M&A Announcement

Feb 16, 2021

Good morning and welcome to the Regal Beloit Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Robert Barry, Vice President of Investor Relations. Please go ahead. Great. Thank you, operator. Welcome, and good morning, everyone. Thank you for joining us today. On this call, we will be discussing Regal's agreement to combine with Rexnord's Process and Motion Control segment or PMC. I'd note that Regal will also be hosting a separate call at nine a. M. Central Time to discuss our Q4 and full year twenty twenty earnings, which were also announced this morning. And Rex McMoer will be hosting a call at ten a. M. Central to discuss their December and full year results. Each call will have ample time for Q and A devoted to their respective topics. Before we begin, I would like to remind you of the disclaimers on Slide two and on Slide three regarding forward looking statements, additional information, certain financial metrics and non GAAP financial measures. Joining me on today's call are our presenters, Louis Pingdom, Regal's Chief Executive Officer Rob Rayhard, Regal's CFO and Todd Adams, Chairman, President and CEO of Rexnord. And now it is my pleasure to turn the call over to Louis. Thanks, Rob, and good morning, everyone. Thank you for joining us on short notice to discuss today's news. This is a very exciting day for both companies. We announced today that Regal and Rexnord are partnering on a highly strategic transaction, which is transformative for both companies and that we believe will create significant value for our stakeholders, our shareholders, our employees and our customers. The combination brings together two highly complementary businesses. As many of you know, Regal's power transmission platform is a global leader in the lightweight power transmission space with strong distributor and e commerce channels. Rexnord's process and motion control platform is a world class provider of heavyweight and critical power transmission components and solutions with a strong portfolio of industrial IoT solutions. Together, we will create a truly world class power transmission provider strategically positioned for the digital age. When the transaction closes, PMC will combine with Regal's existing PTS segment. The combined mechanical power transmission business will be renamed Rexnord, a Regal company, and be headquartered in Milwaukee, Wisconsin, where PMC is today, in recognition of their over one hundred years' roots in that community. Among the many strategic and financial benefits of this transaction is unlocking $120,000,000 in annualized run rate cost synergies with significant additional upside from cross marketing synergies. Looking at over a decade of transactions of all sizes in the capital goods space, this synergy level is best in class. The combination will also create meaningful value for both of our customers by creating comprehensive offering across the entire industrial drivetrain, by accelerating R and D efforts and by utilizing the combined digital resources of both companies to create more comprehensive digital solution. Financially, the transaction will generate highly attractive returns, including a strong return on invested capital, year one accretion and substantial EBITDA margin expansion and gross margin gains driven by, among other factors, significant cost synergies. And owing to the innovative approach we've taken to bring these two companies together, Regal's pro form a leverage post close will be roughly 1.1x net debt to EBITDA. With the benefit of the combined mechanical power transmission business, we will be a new Regal, well positioned to increase value for our stakeholders. With the addition of PMC, Regal's twenty twenty pro form a revenue was approximately $4,100,000,000 with adjusted EBITDA of $740,000,000 The pro form a 2020 EBITDA margin was approximately 18%. Platform provides significant immediate and long term financial benefits to Regal, and I'll highlight a few here. Post the combination, we expect our margins will be approximately 33% in 2022. And along with significant cost synergies we're anticipating, Regal now has a clear path to our midterm goal of 35% plus gross margin. The cost synergies are worth at least $120,000,000 can be realized over the first three years after closing, help drive over 500 basis points of adjusted EBITDA margin upside by 2024 and support an adjusted EBITDA margin of approximately 21% in 2022. Notably, we think we can achieve $70,000,000 of synergies or roughly 60% of our target in the first year post closing. Additionally, the transaction is accretive within the first year after closing and provides Regal shareholders with an expected $7 per share dividend. The cash accretion is expected to increase meaningfully in subsequent years. Our current plan is for Regal to move to reporting on a cash EPS basis, concurrent with the closing of this transaction. With the strong synergies and combination benefits from the transaction, we are expecting that ROIC will exceed 10% by year five after closing. It is also important to emphasize that we are merging with Rexnord at a low point in the cycle with respect to their revenue and margin. Considering the strength of twenty nineteen's performance and more importantly, the opportunity of 2022 forecasted performance, the EBITDA uplift versus last year's depressed level, partly due to the impact of COVID-nineteen, is significant. Turning to the transaction summary, I'll flag a few key items on this page. As we outlined in our press release, Rexnord will separate its PMC business by way of a spin off to Rexnord shareholders and then immediately combine it with Regal in a tax efficient reverse Morris Trust transaction. Regal shareholders will own 61.4% and Rexnord shareholders will own 38.6% of the pro form a company, which represents the economic ownership of each party in New Regal. However, our two companies are in the unique position of having significant overlap in our shareholder base, which has meaningful implications for the transaction structure. Because of this significant shareholder overlap and considering the dimensions and characteristics of the overlap today, Rexnord's shareholders' 38.6% economic ownership can equate to an approximately 50% level of ownership in New Regal for tax purposes. This dynamic occurs because overlapping shareholders gain ownership in New Regal in two ways, by owning Retchnorr and by owning Regal. Of course, the level of overlap today may differ from what it will be at closing when it needs to be measured. In addition, it may be difficult to identify that ownership precisely based on public filings at the time it must be measured. This is where a true up mechanism comes into play. At closing, the level of the overlap will be identified based on the methodology set forth in a private letter ruling we intend to seek from the IRS. Any gap between this level and the required greater than 50% ownership by Rechsner shareholders will be addressed by an ownership adjustment mechanism through which additional Regal shares will be issued to Rexnord shareholders and a rightsizing dividend will be paid to Regal shareholders to ensure compliance with the R and T ownership requirements. Now, it's worth noting that the post close tax ownership we're targeting is 50.8%, which is higher than the required ownership for SpinCo shareholders in RMT of just above 50%. We felt it prudent to create some additional ownership safety buffer to give investors an added level of assurance that the transaction would be firmly in compliance with RMT ownership rules. As we indicated in our release, based on information we have today about the number of characteristics of overlapping shareholders, we have assumed a dividend in the range of $100,000,000 to $500,000,000 with an illustrative midpoint of $300,000,000 which will be paid to Regal shareholders at closing. We believe this $100,000,000 to $500,000,000 range is a reasonable expectation. For purposes of many of our discussions of financial metrics, we have assumed the $300,000,000 midpoint of the estimated dividend range. Rob Reyhard will have a slide in this section of the presentation that will provide some additional clarity around the potential impact of shareholder overlap and how we'll employ a dividend, if needed, to ensure the transaction meets R and P requirements and the spin is tax free. The transaction values Rexnord's PMC business at 14.2 times twenty twenty adjusted EBITDA or 9.7 times after considering cost synergies. With respect to the multiple, I do feel it's worth noting again that this deal is taking place during a low point in the industrial cycle, and we're starting to see signs of a cyclical rebound ahead. Indeed, Regal is advantaged by its strong free cash flow and very clean balance sheet, which allows us to pursue strategic actions at all points of the cycle. Before leaving this slide, I did want to highlight a few additional items. One, as I have already mentioned, the combined PTS business will adopt the Rechtner name and be headquartered in Milwaukee, Wisconsin. Regal will continue to maintain, invest in and grow its existing PTS headquarters presence in Florence, Kentucky, which will remain a strategic site. Upon closing, Regal will be led by its existing Board of Directors with the addition of two new directors to be nominated by Rexnord. Rakesh Stockdev will continue as Non Executive Chairman of the Board. Rob Reyhard and I will lead the combined corporate entity in our current role, and Regal will continue to be headquartered in Beloit, Wisconsin. The transaction, which is subject to regulatory approvals, Regal and Rexnord shareholder approvals and customary closing conditions is expected to close in the 2021. And with that, I'd like to turn the call over to Todd, who will share his perspective on the transaction. Thanks, Louis. I'm on Page eight. And I think as Louis outlined, this is a terrific transaction for both Rexnord and Regal shareholders. From a Rexnord standpoint, it really aligns with our goal of unlocking the significant value embedded in our portfolio. We think the industrial logic, the cultural fit, obviously and the financial, outcomes really check all the boxes for a great combination. I think as many of you probably know, RMTs, are not easy to do, but this one and with Regal as a partner is truly transformational for each of us. We believe that the significant ownership that Rexnord shareholders will have in the combined business is compelling given the fact that we've got an entity that is going to be run rating towards $1,000,000,000 of EBITDA in the coming years. Lewis outlined 120,000,000 of synergies, and I think both companies have a strong track record of being able to execute to achieve those levels of synergy. If you think about Rexnord, we've been on the supply chain optimization path for a number of years and have generated almost $60,000,000 on a standalone basis. So we think that the 120,000,000 is very achievable in the timeline that Lewis laid out. Finally, it sort of builds on the already resilient cash flows of both businesses. It improves margins with best in class performance and as Lewis outlined, a terrific balance sheet at the close. From a Rexnord shareholder perspective, we feel like we're unlocking and creating two terrific businesses that can be clearly understood by investors. We can each focus on the consolidation within their respective markets and leverage the competitive advantage comes with things like technology and product development and commercial excellence. From a Rexnord standpoint, we've had two incredible core businesses that were market leaders and wanted to be sure that whoever we ultimately decided to partner with could continue to execute at a high level. We're excited about the attractive end market mix that the combined business will have. And I think clearly, we're doing this into a much more positive economic cycle that should benefit both sets of shareholders. From a Rexnord standpoint, the Rexnord business system has evolved significantly over the last eighteen years, and Regal's made a renewed commitment to that type of operating philosophy under Louis' leadership, and we think this makes the integration and common language even more powerful over time. There's clearly more to do around 8020, commercial excellence, and combining the power of the portfolio with the directed focused digital strategy along with ecommerce. Finally, you know, we have the opportunity to unveil our water management platform as a 100% pure play water business with a terrific track record, attractive long term growth opportunities, and a balance sheet and financial flexibility to continue to grow that part of our company. There's a lot of work to do between now and then, but both businesses are executing at a very high level. And we've got a lot of confidence that the power of this combination will be really exciting to watch in '22 and '23 because of the optionality it creates for both Rexnord and Regal. And with that, I'll turn it back to you, Louis. Great. Thanks, Todd. With that overview, I'd like to drill down on some of the key strategic and financial benefits of the transaction. But first, let me take a quick step back to put this transaction into context. As those of you who have been following Regal closely know well, we have made meaningful progress transforming the way we run the business over the past two years. We have dramatically improved our cost structure, increased transparency and accountability throughout Regal and infused lots of new talent into the organization. We have also been investing for sustainable growth and have established a very solid foundation for better serving our customers by developing differentiated products and solutions that solve our customers' problem. While our journey to a faster growing and more profitable Regal still has ample runway, successful progress against our key initiatives is already delivering clear results. Combining with PMC builds on this foundation by creating a premier global power transmission player with highly complementary products and portfolios, accelerating Regal's transformation. This transaction further improves our cost structure and creates new opportunities to drive more profitable growth with enhanced digital capabilities and a more balanced portfolio. The return on invested capital from the transaction is expected to exceed 10% by year five. In addition, the transaction is accretive within the first year after closing and is slightly accretive to non GAAP adjusted cash EPS as well as providing Regal shareholders with a $7 per share dividend. The combination leaves Regal with a strong balance sheet and robust free cash flow and so provides opportunities for a continued disciplined and balanced capital allocation strategy, including continued organic and inorganic investment with attractive returns and returning capital to our shareholders. And importantly, the transaction brings together two organizations that are a terrific cultural fit with shared core values and highly aligned priorities that will not only help facilitate a seamless transition, but underpin our continued success far in the future. As you can see here on Slide 10, together Regal PTS and Rexnord PMC will be a nearly $2,000,000,000 player in the industrial power transmission market with unmatched capabilities across the entire drivetrain. By bringing together our highly complementary products and solutions, including a materially enhanced digital capability, we will be able to provide dramatically enhanced value to our customers. By offering so many adjacent or near adjacent components of the drivetrain, the new Regal Rexnord business can engineer these products to work better together, thereby elevating technical performance levels, enhancing energy efficiency, reducing complexity and increasing customer uptime through a more integrated approach to sales and aftermarket support. All of that translates to better value for our customers and higher quality for growth for Regal. The combination with PMC fills gaps in Regal's existing mechanical power transmission portfolio and creates a more compelling partner for customers and distributors. There are many examples of how complementary our offerings are, and we are highlighting a few here on slide 10 slide 11. Notably, Regal and PMC's complementary strength extend across all major applications for customers and so really will help us provide a more complete offering. In couplings, Regal's high performance disc couplings focused on higher end solutions are a complement to PMC's broad, standard purpose grid and gear couplings that create a more complete offering for customers. In the critical categories of gearing and mounted bearings, the PTS and PMC offerings bridge the gap between light duty applications on the regal side and heavier duty applications on the Rexnord side. Finally, in ARO, the combined PMC and PTS offering widers our footprint across the fixed versus rotating wing market. There are many more examples I could share, which we will do in time. In addition to more solutions, the combined PT and Regal portfolios will have improved end market and geographic diversity. This creates new avenues for growth with an expanded presence in attractive high growth end markets such as renewable energy, aerospace and e commerce and an expanded geographic focus with nearly 30% of pro form a Regal sales outside of North America. Like Regal, the PMC brands are highly regarded in the marketplace and have a strong reputation for quality, technology and reliability. Our customers will have access to brands from Regal and PMC such as Browning, Sensa, Rexnord, Hub City, Kopfleck, McGill, ModSword, and Sealmaster, among many others. The result is the creation of a premier power transmission player. I want to spend a moment providing a bit more color on the substantial synergy benefits of this transaction that will drive value for shareholders and support an enhanced pro form a financial profile. We expect to achieve $120,000,000 in annualized run rate cost synergies by year three after closing, driven by procurement, distribution efficiencies, footprint rationalization and SG and A. As you can see in the chart on this slide, we expect to achieve $70,000,000 of the $120,000,000 in year one, primarily driven by procurement and SG and A savings with savings from footprint related actions accruing in years two and three post close. Importantly, beyond these cost synergies, we also see significant incremental cross marketing synergies enabled by the combined business having a broader product portfolio, a more robust digital and industrial IoT capability, product adjacencies and a more robust service and aftermarket capability. Moving to Slide 14, I want to go a little deeper into the combined company's improved customer value proposition, which we believe enhance Regal's growth. First, we will be able to harness the combined global manufacturing footprints of Regal and PMC to enhance our service capabilities and better support our OEMs, end users and distributors. This includes faster response time and higher product availability. Regal has long seen its flexible global manufacturing footprint as an asset. Its value has been underlined over the past year because of COVID-nineteen. As the pandemic strained supply chains and added frictions to global trade, our flexible manufacturing footprint helped us be more responsive to our customers' needs. That capability will be further enhanced by our combination with Rexnord PMC. Second, we will be a better partner to distributors of all sizes by providing increased access to relevant access and relevance, including in the high growth market. Third, meaningful opportunities exist to drive incremental volume by cross marketing a broader portfolio across the combined customer base. And finally, we will accelerate R and D to fuel the growth of next generation products, facilitate faster product development and respond to a broader set of our customers' needs. This includes our ability to engineer products that work better together across the entire drivetrain. Overall, we are confident that through our combined capabilities, we will deliver a superior sales product and service experience for our customers, and that will drive growth. One of the most exciting growth opportunities we see gaining further momentum from this combination is around our digital strategy. Both Regal and Rexnord have been investing in developing more robust capabilities in the digital realm. Regal under the Perceptive brand and Rexnord with its recognized direction platform. We believe that by leveraging the best capabilities at each organization along the entire digital offering lifecycle, we can take our value proposition to the next level. We see significant opportunities in the areas of asset management, component reliability and lower operating costs for our customers. While the sales cycle for these solutions can be long at times, the revenues they generate have margins that evidence significant value add for our customers. We think the impacts of our enhanced digital offering will benefit many aspects of our business, starting with making it easier to transact with Regal. On a more day to day basis, we're using technology to provide real time insights for customers around how critical assets are performing. Value add here runs the gamut from identifying problems quickly via real time monitoring to using collected data to analyze performance and maximize the efficiency of our customers' capital assets in a particular facility or across multiple facilities. We are especially excited about deepening our capabilities around prognostic. The ability to identify problems before they occur maximizes uptime for our customer. Now I'd like to spend a few minutes detailing the transformative effect this combination will have on our portfolio and what that means for our performance and growth in the years ahead. One of the most important parts of bringing these world class companies together is how it creates a better balance across Regal's overall product portfolio. To be specific, the growth we anticipate from the combination will nearly double the exposure of the PT business as a percent of sales for Regal from 24% to 47%, while reducing the portion of revenue coming from our motors and specialty businesses. Importantly, while our business profile mix is changing, the total Regal revenue is also getting larger. Our commitment to our other business segments remains unchanged and they each remain significant, highly relevant players in their respective markets. Furthermore, our combination with PMC provides opportunities to better support investments in technology, industrial IoT and new products, which could have broader pan regal benefits over time. Further, with the addition of PMC, our exposure to more stable, higher margin aftermarket sales rises from 30% to 34%. Keep in mind that from a demand perspective, our effective aftermarket mix is actually much higher than 30% because many of our sales are to OEMs to support aftermarket demand for their customers. Our HVAC and pool businesses are good examples of this dynamic. Put another way, we'll be substantially increasing our sales profile with our higher margin business, generating a more significant part of our overall sales. We are excited about the expanded energy efficiency platform that comes with the combination of Regal and Rexnord's PMC business, which accelerates our mission to create a better tomorrow by energy efficiently converting power into motion. As you can see on the left hand side of this page, the percentage of our sales tied to products and services that deliver energy efficiency, support renewable technology and deliver waste reduction rises by 1,200 basis points to 55% to 60% of our portfolio. On the right hand side, we highlight a couple of products and solutions that demonstrate the respective businesses' capabilities in this area, which are helping our customers meet their own ESG objectives. These solutions are strong value propositions, not only for our customers, but for the communities where we live and work and for our ESG focused investors. With that, I'll turn it over to our CFO, Rob Reyhard, to provide more detail on the financial benefits of the transaction. Thanks, Louis. First, let me express how excited I am about this opportunity for Regal and Resnord EMC. Let me start with how the transaction impacts Regal's growth profile. It's clear that the combination will immediately enhance our cash flows post close. As you can see on this slide, we anticipate growth of 27% between our pro form a 2020 levels and 02/2024, for the third full year after we anticipate closing the transaction. Our expectation is that after closing and as we make progress integrating these two businesses, The synergies along with executing the combined business growth plan will help further grow these cash flows. Any revenue from cross marketing synergies would be additive to this forecast. In turn, these strong cash flows will help reinforce our balance sheet, providing the flexibility for the continued execution of our balanced and disciplined capital allocation approach moving forward. We expect to continue investing in the business to fuel organic growth and innovation while also returning capital to shareholders through dividends and opportunistic share purchases. As it relates to M and A, our primary focus will be to integrate Rexnord and make the transaction a success. Of course, we will continue to pursue bolt on m and a opportunities in a disciplined way, pursuing targets with a strong strategic fit, synergy potential, and attractive returns. Now I'd like to provide some additional clarity around the ownership adjustment mechanism. The need for an adjustment mechanism, including the amount of any dividend to Regal shareholders, will not be known with precision until closer to closing. And depends on a number of factors that are unknown at this point, including the specifics of the IRS private letter ruling and the composition of our shareholder base at close. However, based on the advice from our tax, legal, and financial advisers, we believe we can estimate a reasonable range of outcomes for where we would expect the dividend to end up, which is the $100,000,000,000 to $500,000,000 range Lewis mentioned earlier. As you can see in the table at the bottom of this slide, we have laid out the illustrative financial impacts on some key metrics based on outcomes at each end and at the midpoint of this range. As you can see, as the dividend increases through the range, as illustrated in the shaded bar, Rexnord's ownership in new Regal increases while Regal's ownership decreases. Additionally, the pro form a cash EPS accretion level moves from accretive in year one to slightly dilutive under the $500,000,000 scenario, albeit with a much larger onetime dividend. I'll further point out that in all scenarios, the transaction is accretive in year two and accelerates from there. You'll also notice that in all scenario scenarios, the year five ROIC of greater than 10% remains unchanged. Finally, regardless of the level of dividend across these ranges, the pro form a net leverage remains well within Regal's comfort zone. And with that, I will now turn it back to Lewis. Thanks, Rob. We spent a lot of time this morning explaining how PMC is a great fit for our portfolio, capabilities and strategy. But equally as important is that they are a perfect fit for our culture. We have long admired Rexnord and PMC and have tremendous respect for their talented team. Over the past several months, I've come to know many of the PMC team more closely. What has repeatedly impressed me and makes me so excited about this transaction are the priorities and commitments we share. Both organizations prioritize integrity, customer success, continuous improvement and a passion to win. We share a commitment to teamwork, belief in the power of diversity and inclusion and focus on being valued members of the communities in which we operate. And we take similar approaches to the business, including an adherence to eightytwenty and a focus on lean principles to improve profitable growth. Not only will these shared characteristics facilitate a seamless transition, they will drive our continued mission to create a better tomorrow by energy efficiently converting power into motion. As we've discussed, there's a lot to be excited about. To recap, the strategic and financial benefits of this transaction are significant and clear. The combination of Regal and PMC creates a premier power transmission player with an expanded portfolio of complementary products across the entire drivetrain. We will generate significant cost synergies with incremental upside growth potential through cross marketing opportunities. We'll have an enhanced value proposition for our customers, including a digital offering that positions Regal for the future. A rebalanced portfolio with robust free cash flow generation and a clean balance sheet with low leverage will enable us to drive a disciplined and efficient capital allocation strategy, including further investment and continued return of capital to our shareholders. Finally, we look forward to combining these two strong companies that have well aligned cultures and value. Rob and I, along with Todd from Rexnord, are now looking forward to answering your questions. Operator, please open the line for questions. Thank you. We will now begin the question and answer session. First question is from Mike Halloran from Baird. Please go ahead. Hey. Good morning, everyone. Good morning, Mike. Hey. Congrats on the transaction. I I know how complicated this is, so it must must be really good to get over at least the first finish line here. So with that as the precursor, maybe just give some background to how this whole thing came up. But more importantly, what are you guys able to do between now and transaction flows to make sure that everything's facilitated and you can hit the ground running? Yes. Sure, Mike. Happy to share. As I said in my prepared remarks, we admired the Rexnord business and the PMC business and feel that the combination of our products and portfolios are highly complementary. We are pleased by the fact that Rexnord has chosen Regal. And I think especially over the last seven quarters, we've shown our ability to drive in the performance and improvements of the business through eightytwenty and lean, which aligns very well with Rexnord's approach. And the cultural fit couldn't be any stronger. You know, from a reality perspective, both sides have always thought that the best way to maximize shareholder value in time could be a combination. And so with that, Don and I and Registrar and Regal started dialogues at the later part of last year and finalized our discussions as of yesterday. Of course, we'll provide a lot more detail about the background of the transaction and our discussions in the SEC filings relating to the transaction. Now specific to getting prepared, of course, we've spent the last forty five days really diving deep into due diligence. And that's how we feel really confident about the $120,000,000 of cost synergies as well as the opportunities for cross marketing sales synergies. Because of that, we already have our plans fairly outlined. But between signed today and closed, we will be able to meet with appropriate guidance from our legal advisors because we are two separate companies. But we will be able to meet to further plan for the integration and ensure that we can achieve the $70,000,000 of year one run rate year one synergies and the $120,000,000 in year three of run rate synergies. So still a lot of work to be done, but we've got probably seven to ten months to get properly prepared so that we hit the ground running when we combine these two strong companies together. It makes sense. And then just to be a point of clarification, the synergy numbers that you laid out, the 70,000,000 year two by 2022, 120 overall, that's just confined to the the merger with with your PTSPs. It does not include the work you're doing in the other businesses. Correct? Yeah, Mike. This is Rob. That's absolutely correct. Those are completely separate. This $120,000,000 of synergies here is is exactly tied to this merger. Right. And then last one for me. Could could you maybe talk now about how you're thinking, about the combined portfolio? You know, whether it's pieces within the PTS piece and and and the Rexnord business that belong, don't belong, pieces in the legacy portfolio that maybe you now have more flexibility with? And then also on the flip side, talk about what this means for your ability to bring new things into the portfolio. Yeah. Sure. Happy to. First of all, when you think about the combination, we think it absolutely strengthens the portfolio in servicing the industrial drivetrain. And so we plan and expect to be able to capitalize on that. And as I said in my remarks, to be able to take our deep application knowledge of the drivetrain with that expanded offering and provide better solutions to our customers. And so we are very excited about bringing these two businesses together to take advantage of those opportunities. With regards to the rest of the Regal portfolio, we like our portfolio when we have significant value creation opportunities over the next few years. We talked about our 03/2003 and the fact that we're even a little ahead of that. You probably saw our fourth quarter earnings release. We're gaining some really nice momentum. I think there's continued benefits in this total organization we have. But I will say we are constantly looking at the portfolio to make sure that we are the right owners of that portfolio. From a PMC PTS perspective, we will be a $2,000,000,000 player in the mechanical power transmission space, and we couldn't be more excited about that. And we believe that the strong balance sheet that comes out of this merger will allow us to take advantage of additional inorganic opportunities. I will say that our focus will be on integration first. But then that next step, we positioned very well. And then with the rest of the portfolio, I absolutely think there's additional opportunities there also. So I couldn't be more excited about the announcement of today and what the possibilities it presents for Regal. Thanks, everyone. Congratulations. Yeah. Thanks, Mike. The next question is from Jeff Hammond from KeyBanc. Please go ahead. Hey, good morning, guys. Good morning, Jeff. Just on the synergies, I mean, clearly, Rexnord has been at it on the margin improvement side for some time. Lewis, you've been driving a lot of changes. Just maybe talk about where you see more of the synergies, whether it be on the Rexnord side or the Regal side. Where are there more opportunities for procurement and SG and A, which seems to be early? And then just within the digital strategy, talk about how they're complementary or who's ahead and how you kind of pull that piece together. Sure. Happy to share. So when you look at the cost synergies, it's about onethree from purchasing, about onethree from footprint restructuring and about onethree from SG and A. I'd tell you on the SG when you bring two businesses that are complementary like this together, there's clearly going to need to be a look at the overall organization. And we've got a lot of strength and capabilities across both sides. And so I would say those synergies would be equally distributed between the Rexnard PMC and the PTS business. From a footprint consolidation perspective, we have outlined a number of sites that will be consolidated in time. And again, I'd say it's pretty evenly distributed. We will establish some centers of excellence around hearing, around coupling, and around bearings that will help ensure that we achieve the cost synergies. From a purchasing perspective, I'd tell you that we each have our own strengths. Regal is perhaps a bit further ahead on best value country sourcing, but I believe Rexnord is further ahead in commodity strategy and commodity management. And so I'm really excited about the opportunity of pulling those two together and taking us to the next level. That's how we're thinking about that cost synergies. Now your second part of your question, Jeff, I believe, was around our digital capabilities across the two businesses. As you know, we announced the Perceptive brand umbrella launching earlier this year at Regal sorry, earlier 2020 at Regal. And we've gained some significant momentum in providing better solutions and services. Direction from Resnord has been doing this for a while. And I believe the combination of two is going to really differentiate us and help us provide better solutions around asset management, component reliability as well as improve the operating cost for our customers. So again, this for sure is part of our cross selling marketing opportunities and so will be a major focus for Regal and Rexnord TMC going forward. Okay. And then just you highlighted the complementary nature kind of light and heavy, but any kind of high overlap, whether it be any kind of FTC, high market share issues? And then just maybe on the broader portfolio, just with the RMT, can you just clarify what you can and can't do in terms of non core divestitures over a couple of year period? Yes. So for sure, we're going have to go through a regulatory review. But we feel really comfortable that the combination and why this combination works so nicely for Regal and Resnord is we have complementary products and solutions. But again, we'll have to go through regulatory review. We are not in a position to speculate what that potential outcome is. But again, I'll emphasize the complementary portfolios of why we saw this as such a great fit. Sorry, Jeff. I'm forgetting the second part of your question. Just anything any restrictions around divesting noncore businesses given the RMT structure? Right now, our focus is going to be the combination of the two businesses and taking advantage of the integration and this great portfolio to drive additional solutions for our customers and profitable growth. So we don't have any plans at this time. Okay. Thanks. The next question is from Nigel Coe from Wolfe Research. Congratulations on getting the deal to the finish line here. So the fact that you're combination is happening at a depressed point in the cycle is well received. Based on sort of the numbers this morning, I'm calculating PMC is about 12% below 2019 levels on a calendar year basis. If you could just confirm that that's in the right zone. And then your 2024 free cash flow forecast of $750,000,000 unlevered. What kind of recovery are you assuming over the next several years? Thanks. Yes. So from a Reksner perspective, I think your numbers are roughly in the right area, Nigel, from a what kind of recovery are we expecting? We've outlined 2022 expectation for all of Regal with the PMC business of roughly $4,500,000,000 in revenue and $900,000,000 of EBITDA. And so that shows that we do expect 2022 to see from a Regal perspective, 2021 will be mid single digit from a Resner perspective, and Todd could certainly elaborate and we'll probably be doing so on his earnings call, but relatively flat, I believe, for 'twenty one. But 'twenty two, we do believe the markets will be returning. The short cycle markets will be stronger. And for us, like I said, that would be a combined 10% rough increase 2020 over 2020 to $4,500,000,000 and $940,000,000 of adjusted EBITDA. Thanks, Lou. And then I wanted to follow-up on the cost synergies. You obviously went through that in a bit quite a bit of depth. But the one thing that struck out to me was the $70,000,000 in the first year, which is quite a big portion of the 120,000,000 and it's certainly a lot more loaded front loaded than we normally see in these three year plans. So I'm just curious, what gives you confidence in capturing that level in year one? And does that imply that there might be a little bit more upside to that $120,000,000 as we look out? Yes. I'd say there's really two things that are driving our confidence for year one. The first is just again, these businesses are so complementary and our ability to take advantage of these synergies are significant. And secondly, bluntly, we've got seven or eight months of planning ahead. And when you can plan, you can execute. And I think as Todd said, PMC is with the SCOFR initiatives are used to executing, Regal is used to executing. So that's why we're confident with that $70,000,000 I couldn't be more excited about these two companies coming together, and I do believe there will be more opportunities for cost synergies in the future. Where I want us focused, and I shouldn't say where I want us, where we will be focused is on the cross selling and marketing strategies to accelerate the growth of these two businesses, which are even more exciting. So again, highly strategic, highly transformative. This is a great opportunity for both of our businesses. And Mike and Nigel, I would just add to that, that the good news is here that we have spent a fair amount of time going through the details here related to synergies. And the we've already these synergies have already been largely identified, embedded, and we feel very confident in our ability to hit the ground running on day one. The next question is from Chris Dankert from Longbow Research. Please go ahead. Hey, good morning, guys, and congrats again. Thanks, Chris. Looking at the combination here, very exciting cash generation story. I'm curious, would you call any additional cash generation upside beyond the cost synergies? My sense would be that working capital efficiency should improve pretty meaningfully as we the combination progresses. Just any thoughts on additional cash generation would be great. Certainly. Chris, this is Rob. Working capital efficiency is something that's likely to be an opportunity. We've maintained a conservative view towards that. It did not include any benefit in our analysis, but it's something that we will certainly evaluate following closing and expect to see some benefit, of course, as we move forward. We believe there's plenty of opportunity there. Got it. Got it. I guess we've talked around cross selling. My apologies if I missed it, but where is the greatest singular opportunity or top several opportunities, I suppose? Mean, is it really as simple as just selling more to the same customers? Or is there a particular market, region, customer base where you see something a little bit more exciting than just kind more of simplistic cross selling, I suppose? Yes. First of all, I really think you got to go back to the slides where we showed, Chris, the dry train and the industrial dry train. And it just really this merger of these two strong businesses and strong portfolios just positions us extremely well in that industrial drivetrain. Now think about the opportunity to take all of these components, and by the way, the Regal motor as well, And then make them more efficient, engineered better to work together, ease of more simplistic to order, solving our customers' problems more efficiently. That's where we think the biggest value is from this and what we're most excited about. There's absolutely, to your point, other items that we will be focused on of expanding our wallet with our customers and bringing more product to our distribution channel, etcetera. But I would say that industrial drivetrain opportunity is significant. I would also say that the industrial IoT capabilities of both of these companies that Todd has been investing in for the last many years, and we've really accelerated our investment in over the last few years, will help us be more successful in this digital age. So those are the that's how I'm thinking about it. That's how we're thinking about it. Got it. And to that second point, guess, you called out predictive analytics. I guess, what's the big opportunity for Regal there? I mean, obviously, the hardware connectivity, sensing, etcetera, is important. Is there a software or an additional service component that really excites you as well? Yes. With our Perceptive brand, we are already providing services such as ensuring uptime for our customers, remote monitoring, taking information and evaluating failure rates sharing with the customer of challenges. We've got we just launched a video recently whereby we were explaining a situation at a mill where we were able to go in and a customer was having problems with a bearing solution. We came in with a because of our strong application knowledge, a better understanding of that application, and we were able to size the motor smaller and provide a more efficient solution that saved the customer significant money. That's what we're going to do with this the expansion of our portfolio in the industrial drivetrain and why we think this is so powerful. Got it. Thanks so much for the color. Yes, absolutely. Thank you. There are no more questions in the queue. This concludes our question and answer session. I'd like to turn the conference back over to Luis Pinken for any closing remarks. Hey, this is an exciting day for Regal and for ReschNord. And I truly believe this opportunity emerging these two incredibly strong businesses together will be transformative for Regal in the future and give us significant optionality. And so I thank you all for your interest in Regal and in this transaction, and wish you a very good day. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.