sticking with the buds still . So , you know , 735 million out of a $400 million pipeline a few months ago .
Speaker #9: Curious if you provide any color on what that pipeline looks like now . And , you know , could we see another quarter of orders like this or even more than one over the next year ?
Louis Pinkham: Yeah. Chris, I appreciate the question. And my answer right now is likely not.
Operator: The pipeline's about $600 million in size for all of our data center business. But when you think about capacity and the fact that we're pretty filled up through 2027, I don't expect large orders. But I say that. And our sales teams for this business are incentivized to grow this business beyond the projects that we've already won today. And so do expect that this is going to be an area of focus for Regal and that we will talk about data center opportunities for many quarters to come. Okay. And then I'm not sure if you gave the CapEx guide. I'd like to hear that. And also on the $200 million-plus robotic automation funnel, are you incumbent there? Is that funnel stuff you're already specified on? So I'll take the second part of your question and pass the first to Rob.
Louis Pinkham: The pipeline's about $600 million in size for all of our data center business. But when you think about capacity and the fact that we're pretty filled up through 2027, I don't expect large orders. But I say that. And our sales teams for this business are incentivized to grow this business beyond the projects that we've already won today. And so do expect that this is going to be an area of focus for Regal and that we will talk about data center opportunities for many quarters to come.
Speaker #1: Yeah , Chris , I appreciate the question . know , my And , you my answer right now is likely not . The pipeline is about $600 million in size for all of our data center business .
Speaker #1: And, but you know, when you think about capacity and the fact that, pretty much, we're filled up through '27, I don't expect large orders.
Speaker #1: But I say that, and our sales teams for this business are incentivized to grow this business beyond the projects that we've already won today.
Speaker #1: And so do expect that this is going to be an area of focus for Regal , and that we will talk about data center opportunities for many quarters to come .
Christopher Glynn: Okay. And then I'm not sure if you gave the CapEx guide. I'd like to hear that. And also on the $200 million-plus robotic automation funnel, are you incumbent there? Is that funnel stuff you're already specified on?
Speaker #9: Okay. And then, I'm not sure on the CapEx guide if you gave it—would like to hear that. And also, on the $200 million-plus robotic automation funnel, are you incumbent?
Louis Pinkham: So I'll take the second part of your question and pass the first to Rob.
Speaker #9: There ? Is that funnel stuff . You're already specified on .
Speaker #1: So I'll take the the second part of your question and pass the first to Rob . The $200 million funnel , the answer is yes .
Operator: The $200 million funnel, the answer is yes. We are on some of it. We're already specified on some of that funnel. And then others, we're working and building relationships. And I just saw a report recently from our team on humanoid as an example. There are 10 key OEMs that we're targeting in the US. Three of them, we are on their platforms, and we're selling subassemblies. Seven of them, we're still working on getting integrated. And so my answer on the $200 million, although maybe a little more detailed than you needed, was that it's a mix. Right.
Louis Pinkham: The $200 million funnel, the answer is yes. We are on some of it. We're already specified on some of that funnel. And then others, we're working and building relationships. And I just saw a report recently from our team on humanoid as an example. There are 10 key OEMs that we're targeting in the US. Three of them, we are on their platforms, and we're selling subassemblies. Seven of them, we're still working on getting integrated. And so my answer on the $200 million, although maybe a little more detailed than you needed, was that it's a mix. Right.
Speaker #1: We are on some of it . We already specified on some of that funnel . And then others . We're working in relationships .
Speaker #1: And , you know , we I just saw a report recently from from one of our our team on humanoid as an example .
Speaker #1: There are ten key OEMs that we're targeting in the US. Three of them, we are on their platforms and we're selling subassemblies. With the other seven, we're still working on getting integrated.
Speaker #1: And so my answer on the though , 200 million , maybe a little more detailed than than you needed , was that it's a mix great .
Operator: From a CapEx perspective, we're looking at about $120 million in CapEx in the year, primarily to support growth and then some of the scope for activities or supply chain realignments that are currently in the plan to achieve the $40 million of cost synergies that, as I stated earlier, are not embedded in our current guidance but gives us a degree of risk mitigation, if you will, as we approach the year. Okay. Then separately, thank you for that. And you said IPS backlog was up 6% year-over-year? Yes. That's correct. Coming into the year, IPS's backlog is up 6% as compared to the same period last year. Great. Thank you. Yep. Thanks, Chris. This concludes our question and answer session. I would like to turn the conference back over to Louis Pinkham for closing remarks. Thank you, operator.
Robert Rehard: From a CapEx perspective, we're looking at about $120 million in CapEx in the year, primarily to support growth and then some of the scope for activities or supply chain realignments that are currently in the plan to achieve the $40 million of cost synergies that, as I stated earlier, are not embedded in our current guidance but gives us a degree of risk mitigation, if you will, as we approach the year.
Speaker #3: And and from a CapEx perspective , we're looking at about $120 million in CapEx in the year , primarily to support growth and and then some of the scope for activities .
Speaker #3: There's as supply chain realignments that are currently in the plan to achieve the $40 million of cost synergies that , as I stated earlier , are not embedded in our current guidance , but gives us a degree of of risk mitigation , if you will , as approach we the year
Christopher Glynn: Okay. Then separately, thank you for that. And you said IPS backlog was up 6% year-over-year?
Speaker #9: And then
Robert Rehard: Yes. That's correct. Coming into the year, IPS's backlog is up 6% as compared to the same period last year.
Speaker #9: Thank you for . Okay . that . And you said IPPs backlog was up 6% year over year .
Christopher Glynn: Great. Thank you.
Speaker #8: Yes , that's correct .
Speaker #1: Coming into the year, IPP's backlog is up 6% as compared to the same period last year.
Robert Rehard: Yep. Thanks, Chris.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Louis Pinkham for closing remarks.
Speaker #9: Great . Thank you .
Speaker #8: Yeah . Thanks , Chris .
Louis Pinkham: Thank you, operator.
Speaker #4: This concludes our question and answer session . I would like to turn the conference back over to Louis for closing remarks .
Operator: And thanks to our investors and analysts for joining us today. My closing message today is simple. Our growth strategy is working, and we are gaining momentum. This is apparent in our improving organic sales growth and in our tremendous order and backlog growth. We see so much more opportunity ahead of us as we continue to execute our growth playbook across our secular markets with additional upside to the extent our end markets improve. Encouragingly, we are seeing early positive signs in a number of key markets. In short, I believe we are better positioned than ever before to create increasingly significant value for our stakeholders in 2026 and beyond. Thank you again for joining us today, and thank you for your interest in Regal Rexnord. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Louis Pinkham: And thanks to our investors and analysts for joining us today. My closing message today is simple. Our growth strategy is working, and we are gaining momentum. This is apparent in our improving organic sales growth and in our tremendous order and backlog growth. We see so much more opportunity ahead of us as we continue to execute our growth playbook across our secular markets with additional upside to the extent our end markets improve. Encouragingly, we are seeing early positive signs in a number of key markets. In short, I believe we are better positioned than ever before to create increasingly significant value for our stakeholders in 2026 and beyond. Thank you again for joining us today, and thank you for your interest in Regal Rexnord.
Speaker #1: Thank you . Operator . And thanks to our investors and analysts for joining us today . My message closing today is simple . growth strategy is Our working and we are gaining momentum .
Speaker #1: This is apparent in our improving organic sales growth and in our tremendous order and backlog growth. And we see so much more opportunity ahead of us as we continue to execute our growth playbook across our secular markets.
Speaker #1: With additional upside to the extent our end markets improve. Encouragingly, we are seeing early positive signs in a number of key markets.
Speaker #1: In short, I believe we are better positioned than ever before to create increasingly significant value for our stakeholders—in 2026 and beyond.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker #1: Thank you again for joining us today , and thank you for your interest in REGAL REXNORD CORP .