RBC Bearings Incorporated

Good morning, and thank you for joining us for RBC Bearing's Fiscal First Quarter 2026 Earnings Call. I'm Josh Carroll with the Investor Relations Team, and with me on today's call are Dr. Hartnett, Chairman, President, and Chief Executive Officer, Daniel Bergeron, Director, Vice President, and Chief Operating Officer, and Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today may be forward-looking and are 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 Bearing's recent filings with the SEC for a more detailed discussion of the risk that could impact the company's future operating results and financial condition. These factors are also listed in the press release along with reconciliation between GAAP and non-GAAP financial information. With that, I'll now turn the call over to Dr. Hartnett.

Thank you, Josh, and good morning. You know, we had a great quarter, and we have some really good news to go through with you today. So thank you all for joining us. So I'm going to start today's call, as usual, with a short review of our financial results, and I'll finish our outlook on the industry and fiscal 26. Rob Sullivan will follow me with more details on the numbers. So our first quarter sales were $436 million. A 7.3% increase over last year driven by continued strong performance in our aerospace and defense segment and solid performance from our industrial businesses. Consolidated gross margin for the quarter was 44.8% versus 45.3% for the same period last year and adjusted diluted EPS was 284 versus 254 per share. Clearly, we're very pleased to see these strong margins and kick off our first quarter in fiscal 26. Free cash flow was another highlight of the period of 104.3 million, setting a new record for RBC. And adjusted EPS was $2.84 per share. Total A&D sales were up 10.4% year over year. with 9.6% growth on the commercial aerospace side and 11.9% in defense. On the industrial side, the segment grew 5.5% year over year with the distribution and aftermarket up 10%. In A&D, we continue to see broad strength across the portfolio. The aircraft aftermarket expanded 22.6% and the defense aftermarket contributed well also. yielding a total of 10.4% for the segment in the quarter. We cheer the progress Boeing is making on aircraft production and continue to pray for their continued success. Moving to industrial, we achieved a 5.5% growth this quarter. Most of our industrial markets contributed to this performance. Aggregate, metals and mining, food and beverage, forest products, warehousing, grain to name a few. Oil and gas as well as semiconductor remain weak. For RBC, the industrial economy felt strong, and the recent print of 3% U.S. GDP expansion confirmed our impression during the period. Certainly, the tax treatment for capacity investment in the Big Beautiful Bill recently signed pretends well for these sectors in the future quarters, and we expect this to be a very positive influence on demand for our products for the balance of this year and into next. Overall, our backlog for the first time exceeded $1 billion during the period, with $100 million of that being industrial products. Our relentless drive for organic growth through product innovation and market development creates new opportunities that are identified and sorted monthly at our ops meetings. This is often where high potential productive short and long-term options are identified and prioritized. These can be for markets as diverse as aero engine, space, guided weapons, marine, warehousing, airframe, bridge building, to name a few examples. This has become an increasingly important feature of our business plan, adding to meaningful revenues year in and year out. A little on defense, demand for our products remains at unprecedented levels. We expect to see the sector of our business expand in the high single to low double digits for many quarters into the future. We are adding to our capacities where needed to satisfy the expanding requirements of our customers. Our marine business is a primary driver in this regard, but there are many other subordinate drivers in this expansion. such as airframe, aero engine, and aero aftermarket. Clearly, the recent acquisition of VACO adds fuel to this fire. A little on VACO. VACO's marine business, which has historically represented half of their revenues, demand for their products, like ours, is very high, again driven by the build-out of the U.S. submarine fleet. Their business, like ours, must expand to meet the needs of the Navy, The synergy between RBC and VACO is strong, adding critical mass in the areas of engineering, manufacturing, contract management, and supply chain. We are only weeks into our ownership of this new business, and I will wait until our next conference call to further elaborate on our plans and potential. I am highly optimistic about our future together with this unusually synergistic business. As we begin Q2 and fiscal 26, the year is shaping up to be a very strong one for RBC. We are well positioned in our markets. We see unprecedented demand in several important areas of the market for our products. We hold a strong balance sheet and have created a well-defined business plan in most of our core businesses with a strong button-down five-year outlook that's executable. I will now turn the call over to Rob Sullivan.

Thank you, Mike. As Dr. Hartnett indicated, this is another strong quarter for RBC. Net sales growth of 7.3% drove gross profit growth of 6.1%, with gross margins of 44.8% for the quarter and 45.4% on an adjusted basis versus 45.3% for the same period last year. Our performance during the quarter was driven by a strong performance across our business segments, with industrial gross margins leading the way. Industrial gross margins during the quarter were 46%, and aerospace and defense margins were 42.3%. On an adjusted basis, industrial gross margins were 47.1% for the quarter. On the SG&A line, we had total costs of $73.9 million, or 16.9% of sales for the quarter. Included in that number were additional personnel and fringe costs, as well as continued investment in IT-related costs during the quarter. This ultimately resulted in adjusted EBITDA of $141.5 million, or 32.5% for the quarter. That reflects a 5.6% increase in EBITDA dollars year over year. Interest expense in the quarter was $12.2 million. This was down 29.1% year over year, reflecting the impact of the debt payments made in fiscal 2025 further enhanced by reduced interest rates this quarter as compared to this time last year. During the quarter, we only paid off approximately $6 million of debt as we held cash in anticipation of the VACO deal closing. The tax rate in our adjusted EPS calculation was 22.5%, consistent with last year's 22.4%. Altogether, this led to adjusted diluted EPS of $2.84, representing growth of 11.8% year over year. An impressive result given the choppiness in commercial aerospace production schedules and the macroeconomic softness in the industrial economy. Free cash flow in the quarter came in at $104.3 million with conversion of 152% in comparison to $88.4 million and 144% last year. The higher conversion rate was due to the increased earnings and working capital management during the quarter. In July, we drew down $200 million of our revolver to help finance the VACO acquisition with the remaining $75 million in payment coming from cash on hand. Looking ahead, our capital allocation strategy will remain focused on delevering by using the cash that we are generating to pay off that $200 million we drew by the end of the fiscal year. Looking into the second quarter, we're guiding revenues of $445 million to $455 million, representing year-over-year growth of 11.8% to 14.4%. That guidance embeds an operating environment that's been fairly similar to what we have been seeing over the last few quarters, with an additional benefit of owning backhoe for a little more than two months. On the margin side, we are projecting gross margins of 44 to 44.25% for the quarter, and SG&A is a percentage of sales to be between 17 and 17.25% for the quarter. Embedded in all this is an assumption that VACA will add approximately 15 to 20 million of revenue to our quarterly results in Q2, with gross margins between 25 and 30%. Very similar to Sargent when we closed on that acquisition. Keep in mind, this deal closed in the second half of July, and therefore this does not reflect the full quarter's worth of sales activity. To wrap it up, this is another strong quarter for RBC, which underscores the momentum we have built and the strength of our strategic execution. As Dr. Hartnett notes, we're well positioned to achieve our objectives and drive growth, driven by our core capabilities in engineering and operational excellence and innovative product development. Our focus will continue to remain on executing on our organic growth, integrating backhoe, enhancing operational efficiencies, and delivering robust free cash flow to create long-term value for all of our stakeholders. With that, operator, please open the call for Q&A.