Regal Rexnord Corporation RRX

MILWAUKEE, Feb. 7, 2024 /PRNewswire/ -- Regal Rexnord Corporation (NYSE: RRX)

Fourth Quarter Highlights

• GAAP Diluted EPS Of $0.84 And Adjusted Diluted EPS* Of $2.28, Delivering On Prior Commitments
• Strong Adjusted Free Cash Flow* Of $170.9 Million
• Paid Down $116.7 Million Of Gross Debt; Net Debt Declined By $153.2 Million; Net Debt To Pro Forma Adjusted EBITDA (Including Synergies)* Is Now 3.80
• Sales Up 29.2% Versus PY, Down 6.9% On A Pro Forma Organic Basis*
• GAAP Net Income Decreased $46.1 Million Versus PY To $56.6 Million
• Adjusted EBITDA* Of $346.5 Million
• Adjusted EBITDA Margin* Of 21.5% Up 40 Basis Points Versus PY On A Pro Forma Basis* As Synergies And 80/20 More Than Offset End Market Volume Headwinds

Full Year 2023 Highlights 

• Nearly Doubled Adjusted Free Cash Flow Versus PY With A Record $683.1 Million, Above Guidance Expectations
• Achieved Targeted $65 Million Of Synergies; On Track To Achieve $90 Million In 2024
• GAAP Gross Margin Of 33.1% Up 110 Basis Points Versus 32.0% In 2022
• Adjusted Gross Margin* Of 34.5% Up 150 Basis Points Versus 33.0% In 2022 Given Strong Synergies And Continued 80/20 Execution
• Completed Transformational Acquisition Of Altra Industrial Motion Corp. ("Altra")
• Reached Agreement To Sell Industrial Motors & Generators Business, Representing The Majority Of Industrials Systems Segment, For $400 Million, Which Remains On Track To Close In 1H 2024

Full Year 2024 Guidance 

• Introducing Guidance For 2024 GAAP Diluted EPS In A Range Of $4.58 To $5.38 And For Adjusted Diluted EPS In A Range Of $9.75 To $10.55

CEO Louis Pinkham commented, "Our team delivered strong performance in the fourth quarter - in line with our prior commitments - despite persistent destocking and various end market headwinds, especially in our PES segment. Strong execution supported enterprise adjusted EBITDA of $347 million and adjusted EBITDA margin rising by 40 basis points on a pro forma, year-over-year basis, on lower sales. The enterprise also generated $171 million of adjusted free cash flow in the quarter, and $683 million for the year, which predominantly was used for debt paydown. We expect even stronger adjusted free cash flow in 2024, which combined with anticipated proceeds from the sale of our Industrial Motors and Generators businesses should enable over $900 million of debt paydown this year, which we expect to bring our net debt to adjusted EBITDA** ratio to roughly 3 times, and eliminate most borrowings under our term loan."

Mr. Pinkham continued, "The past year was also one of significant portfolio transformation. With the addition of Altra, plus the announced Industrial Motors & Generators sale set to close in first half 2024, we have taken actions that significantly re-balance our portfolio towards motion control and power transmission. This, along with our Power Efficiency Solutions business, is the portfolio we expect to grow with — providing tremendous value creation potential, given our strong cash generation characteristics, numerous competitive advantages, and healthy exposure to secular markets, among other attractive attributes."

Mr. Pinkham concluded, "As we look ahead to 2024, we are cautiously optimistic that the significant destocking headwinds, and other pockets of end market pressure we confronted in 2023 will abate, likely during the second half of this year. Regardless of how the end markets cycle, we remain focused on executing the sizable amount of self-help opportunities in front of us, including $90 million of expected M&A synergies, our healthy new product pipeline, and many ongoing 80/20 and lean initiatives. And so we expect 2024 to be a year of continued significant value creation, for our customers, our associates and our shareholders."

Guidance

The Company is introducing annual guidance for 2024 GAAP Diluted Earnings per Share in a range of $4.58 to $5.38 and for Adjusted Diluted Earnings per Share in a range of $9.75 to $10.55. The mid-point of the Company's 2024 Adjusted EPS guidance factors organic sales to be slightly down versus prior year, and for adjusted EBITDA margins to be approximately 22%.

Segment Performance

All prior periods identified in this release have been recast to reflect the new segment structure established at first quarter 2023 related to closing the Altra acquisition, and provide comparison to the comparable period.

Segment results versus the prior year are summarized below:

• Automation & Motion Control net sales were $420.7 million, an increase of 109.0% or a decrease of 3.0% on a pro forma organic basis*. Results reflect the Altra acquisition plus strength in the aerospace, data center and medical markets, net of weakness in global factory automation and food & beverage markets. Adjusted EBITDA margin was 24.8% of Adjusted Net Sales*. For the full year 2023, net sales were $1,516.8 million, an increase of 96.4% or an increase of 3.1% on a pro forma organic basis.
• Industrial Powertrain Solutions segment net sales were $649.7 million, an increase of 57.6% or a decrease of 1.5% on a pro forma organic basis. Results reflect the Altra acquisition, plus strength in aerospace and energy markets, net of weakness in the alternative energy and food & beverage markets. Adjusted EBITDA margin was 24.0% of adjusted net sales. For the full year 2023, net sales were $2,403.5 million, an increase of 44.2% or a decrease of 0.5% on a pro forma organic basis.
• Power Efficiency Solutions net sales were $418.0 million, a decrease of 15.6% or a decrease of 16.0% on an organic basis. The decline primarily reflects continued weakness in North America residential HVAC markets, particularly in heating products. Adjusted EBITDA margin was 18.1% of adjusted net sales. For the full year 2023, net sales were $1,808.9 million, a decrease of 18.8% or a decrease of 18.4% on an organic basis.
• Industrial Systems net sales were $119.8 million, a decrease of 11.7% or a decrease of 12.0% on an organic basis. Adjusted EBITDA margin was 9.1% of adjusted net sales. For the full year 2023, net sales were $521.5 million, a decrease of 5.5% or a decrease of 4.3% on an organic basis.

Conference Call

Regal Rexnord will hold a conference call to discuss this earnings release at 9:00 AM CT (10:00 AM ET) on Thursday, February 8, 2024. To listen to the live audio and view the presentation during the call, please visit Regal Rexnord's Investor website: https://investors.regalrexnord.com. To listen by phone or to ask the presenters a question, dial 1.877.264.6786 (U.S. callers) or +1.412.317.5177 (international callers) and enter 5732418# when prompted.

A webcast replay will be available at the link above, and a telephone replay will be available at 1.877.344.7529 (U.S. callers) or +1.412.317.0088 (international callers), using a replay access code of 8918729#. Both replays will be accessible for three months after the earnings call.

About Regal Rexnord

Regal Rexnord Corporation is a global leader in the engineering and manufacturing of factory automation sub-systems, industrial powertrain solutions, automation and mechanical power transmission components, electric motors and electronic controls, air moving products, and specialty electrical components and systems.

Through longstanding technology leadership and an intentional focus on producing more socially conscious and environmentally-friendly products and sub-systems, the Company is regularly addressing increasingly relevant secular demands of customers in the medical, alternative energy, aerospace, food & beverage, general industrial and warehouse/intralogistics end markets, among others. In short, Regal Rexnord's 36,000 associates around the world are proud to be working each day towards fulfilling the Company's purpose – helping create a better tomorrow – for its customers and for the planet.

Regal Rexnord is comprised of four operating segments: Automation & Motion Control, Industrial Powertrain Solutions, Power Efficiency Solutions, and Industrial Systems. Regal Rexnord is headquartered in Milwaukee, Wisconsin and has manufacturing, sales and service facilities worldwide. For more information, visit RegalRexnord.com.

Forward Looking Statements

This release contains forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which reflect Regal Rexnord's current estimates, expectations and projections about Regal Rexnord's future results, performance, prospects and opportunities. Such forward-looking statements may include, among other things, statements about the acquisition of Altra Industrial Motion Corp. ("Altra"), the benefits and synergies of the acquisition of Altra (the "Altra Transaction"), future opportunities for Regal Rexnord and any other statements regarding Regal Rexnord's future operations, anticipated economic activity, business levels, credit ratings, future earnings, planned activities, anticipated growth, market opportunities, strategies, competition and other expectations and estimates for future periods.  Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as "anticipate," "believe," "confident," "estimate," "expect," "intend," "plan," "may," "will," "project," "forecast," "would," "could," "should," and similar expressions. These forward-looking statements are based upon information currently available to Regal Rexnord and are subject to a number of risks, uncertainties, and other factors that could cause Regal Rexnord's performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause Regal Rexnord's actual results to differ materially from the results referred to in the forward-looking statements Regal Rexnord makes in this release include: Regal Rexnord's substantial indebtedness as a result of the Altra Transaction and the effects of such indebtedness on Regal Rexnord's financial flexibility after the Altra Transaction; Regal Rexnord's ability to achieve its objectives on reducing its indebtedness on the desired timeline; dependence on key suppliers and the potential effects of supply disruptions; fluctuations in commodity prices and raw material costs; any unforeseen changes to or the effects on liabilities, future capital expenditures, revenue, expenses, synergies, indebtedness, financial condition, losses and future prospects; the possibility that Regal Rexnord may be unable to achieve expected benefits, synergies and operating efficiencies in connection with the Altra Transaction, and the merger with the Rexnord Process & Motion Control business (the "Rexnord PMC business") within the expected time-frames or at all and to successfully integrate Altra and the Rexnord PMC business; expected or targeted future financial and operating performance and results; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) being greater than expected following the Altra Transaction or our merger with the Rexnord PMC business; Regal Rexnord's ability to retain key executives and employees; uncertainties regarding the ability to execute restructuring plans within expected costs and timing; challenges to the tax treatment that was elected with respect to the merger with the Rexnord PMC business and related transactions; actions taken by competitors and their ability to effectively compete in the increasingly competitive global electric motor, drives and controls, power generation and power transmission industries; the ability to develop new products based on technological innovation, such as the Internet of Things, and marketplace acceptance of new and existing products, including products related to technology not yet adopted or utilized in geographic locations in which Regal Rexnord does business; dependence on significant customers and distributors; cyclical and seasonal impact on sales of products into particular markets and industries; risks associated with climate change and uncertainty regarding our ability to deliver on our climate commitments and/or to meet related investor, customer and other third party expectations relating to our sustainability efforts; risks associated with global manufacturing, including risks associated with public health crises and political, societal or economic instability, including instability caused by ongoing geopolitical conflicts; issues and costs arising from the integration of acquired companies and businesses and the timing and impact of purchase accounting adjustments; prolonged declines in one or more markets, such as heating, ventilation, air conditioning, refrigeration, power generation, oil and gas, unit material handling, water heating and aerospace; economic changes in global markets, such as reduced demand for products, currency exchange rates, inflation rates, interest rates, recession, government policies, including policy changes affecting taxation, trade, tariffs, immigration, customs, border actions and the like, and other external factors that Regal Rexnord cannot control; product liability, asbestos and other litigation, or claims by end users, government agencies or others that products or customers' applications failed to perform as anticipated, particularly in high volume applications or where such failures are alleged to be the cause of property or casualty claims; unanticipated liabilities of acquired businesses; unanticipated adverse effects or liabilities from business exits or divestitures, including in connection with our proposed sale of the industrial motors and generators businesses that comprise a majority of our Industrial Systems operating segment (the "Proposed Sale"); the possibility that the conditions to the consummation of the Proposed Sale will not be satisfied on the terms or timeline expected, or at all; failure to obtain, or delays in obtaining, or adverse conditions related to obtaining regulatory approvals sought in connection with the Proposed Sale; Regal Rexnord's ability to identify and execute on future M&A opportunities, including significant M&A transactions; the impact of any such M&A transactions on Regal Rexnord's results, operations and financial condition, including the impact from costs to execute and finance any such transactions; unanticipated costs or expenses that may be incurred related to product warranty issues; infringement of intellectual property by third parties, challenges to intellectual property, and claims of infringement on third party technologies; effects on earnings of any significant impairment of goodwill; losses from failures, breaches, attacks or disclosures involving information technology infrastructure and data; costs and unanticipated liabilities arising from rapidly evolving data privacy laws and regulations; cyclical downturns affecting the global market for capital goods; and other risks and uncertainties including, but not limited, to those described in Regal Rexnord's Annual Report on Form 10-K on file with the Securities and Exchange Commission (the "SEC") and from time to time in other filed reports including Regal Rexnord's Quarterly Reports on Form 10-Q. For a more detailed description of the risk factors associated with Regal Rexnord, please refer to Part I, Item 1A - Risk Factors in Regal Rexnord's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 on file with the SEC and subsequent SEC filings. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this release are made only as of the date of this release and Regal Rexnord undertakes no obligation to update any forward-looking information contained in this release or with respect to the announcements described herein to reflect subsequent events or circumstances.

Non-GAAP Measures
(Unaudited)
(Dollars in Millions, Except per Share Data)

We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We also periodically disclose certain financial measures in our quarterly earnings releases, on investor conference calls, and in investor presentations and similar events that may be considered "non-GAAP" financial measures. This additional information is not meant to be considered in isolation or as a substitute for our results of operations prepared and presented in accordance with GAAP.

In this earnings release, we disclose the following non-GAAP financial measures, and we reconcile these measures in the tables below to the most directly comparable GAAP financial measures: adjusted diluted earnings per share, adjusted income from operations, adjusted operating margin, adjusted net sales, adjusted gross margin, net debt, EBITDA, adjusted EBITDA, proforma EBITDA, proforma adjusted EBITDA, proforma adjusted EBITDA (including synergies), interest coverage ratio, interest coverage ratio (including synergies), adjusted EBITDA margin, adjusted net income attributable to Regal Rexnord, adjusted cash flows from operations, adjusted free cash flow, adjusted free cash flow as a percentage of adjusted net income attributable to Regal Rexnord (or free cash flow conversion), adjusted income before taxes, adjusted provision for income taxes, and adjusted effective tax rate. We believe that these non-GAAP financial measures are useful measures for providing investors with additional information regarding our results of operations and for helping investors understand and compare our operating results across accounting periods and compared to our peers. Our management primarily uses adjusted income from operations and adjusted operating margin to help us manage and evaluate our business and make operating decisions, while the other non-GAAP measures disclosed are primarily used to help us evaluate our business and forecast our future results. Accordingly, we believe disclosing and reconciling each of these measures helps investors evaluate our business in the same manner as management.

In addition to these non-GAAP measures, we use the term "organic sales growth" and "pro forma organic sales growth" to refer to the increase in our sales between periods that is attributable to organic sales. "Organic sales" refers to GAAP sales from existing operations excluding any sales from acquired businesses recorded prior to the first anniversary of the acquisition and excluding any sales from business divested/to be exited recorded prior to the first anniversary of the exit and excluding the impact of foreign currency translation. "Proforma organic sales" refers to "organic sales" giving effect to the acquisition of Altra.  The impact of foreign currency translation is determined by translating the respective period's organic sales using the currency exchange rates that were in effect during the prior year periods.

The assumptions and related pro forma adjustments in the selected financial information presented within this release are consistent with those presented in the Company's Current Reports on Form 8-K filed on June 5, 2023 and September 8, 2023 giving effect to the acquisition of Altra and related transactions and are inclusive of the measurement period adjustments included in the Company's Annual Report on Form 10-K to be filed on February 23, 2024.