Rob Rehard: Yes. We did indicate that we had some costs that we expected about $6 million at the time. We actually track closer to $4 million in the quarter, so below our initial expectations. And yes, those costs are now behind us, and we don’t expect that to repeat as we move through 2024.
Jeff Hammond: Okay. And then just last one on free cash. I think you were saying earlier, maybe $800 million of free cash flow for this year, I think you said $700 million. Is that just timing around working capital or maybe just speak to the upside around continuing to pull working capital out of the business? Thanks.
Rob Rehard: Sure. First of all, similar to way we are approaching earnings guide in ‘24, we are being a bit conservative in our free cash flow guidance as we start the year. But adding to that, some of the decline is due to the outperformance we saw in 2023 around inventory reduction. If you recall, we said we would – expect about $200 million to $225 million in cash from inventory in 2023, and we actually ended the year with inventory related inflows of $255 million, so significant improvement there from what we had originally thought. Again, we still expect another $50 million in ‘24, but that is a bit of a year-over-year headwind. The other side of this is just our guidance is aligned now to the $700 million in addition to what I have just talked about.
I mean when you – when we think about cash here at that level, we are also thinking about free cash flow per share, and that’s about $10 and our free cash flow yield is now over 7%. And so where cash is incredibly important to us, we are going to continue to drive that every year and pay down our debt. And – but really, from the standpoint of looking to drive an investment opportunity for us, as we look at our business, we think that this is a compelling investment opportunity for RRX. And based on what I just talked about, over $10 a share and a yield of over 7%.
Jeff Hammond: Alright. Thanks guys.
Rob Rehard: Yes. Thanks.
Operator: We have a question now from Deepak Mathivanan from Barclays. Deepak, please go ahead.
Julian Mitchell: Hi. It’s Julian here. Just a quick question. First off, around maybe earnings seasonality, you have talked about the revenue progression earlier in this call. But I guess if I am thinking about the first quarter, it looks like maybe flattish EBITDA sequentially sort of $3.45 to $3.50 or something company-wide. And then just trying to understand sort of how do we think about the second quarter? You classically get that nice sequential lift from PES, maybe that’s more muted this year for the well-rehearsed resi HVAC headwinds. So, maybe just any help around how much of the year are we getting in the first half on EBITDA and anything moving around below the line aside from interest expense reduction through the year?
Rob Rehard: Yes. First of all, in our first quarter, I think – you think about it maybe a little bit less on the sequential side. It may be on a year-over-year pro forma flat from an EBITDA perspective, with margins roughly in line with maybe 100 basis points on a pro forma basis versus prior year. So, think about first quarter like that. And then progression as we move through the year, so to your point, would we expect to see nice progression as we move into the second quarter. Yes, we would off of that first quarter, but we still expect growth rates to be down in the second quarter and not move to positive until we get to the back half. But we would absolutely expect to see progression from Q1 to Q2.
Julian Mitchell: That’s helpful. Thank you. And then just my second question would be around – if we are trying to think about sort of IPS, what’s happening there? You have talked about that mix headwind on the slides a bit, so maybe go into some detail there. And I guess when you are thinking about that sort of margin progression through the year, you are sort of, I think flattish guide for Q1 on margins, decent increase for the year. So, is that kind of assuming that the mix headwinds dissipate through the year as it goes? Maybe just any help around that.
Louis Pinkham: Yes. So, Julian, there is some mix headwinds that dissipate, but a big driver is the synergies and the benefits from the synergies on the gross margin. That’s where we are seeing 75%, 80% of all of our synergies in the IPS segment. Teams are executing incredibly well on the footprint rationalization and the product line simplification. And that’s really the majority of the driver of the margin uplift in IPS in ‘24.
Julian Mitchell: That’s great. Thank you.
Operator: Our next question comes from Vivek Sri from Goldman Sachs. Vivek, please go ahead.
Joe Ritchie: Hey guys. Congrats. You got Joe from Goldman. How are you doing?
Louis Pinkham: Hey. Good Joe. Good to have you here.
Joe Ritchie: Yes. Thanks guys. So, hey, I just want to – I think that there is some confusion around the 1Q guys, so I am just going to try to clarify it here. When you talk through pro forma Q4 margins, and you baseline it in both the IP/IPS segment as well as the AMC segment. We are base lining off of an IPS margin of 24.6% and we’re base lining off of an AMC margin of 22.4%, is that correct?
Rob Rehard: Yes. If you go back to the 8-K filed September 8, ‘23, yes, those would be the margins on a pro forma basis.
Joe Ritchie: Got it. Alright. Crystal. And then really, just my only other question, again, just more around like the guidance for the year, I was a little confused on the commentary around industrial. It sounds like industrial is in for the year, but then there is a debt pay down associated with the proceeds from the industrial sales. So, I just want to – I want to make sure that I have clarified that. Is industrial in for the full year? And then are you assuming that the financing from the deal is also going to help pay down debt?
Rob Rehard: Okay. Great. And thanks for the question. We do assume motor generators business that comprises the majority of the Industrial Systems segment, contributes about $500 million on the top line in the year fully embedded in our guidance as well as about $40 million to $45 million of adjusted EBITDA in 2024. That is fully embedded on a full year basis in our guide. Now, while that is embedded in the guide, when we close the transaction, there will be proceeds from that transaction expected of approximately $360 million net of interest – sorry, taxes and fees. And so if you assume that you lose the $40 million or $45 million or so of EBITDA and offset that by an equivalent maybe $26 million on an annualized basis of interest savings, the net impact to our guidance is a negative $0.10 or so. So, depending on when the transaction closes, you can work from that back.
Joe Ritchie: Okay. Wonderful. Great. Thank you very much.
Rob Rehard: Great. Thank you.
Operator: And we now have a question from Christopher Glynn from Oppenheimer. Christopher, please proceed.
Christopher Glynn: Thank you. Correctly identified, nice to say. I was curious, guys, just from end market perspective, what do you think the biggest kind of variables and opportunities as you go from 1Q into 2Q for demand and revenue? I don’t know what the exact January orders comps. The year-over-year sounds nice, but we can’t correlate that to revenue. So, yes, just kind of some of the subtleties that might be particularly interesting and key variables into the second quarter end markets.
Louis Pinkham: Yes. I mean I think the drivers of our business by market that could see some implication quarter-to-quarter, Chris, would be general industrial with – right now, we are seeing some sluggish in machinery, some destock. If that improves faster, that would see a bit of an uplift from Q1, Q2. Really, the same commentary around resi HVAC, that could show a nice uplift from Q1, Q2. Of course, we have got some really strong markets right now that we think are going to continue great momentum. Medical, data center, aerospace are really strong. I would tell you, alternative energy, the incentives get fully figured out and the projects released, perhaps that could show a nice uplift Q1, Q2. That’s how I would think about it between those two quarters.
Christopher Glynn: Okay. Great. Thanks. And as you are driving the organization hard, what do you do when signs a strain pop up? You get large organizations and you are doing a lot of work. The pro forma EBITDA margin growth was great. And yes, just curious about the strain risk as you drive the organization?
Louis Pinkham: Hey Chris. I think it’s a great question. Thank you. It’s all about living by Regal Rexnord’s values. We have a set of values and 35,000 associates worldwide that know them and live by them and that’s how we represent every day. We also over-communicate. We did an employee survey in the second half of 2023, and there is opportunities for us to improve, and there is opportunities that we are going to further leverage. And it’s over-communicating what our goals and objectives are and what it’s going to take to achieve them and working with our teams to when there are challenges and headwinds to put forward mitigating plans. And so we are a very planned do check at culture. And we do that with our culture as well. And so we have a plan to improve, and we will work with our organization worldwide to ensure that we are executing on that plan and partnering with everyone for great success.
