Good morning and welcome to the Rexnord Second Quarter 2021 Earnings Results Conference Call with Mr. Todd Adams, Chairman and Chief Executive Officer; Mr. Mark Peterson, Senior Vice President and Chief Financial Officer; and Mr. Dave Pauli, Vice President and Corporate Controller for Rexnord.

This call is being recorded and will be available on the replay for a period of 2 weeks. The phone numbers for the replay can be found in the earnings release the company filed in an 8-K with the SEC yesterday, July 20. At this time, for opening remarks and introduction, I will turn the call over to Mr. Dave Pauli..

Good morning, everyone. Before we get started, I would like to remind everyone that this call contains certain forward-looking statements that are subject to the Safe Harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures.

Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they are helpful to investors and contain reconciliations to the corresponding GAAP data.

Consistent with prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP data and we encourage you to review the GAAP information in our earnings release and in our SEC filings.

With that, I will turn the call over to Todd Adams, Chairman and CEO of Rexnord..

Thanks, Dave and good morning everyone. It’s a great morning to be in Milwaukee after the Bucks won the NBA title last night. So, 50 years since the last title, so fantastic for the City of Milwaukee.

As it relates to Rexnord, we had another terrific quarter with strong momentum in both platforms, which creates a great backdrop for the pending RMT transaction with Regal. Our margins and cash flow were very strong, both sequentially and against the cost constrained prior year second quarter. And our overall leverage dropped to only 1.7x.

I want to recognize our teams really in both PMC and Water for the way we have navigated the first half of the year in the midst of a pretty complex transaction.

Our relentless focus on leveraging RBS and now GBS to drive results and customer satisfaction, truly without a blip, speaks to the culture, talent and commitment we have collectively built here at Rexnord.

In Water, we grew the top line 39%, 29% organically, with margins right at 27%, as core margins were exceptional, while we continue to integrate Hadrian and make significant organic growth investments in our business.

One additional point of perspective on the Zurn performance in the quarter, the comp from last year’s second quarter wasn’t all that easy. We were down only 5% in a pandemic-impacted quarter, one of only two quarters, we haven’t posted positive core growth in the last 11 plus years.

So when compared to the 2019 second quarter, second quarter sales this year are up 24% organically and core margins have expanded almost 200 basis points. In PMC, we are seeing continued recovery across really all of our end markets as core growth of 16% was split between 21% in our PT businesses and down only 15% in aerospace.

And as we had anticipated, we expect aerospace to be a contributor to core growth in the second half. Overall, PMC order rates were up 40% on a core basis in the quarter and our backlog to start the second half of the year is $60 million higher than it was when we started in January.

At this point, we expect PMC EBITDA for 2021 to exceed $300 million, up considerably from the announcement of the transaction with Regal, which puts the combined business and $120 million of announced synergies ahead of where we were all expecting at the time of the announcement as we get into the 2022 run-rate.

As far as the RMT transaction, you noticed that last night or probably really early this morning, our proxy related to the transaction was declared effective by the SEC. And in there, we have set a date for the shareholder vote on September 1.

After that, we have got to wait for the IRS ruling to close, but continue to believe that it’s sometime early in the fourth quarter, potentially even late in the third quarter and its contingent upon that ruling.

To close on the second quarter, the continued exceptional performance in Water coupled with the momentum and recovery in PMC come at a perfect time to consummate the transaction and the merger of PMC with Regal. The standalone Water business is performing exceptionally.

And once we go through the separation, it will be renamed Zurn Water Solutions, as I mentioned last quarter, and trade under the ticker ZWS on the New York Stock Exchange upon the separation.

If you can go to the next slide, as I mentioned just a few minutes ago, we have significantly ramped our growth investment spend over the last couple of years to open up new parts of our served markets, drive new markets, drive greater levels of specification and continue to build on the competitive moat we have built inside of our Water Management business.

First of all, we have taken all of our hygienic and environmental products that started to brand and market the entire portfolio under the BrightShield by Zurn banner. BrightShield equates to hygienic, clean and safe public and private spaces.

With our unrivaled suite of products that are connected and paired for performance, we are bringing together a package that can be used to create a safe haven inside of buildings where students, fans, medical staff, customers and employees can walk in and know they are entering a clean and safe space.

And building owners can schedule maintenance based on demand, replenish consumables and provide their patrons with a positive experience. The relevance of BrightShield is it’s backed up with analytics that show people spend more money, return more often and have a more favorable impression of a public or private space when it’s clean and safe.

We have even patented things like hand washing scores, which are incredibly important in things like healthcare facilities and hospitals. All of this really generates a positive tangible ROI for building owners.

There is a lot more to come around BrightShield in the coming months, both from a product and capability offering as well as some adjacent channel opportunities that we see which will greatly enhance our served market.

If you turn to the next slide, inside of BrightShield, we recently launched our Hydro X sensor faucet, a hydropower-driven faucet that’s built on our gear-driven actuation platform with an embedded ceramic diaphragm valve, creating a bulletproof sustainable energy solution for hand washing.

It drives higher performance at all types of water quality settings. It’s easier to install and maintain and creates the opportunity for us to become the basis of design as the only one in the marketplace with this compounding benefit of gear-driven, ceramic and sustainable solution.

If you turn to the next slide, inside of Flow Systems, we have just launched the Flo Force Stream. This new patented technology is by far the best flow rates in the industry that allows building owners to use fewer drains to perform at a higher level, reducing building costs through the cost of the product and the installation.

We have developed it in our flow lab of industry experts and it’s been an absolute homerun since we launched it about 45 days ago. Today, we are betting 1,000 with establishing this is the basis design in over 50 active specifications and absolutely no competitor has anything close to this.

What I hope you are taking away from all of this is that so many of these solutions are actually contributing to making the plumbing and mechanical part of the building more cost effective, which is an increasingly important part of the equation for building owners who deal with cost inflation.

Superior solutions that reduce cost is a really powerful value proposition.

Lean construction, coupled with sustainable solutions, is only going to become more important as we move forward and we see ample opportunities to exploit our unrivaled portfolio of water solutions for health, human safety and the environment to drive growth over the coming years. With that, I will turn it over to Mark..

Great. Thanks, Todd. Let’s start on Slide #7, please. On a year-over-year basis, our second quarter consolidated sales increased 27% to $568 million.

The growth was driven by a 300 basis point benefit from foreign currency translation, a 400 basis point positive contribution from our Hadrian acquisition in our Water Management platform, partially offset by a small divestiture in our PMC platform that reduced our total sales by approximately 100 basis points, and finally, our core growth in the quarter of 21%.

With respect to profitability, our adjusted EBITDA increased 29% from the prior year second quarter to $133 million and our adjusted EBITDA margin expanded 50 basis points year-over-year to 23.5%.

The incremental sales volume and the realization of our SCOFR 3 and other productivity actions drove the year-over-year improvement in our margin this quarter, despite the headwinds we faced from the temporary cost reduction actions we took last year starting in the June quarter due to the COVID-19 pandemic.

Please turn to Slide 8 and we will review our platform results. At the platform level, Water Management sales were up 39% from the prior year June quarter as the Hadrian acquisition contributed 9 points of growth.

Positive foreign currency translation contributed 1 point of growth and the core business increased 29% from the June 2020 quarter that was down only 5%.

Continuing on the strength we experienced in the first quarter, demand increased across our entire broad product portfolio during the second quarter as orders increased over 35%, resulting in an improved backlog heading into the third quarter.

As we look to the back half of 2021, we see solid growth in the platform and feel we can deliver low double-digit core growth for the year.

With respect to profitability, our Water Management platform delivered a 20% increase in adjusted EBITDA over the prior year as margins were at the high-end of our expectations at 26.8% in the quarter, inclusive of a step up in our growth investments.

The year-over-year margin comparison was impacted by the COVID-19 related temporary cost reduction actions we took in the prior year second quarter as well as the temporary mix impact from the recent Hadrian acquisition, both of which will impact the year-over-year margin comparison and the third quarter as well.

Turning to PMC, sales increased 18% and that includes a 400 basis point benefit from foreign currency translation, a 200 basis point reduction for the small 2020 fourth quarter divestiture in China, and a core sales increase of 16%.

The core sales increase was driven by a 21% increase in our non-aerospace end markets, which was partially offset by the anticipated core sales decline in our aerospace end markets of 15%.

While our year-over-year sales decline in our aerospace end markets, the demand trend continued to improve as orders grew sequentially from the first quarter of 2021 and year-over-year orders turned positive in the quarter and were up 60% from last year’s second quarter, which resulted in an increase in our backlog, with a book-to-bill ratio of just under 1.1.

Demand trends in our non-aerospace end markets continue to improve sequentially and core orders were up over 35% in the quarter, with growth coming from nearly all end markets and geographies, resulting in an increase in our backlog with a book-to-bill ratio of just over 1.1.

With respect to North American distribution channel sell-through, again, excluding our aerospace end markets, we saw improvement in year-over-year growth rates each month as the quarter progressed. Operating execution was again solid in the quarter as our adjusted EBITDA margin was up 260 basis points year-over-year to 24.2%.

The benefits from the sales growth in our SCOFR and other structural cost reduction initiatives more than offset the year-over-year margin headwind from the temporary cost reduction actions we implemented in the second quarter of 2020 due to the COVID-19 pandemic. Please turn to Slide #9.

With a strong first half start to free cash flow generation and our adjusted EBITDA, our net debt leverage was reduced to 1.7x at the end of the June quarter, down from the 2x at March 31, 2021. Please turn to Slide 10. Given the anticipated timing to close the RMT transaction, we will continue to limit our external outlook for the upcoming quarter.

With that said, we are projecting total sales in our Water Management platform to increase by a high-teens percentage and we are projecting that year-over-year total sales will increase by a mid-teens percentage in our PMC platform.

Based on our platform sales expectations, we expect our adjusted EBITDA margin in our Water Management platform to be between 26% and 27% and for our adjusted EBITDA margin in our PMC platform to be between 23% and 24%. We expect our corporate expenses to be approximately $10 million in the quarter.

Before we open the call up for questions, a few comments in our tax rate, interest expense, stock comp expense, and depreciation and amortization. We anticipate our tax rate on adjusted pre-tax earnings in the September quarter to be approximately 27% to 28%. Our interest expense for the September quarter is expected to be approximately $12 million.

Our non-cash stock comp expense should be about $12 million and our depreciation and amortization will come around $24 million. With that, we will open the call up for questions..

Thank you. [Operator Instructions] We have our first question from the line of Jeff Hammond from KeyBanc Capital Markets. Your line is now open..

Hi, good morning guys..

Hi Jeff..

Good morning Jeff..

So, really just wanted to get a better sense of what’s really driving the 2Q water business. I think that was the biggest surprise in my model.

Is it more the hygienics momentum or is it more broad-based? And maybe within that, just speak to what you are seeing on the broader non-res side?.

Yes. Frankly, Jeff, it’s really the entire business. I think hygienics continues to be a huge opportunity for us. But in flow systems, we are seeing all the things that were supposed to start perhaps 12 months to 18 months ago begin to start now.

We continue to have great traction in water safety and control with our backflow and a host of other products. So it was really, frankly, much more broad-based than just the hygienic and environmental part of the business.

And look, I think as non-res – look, at the end market, we have said it before, it’s a hyper local market, and there is always activity. And you see California, beginning with Texas is doing great things. The Northeast is beginning to come back to life. It’s – we think the rest of the year looks good, and all signs indicate that 2022 is really good.

I mean the momentum index is strong. So, it’s sort of what we had expected. I think there was a big fear that there was going to be a dearth of activity in 2021 and hygienics was going to carry us through. The reality is, I think, the end markets regionally are going to be fine.

And obviously, we have got this long tailwind on hygienic and environmental and the conversion away from manual to sensor. And so that’s, I think, the way to think about it the rest of this year and into next year, for sure..

Okay, great. And then just – I know a lot of moving pieces in the margins had a tough comp there. Maybe just talk about what the underlying incrementals are in the business if you kind of cut out the noise of FX, Hadrian, some of the temp costs coming back.

And then maybe just speak to the Hadrian integration and how it’s progressing in terms of some of the margin improvement initiatives? Thanks..

Yes, Jeff, this is Mark. I think, as Todd mentioned, if you look at the underlying core business, the Zurn core business in the quarter was approximately 20% EBITDA margin. So the core business, despite some of the headwinds from the cost-out last year, performing very well, continue to be managing the price/cost equation effectively in the business.

So yes, from a quarter standpoint everything that we expected, and I think the team is going to do a great job. While at the same time, as we mentioned, we step up our investment in the business on multiple fronts to drive some near-term growth opportunities as well the long-term growth strategy. So, core margins are in a really good spot.

I will turn it back to Todd and he will cover Hadrian..

Yes. In terms of Hadrian, look we are really excited about the opportunity long-term with Hadrian. Obviously, it’s been a little bit difficult to do all the integration stuff and just given the inability to travel up till now.

So, I suspect that we are going to – we are going to really accelerate the margins in the second half of the year and into 2022 with Hadrian and march them up the ladder to something that starts with a two on it in a relatively short period of time. So, we are thrilled to have it in the portfolio.

Now we are starting to be able to use it in the ways that we envision, which is offering SKU solutions in and around commercial restroom that would include that. The other thing to remember about Hadrian is a lot of this is in schools and hospitals and things like that, that really have done no retrofit upgrades for the past 12 months.

So the backlog, the order rate, the inquiry rate is substantially higher than what we would have envisioned just probably six months ago. So, I think we are on a good path to get Hadrian right where we want it, and we are thrilled to have it in the portfolio..

Okay. Great. Thanks guys..

Thank you. The next question is from Bryan Blair from Oppenheimer. Your line is now open..

Good morning guys, very strong quarter. I was hoping we could dig in a little more on what you are seeing in the education vertical specifically, obviously, core to your business and how the space is influencing Zurn’s current momentum and the revised 2021 growth outlook..

Well, obviously, when you look at some of the extra funding, that’s going to be a positive tailwind that I don’t think many people had anticipated over the course of last year. And again, I think the specific verticals follow the specific economic activity regionally in these local markets.

And so when you think about places like Texas, Arizona, Florida, where you are seeing significant population growth, that drives all the other things around it, whether that’s additional healthcare facilities or K-12 schools, high school, etcetera.

And now with this incremental extra funding that states are getting, I think there is going to be a real opportunity. We are tracking the levels of funding where it’s going, quotation opportunities. And then you just got to work through how that money is going to get spent and allocated through, frankly, things like school boards, etcetera.

So, it’s going to be a positive tailwind for us that we probably didn’t fully anticipate probably six months ago..

Helpful detail. That makes sense. You touched on Hadrian integration, the pandemic conditions that haven’t been ideal for that, but good momentum overall. Revenue this quarter looks like it shook out in the high teens, obviously above $60 million annualized.

What kind of growth are you expecting for the year from Hadrian?.

Bryan, I think it’s, basically – yes, if you look at the numbers, it’s a mid to high-teens number. So, I think that feels relatively consistent if you look at the next few quarters and how it will contribute to our overall growth. The business itself is growing very well on a core basis year-over-year with more of that mission.

It’s like a little more in the back half on a core basis, given the opening up we are seeing in the momentum starting some of these retrofit projects that are coming to fruition over time, so more to come on that.

And then on the margin side, as I mentioned earlier, making really good progress, a meaningful improvement in the margin in the back half versus the first half, in 2022, [indiscernible] EBITDA margin, that’s down to 2.1% in the next fiscal year, the level that we are doing around the synergy case in the retro business..

Got it. And then one higher level one, perhaps I was reading too much into this, but the preliminary 2022 market outlook being decent for your press release.

Can you offer some color on how your team is thinking about the puts and takes there? I would think the outlook, at least assuming we don’t have a drastic shift in the backdrop, would be quite a bit more bullish given the indicators at hand and then certainly the momentum of your own business..

Well, I guess the way to read it, Bryan, is with six months to go or so in ‘21, I think decent is an appropriate way to characterize it. As we get closer to that and things hang in there, I would – we will upgrade our outlook accordingly. So I think a year ago, we had a view that the world wasn’t going to end in ‘21, and everyone did.

And so I think the way to read into that is decent, probably only gets upgraded as we go through the year. But generally speaking, I think we feel pretty good about it..

Thanks guys..

Thank you. The next one from Mig Dobre from Baird, your line is now open..

Well, as a Bucks fan myself, I was hoping around midnight last night that maybe you guys would delay the call, but I guess that wasn’t to be. So, I had a couple of strong coffees, and here I am..

That makes a few of us, mate, yes..

I guess what I am wondering here as we are thinking about ZWS as a standalone entity, how are you planning on talking about the business? Are you going to provide some kind of a new segment structure either by end market or – and even within the makeup of the business, right? I mean you are talking about institutional and then commercial and industrial.

But I am wondering, based on questions that have been asked already, are we going to be able to put maybe a finer point as to what the sub-verticals, if you would, education versus healthcare versus true commercial is going to be as ZWS gets closer and closer to be a standalone entity? How do you think about that?.

Well, I think the one thing I will say is, last quarter, we outlined or previewed essentially a little bit on ZWS just in terms of what it is we do, how we do it, some of the product categories. And we talked about three sectors, water safety and control that would essentially cut across all different verticals.

We talked about hygienic and environmental, which is, I think, that’s the sensor category and other things. And then finally, flow systems, which is primarily our drainage business, which again cuts across all different verticals.

Each has a little bit of a different dynamic with respect to retrofit, but I think that’s the sector view is how we are sort of planning on talking through the business on a go-forward basis.

And as we get closer to the eventual standalone pure-play water business, we will be out, I think, doing a little bit of a mini roadshow and getting people exposure to how we are going to talk about the business, some of the dynamics and how we expect it to perform going forward..

Okay. For several quarters now, you have been talking about new product introductions, obviously, focused on water management.

And I am sort of wondering how you are thinking about, first, the product vitality now versus, say, 5 years ago in terms of all the work that’s been done here and how you are thinking about the growth algorithm in terms of, at this point, what’s the fair expectations for new product contribution to organic growth.

But also, what happens with margin, right, from all these new products that you are introducing that you are basically saying, “Hey, these are unique.

They are differentiated, and they create a lot of value for our customers.” Can you talk about that?.

Well, I would start by saying there is, without question, far more innovation and new product development in the last 5 years than probably the 20 prior to that. Secondly, every product that we have been introducing is at a financial profile margin better than probably the fleet average.

And number three, you can’t – I think it’s really important to understand that to develop a product to drive the best or highest level of specification that you can.

And so if I – you drive specification with an engineer, architect or end user, you don’t want to introduce a new product that doesn’t reap the rewards and having done that spade work on the specification. So I don’t think vitality is necessarily the right way to think about this.

It’s the compounding moat of either basis or design or high-level specification that we’re really driving within this, because if you just want to look at pure product vitality numbers, you’re going to walk down this road of doing all the work to get specified.

And when the time comes for it to get bought, if it goes into a construction site and you get a different product, right? So you want to make sure that you’re pacing the new product innovation, but equally important is the specification work upfront.

So I think there is a level of understanding on this that has to be well understood from your side and obviously investors. But look, I mean, the business grew 29%, 24% on a stack basis. Core margins, as Mark said, almost 28%. I think we’re doing something right.

And so as you think about the go-forward, again, pounding new products, creating a greater competitive moat and driving specification of those products is the focus organically. And then obviously, we can – we expect to be able to do some M&A in and around these three sectors that will drive even more overall growth beyond just core growth..

Yes. No, that’s fair. If I can ask a question....

Thanks, Mig. Well, thank you..

You’re welcome. If I can ask a question on PMC the recovery here, like you said, a little bit better than what you previously anticipated. As you’re looking at this business and you’re comparing it to prior cycles, prior downturns, leaving our aerospace aside, right, that’s kind of – we all understand those dynamics there.

But I’m curious, what are you seeing that’s maybe different in this up cycle? And what do you think are some implications for the business down the line, right? Post transaction in the way maybe RBC is going to be able to drive either synergies or incremental growth based on that?.

Well, I think, from an end market perspective, I would say it’s much less individual end market-driven. Meaning, looking back, mining was great or looking back, oil and gas was great. This is far more broad-based. I think our level of diversification in and around more stable end markets like food and beverage is clearly playing through.

And I think, as we look forward and partner with Regal on this, I think they see the opportunity to continue to own and win these more process-based industries but continue to diversify the business into these more broadly stable end markets with a significant amount of content, win the first fit and then win the aftermarket for a long period of time.

So I think it’s coming together at the perfect time. I think our teams are working together really, really well. And I think we’re excited to just get down to the final strokes and get the merger done.

But I think, generally speaking, I think, just far more broad-based and far more focused on more stable end markets and the diversification of what we’ve done over the last, whatever, 5 or 6 years..

Great. Thanks for taking the questions..

You bet..

Thank you. The next question is from the line of Andrew Obin from Bank of America. Please go ahead..

Hi, good morning. This is Emily Shu on for Andrew Obin..

Good morning..

Good morning. I just wanted to dig deeper on the school vertical for Zurn. Is there any way to break down how much of the current backlog is existing retrofit work that was pushed out of last year? And then what is new work that’s being spent on by the stimulus money? Thanks..

Yes. Emily, if that exists, we’d love to have it, too. I think we just think that we’re looking at each of these opportunities in a very hyper local regional basis, but I don’t think we have the ability to break that out for you..

Okay. No problem. And then my follow-up question is on supply chain. What types of challenges are you and your suppliers experiencing, particularly in Asia? How do you think your supply chain strategy has allowed you to navigate through all the shortages that are going on right now? Thank you..

Well, we obviously leverage a – heavily leveraged a design-procure-assemble-test model.

We’ve done, I think, an outstanding job over the last 10 years to establish that and establish multiple sources of supply, diversify out of China, as appropriate, and then run a SIOP process that is very strong to be able to predict demand and then ensure that we get the things that we want on time.

The challenges are numerous from individual component suppliers supplying our suppliers, whether it’s shipping costs, shipping lanes. But that’s the business we’ve chosen to be in. And I think our SIOP process in general, it has to be super robust because we do rely on third-party suppliers for helping us bring products to market.

And so that’s been, I think, the thing that’s helped us the most. Our teams have done a terrific job of staying in front of what we think expected demand may be in order to ensure that lead times and availability are best in class, and that’s also helping us win business. So it’s really a multifaceted view of what we’ve done and continue to do.

I mean, like anybody else, we have challenges day to day, but the ability to navigate through those to keep lead times and service levels super high is allowing us to win more often than not..

Great. Thank you. I will pass it on..

Thank you. The next one is from Joe Ritchie from Goldman Sachs..

Thanks. Good morning guys and congrats on the Bucks win last night. It looks like Mig wasn’t the only one partying..

We feel like that. Let’s put it that way..

Yes, yes. What they look like [indiscernible] last night. But couple of quick ones for me. I guess, maybe just kind of following on the line of questioning that you just got on the supply chain and really disinflation in general.

We heard from Dover yesterday that in one of their segments they built backlog this quarter because capably they just didn’t have enough labor really to ship out some of their products. And they highlighted kind of like inflation being a little bit more of a headwind in the second half of the year, particularly on the labor and price side.

So I’m just curious to hear any comments that maybe you guys make along those lines and what you’re seeing in your business..

Well, obviously, the outlook we provided with Q3 has our best view on all of that. We are not seeing the labor challenge that you just spoke of.

And I guess it’s our view that, when you have the dynamic that we have in the world the last couple of years, starting with tariffs, and then you have a pandemic on top of it, and then you try to start the world up in a synchronous fashion, it never comes back on the same straight line as you shut it off.

And obviously, there are labor shortages in certain industries and certain parts of the market that are, of course, impacting that ability to get capacity back online across a wide array of interconnected suppliers and industries. And so it’s our view that the inflation that we’re seeing now is a little bit transitory.

And by the time we get to winter, we will see that abate. But everything that Mark talked about and I spoke about in terms of how we’re seeing the top line and our margins and things like that have all of that sort of with our best cut of what we’re seeing and expect in it..

And Joe, we would agree with Dover’s comment that we would expect to see some of the trend for freight cost, shipping costs become a little steeper in the back half of the year, more in the third quarter than the fourth. We agree with that. But that’s the point, we know that we see it. We’ve built it, and we’re managing around it..

Got it. Okay. That’s helpful. And then maybe just my one follow on would be just around like M&A. So clearly, nice job in working down the leverage numbers and continuing to working down, I’m sure, once the transaction is completed.

I guess maybe just any color you can give us on your pipeline today, how you’re thinking about where valuations fit and how robust the pipeline is today?.

Look, when we made the decision to do this, we made it with – knowing that we were going to be stand-alone and we better have a robust enough pipeline to begin to acquire and leave ourselves with the balance sheet to be able to do that. And so I think we see a number of opportunities.

I don’t think we’re going to predict the time or the timing, but I think we feel really good about M&A opportunities in and around our core business and maybe some line extensions over time. And in terms of valuation, obviously, we’ve been a disciplined acquirer for a long, long time. I think we’re going to continue to do that.

Our philosophy has been cultivate things that make a lot of sense and doing the value that discipline that creates a high ROIC in a relatively short period of time, and that’s not going to change. You listen to some of these calls, and people just gripe about how expensive things are.

We get paid to get these things done and create value for shareholders, and so that’s what we’re going to continue to do..

That’s great to hear. Thanks guys. Nice quarter..

Thanks, Joe..

Thank you. There are no further questions at this time. Presenters, please continue..

Great. Well, thanks, everyone that could join us on the call today. I definitely appreciate your interest on Rexnord and we look forward to providing our next update when we announce our September quarter results late October. Have a great day, everyone. Thanks..

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect..