RBC Bearings Incorporated

Greetings and welcome to the RBC Barron's Fiscal 2024 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll, with Investor Relations. Please go ahead.

Good morning, and thank you for joining us for RBC Behring's Fiscal 2024 Third Quarter Earnings Conference Call. With me on the call today are Dr. Michael Hartnett, Chairman, President, and Chief Executive Officer, Daniel Bergeron, Director, Vice President and Chief Operating Officer, Robert Sullivan, Vice President and Chief Financial Officer, Before beginning today's call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC Barron's recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website. With that, I'll now turn the call over to Dr. Hartnett.

Thank you, Josh, and good morning and welcome. Net sales for the third quarter of fiscal 2024 were $373.9 million. This represents an increase of 6.3% from last year, and I'm happy to report this is within our guidance range on revenues. The third quarter of 2024, sales of industrial products represented 65% of net sales with aerospace products at 35%. As a footnote, over the past five years, revenue growth at RBC has been compounded rate of 16.8%. Margin for the quarter was $158 million, or 42.3% of net sales, again within our range. This compares to $146 million, or 41.5% for the same period last year, an 80 basis point improvement. We continue to see year-on-year improvement in gross margin as we continue to strengthen operational performance and improve both absorption and methods in our plants. This quarter, because of fewer production days leading to lower overhead absorption, margin is normally the lowest of the year. It's historically bounced back in Q4. There's no surprises here. We see this effect every year. Overall, profitability continues ahead of plan year to date, and to reconfirm, we expect to finish the year in the low to mid 40% range on gross margins. Again, our hats are off to the RBC team for this performance. We all understand that we are in business to service our customers to the full extent of our abilities with high quality and service levels is always our first priority. More than 70% of our revenues are from products where we are sole or primary source. Our customers have learned over the years they can trust us. When they come to us at the last minute in crisis, we perform for them. Adjusted operating income for the period was $75.5 million, 20.2% of net sales compared to last year, $71.6 million, and 20.4% respectively, a 5.3% improvement. Free cash flow was a strong $70.9 million. Debt reduction continues to be a priority and is progressing as planned. We achieved $550 million decrease in debt since the acquisition of Dodge in November of 2021, 27 months ago. A net debt to EBITDA ratio of 2.5 over trailing 12 months down from 5.65 in fiscal 22. RBC's record of EBITDA growth over the last five years now stands at 19.4%. Adjusted EPS included was $1.85 a share. Adjusted EBITDA was 109.5 million, or 29.3% of net sales, compared to 103.3 million, or 29.4% of net sales, the same period last year, a 6.1% increase. We continue to make continual improvements in the execution of our business and are excited to see a robust acceleration in demand for our products from industry leaders in the aircraft, marine, and space industries. We look forward to a March year end with revenues finishing in the $1.55 billion range. On the industrial business, during the quarter, the industrial growth was minus 0.6% overall against some strong comps last year. Last year, improved supply chain performance allowed us to ship orders which were late to customers. creating a bulge in sales and distorting year-on-year comps by a few percentage points. We now have a well-performing supply chain on the industrial side, so the environment has changed and orders late to customers' requests are back to normal. Dodge revenues are up 1.4% year-to-date, down in Q3 minus 0.3%, and we expect to be up again in Q4 a few percentage points. RBC classic industrial sales were down 1.4% during the last period, driven solely by softness and semiconductor machine makers. Normalizing for semiconductor sales, RBC classic industrial revenues would have been up 3.6%. In a word, our industrial business is performing well and is in the steady as she goes mode. On aerospace and defense, Commercial aerospace was up 16.5%. The aerospace and defense sector was up 22.5% overall. The constraint here is not demand, it's production. We are working to expand manufacturing assets as well as increased inbound materials to fuel the continued 20 plus percent per year on year expansion across many facilities that service these markets. As explained in prior calls, OEM defense includes components and assemblies for jets, missiles, helicopters, marine valves, satellites, rockets, and it's up 32.7% year over year. Bookings overall in this sector have been very strong. We now have over 60 contracts negotiated and signed with a value of approximately $1 billion. Additionally, we are in a position to grow this metric substantially again by mid-year. Finally, the aftermarket was up 26.1% main drivers, jets, helicopters, engines, and marine. As you can see, the aerospace market is strongly accelerating with increased volumes quarterly. Demand drivers here are defense and, of course, large plane builders. the submarine and weapons OEMs, and their supply chains. Despite the news otherwise, we are building 737 materials at the 42 per month rate, and new orders to RBC are inbound at about the 47 per month rate. We don't expect this situation to change materially at this time. On the 787, our current build rates are approximately five per month now and seven per month by April. That's an important ship to us. As you know, Airbus is pushing the 320 ship build to exceed the monthly rate of 70 in 2024. So in summary, just to go over the highlight reel, Q4 sales were up 6.3% for the period. EBITDA, 109.5 million of 6.1% from last year. EBITDA, 29.3% of sales up from 26.7% in Q3 of 22. Adjusted net income of $60 million up 12.4%. Debt pay down since November of 2021, $550 million. Trailing EBITDA net debt 2.5 versus 5.65 in fiscal 22. And well over half of our revenues are to replace products consumed in use. Full year gardens revenue range FY24 in the 1.55 million range. And gross margins will be in the low to mid 40s. Regarding the fourth quarter of 2024, we are expecting sales to be somewhere between $405 and $415 million range. And I'll now turn the call over to Rob, our Chief Financial Officer, for more financial details.