RBC Bearings Incorporated

Good morning, and thank you for joining us for RBC Bearing's Fiscal Fourth Quarter 2026 Earnings Call. I'm Josh Carroll with the Investor Relations Team. With me on today's call are Dr. Hartnett, Chairman, President, and Chief Executive Officer, Daniel Bergeron, Director, Vice President, and Chief Operating Officer, Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today may be for looking and under the Private Securities Litigation Reform Act of 1995. Ash results may differ materially from those projected or applied to a variety of factors. we refer you to RBC Barron's recent findings 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 the reconciliation between GAAP and non-GAAP financial information. With that, I'll now turn the call over to Dr. Hartman.

Thank you, Josh, and good morning, and thank you all for joining us this morning. As usual, I'll begin today's call with a brief review of our financial results and highlight several key trends we see across the sectors. Then I'll turn the call over to Rob Sullivan who will provide additional details on our financial performance for the fourth quarter. Fourth quarter net sales increased 18.3% year-over-year to $518 million, driven by continued momentum in our A&D segment and steady growth in our industrial businesses. Consolidated growth margin was 44.4% for the quarter or 45.3% on an adjusted basis. Adjusted diluted EPS increased year over year to $3.62 compared to $2.83 in the prior year period. Adjusted EBITDA rose 21% to $168.9 million, up from $139.8 million last year. Pre-cash flow remained a strong $67.5 million, and we paid down an additional $116 million of debt during the quarter. Now, turning to our two business segments, approximately 57% of our revenue during the quarter came from our industrial segment, 43% came from our A&D segment. Our A&D business has continued to deliver exceptional performance, with segment revenue increasing 41.2% compared to the prior year period. This strong momentum in aerospace and defense is further reflected in our backlog, which has continued to expand and currently stands at approximately $2.3 billion. This growth continues to be driven by robust demand across the defense and space markets, along with unprecedented commercial aircraft build rates at the major builders. For the full year, A&D segment was up 32%, of which 19.1% was organic. With regard to our business segments, commercial aircraft was up 17.8%, 17.3 of which was organic. Defense was up 65.4%, and 22.1% was organic. Our key revenue drivers, first, as many of you know, marine has been a significant contributor to our backlog growth, driven by accelerating build-out of the submarine fleet. Given the strategic importance of submarines within today's defense strategies, we expect this to remain a meaningful tail ring as production rates continue to ramp across all subcontractors for both the Virginia and Columbia class programs, as well as fleet spares. We are adding machinery and floor space to accommodate increased production rates as we speak. Next is missiles. Missile-related revenue was up significantly this year. with revenue for this sector exceeding $45 million in the fiscal year. Some of this gain did come from our recent VACO acquisition. This growth really reflects increased content we have across several top missile programs and the expanding demand we are seeing given the current global conditions. We are planning for sustained growth in requirements for this sector in the current and future years. We also see an impressive ramp in our space business as investments in this sector continue to hit record levels. During the year, we saw space revenues come in just above $70 million, including $30 million from eight months contribution by Bako. This impressive growth, especially considering that space-related revenue was only $4 million for RBC back in 2021. As this trend accelerates and private investment grows, space infrastructure is being viewed not only as a major strategic national priority, but as a substantial and essential commercial reality. On top of this strong momentum, we are also supporting the unprecedented production rates for commercial aircraft and engines, As you know, we are deeply embedded across these markets on three continents, and as a result, expect to see continued growth at both the OEM and aftermarket levels. Turning now to our industrial business, performance remained steady and up during the period, with OEM revenue increasing 7.8% and distribution revenue growing at 4.5%. During the quarter, we saw strength in aggregates, warehousing, food and beverage, grain, and semiconductor end markets. As we look to the fiscal year 2027, we are encouraged by the continued strength of our operating environment and the building momentum across many businesses. We firmly believe our strong service levels coupled with our brands, our renowned brands, market positions, and technical expertise provide for continued strong financial results long into the future. This was a record year for RBC, and as always, it is a true team effort. I want to thank our employees across the organization for their hard work, dedication, an unwavering commitment to executing our strategy and serving our clients with excellence. With that, I'll turn the call over to Rob, who will walk us through the financials.

Thank you, Mike. We closed fiscal year 2026 with another strong quarter that exceeded our expectations, with net sales growing 18.3%, which led to an 18.9% increase in our reported gross margin. Gross margins were 44.4% for the quarter, or 45.3% on an adjusted basis, compared to 44.2% in the same period last year. Fourth quarter A&E sales increased 41.2% year over year. With the VACO acquisition excluded, our A&E business saw an increase in sales of 22.8%, which highlights the continued strong growth in our legacy commercial and defense markets. A&D gross margins during the quarter were 41.6% or 44.2% on an adjusted basis, and industrial margins were 46.5% or 46.2% on an adjusted basis. Excluding VACO, our aerospace and defense gross margins were 43.7% during the period. We are encouraged by the margin improvement we've achieved within A&D, driven by increased efficiencies, volumes, and newly awarded contracts in the period. Looking ahead, We expect these benefits to continue to further support margin improvement while recognizing the impact will be gradual as these benefits flow through. On the SG&A line, we had total cost of 86.9 million, or 16.8% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of 168.9 million, or 32.6% of sales for the quarter. That represents an approximate 21% increase in adjusted EBITDA dollars during the quarter compared to the same period last year. Interest expense for the quarter was $11.2 million. This was down 12.5% year over year, reflecting the improved leverage position achieved over the last 12 months, coupled with lower interest rates compared to this time last year. We paid off $116 million of debt during the quarter and another $27 million since the end of the fourth quarter. The tax rate in our adjusted EPS calculation was 21% compared to last year's 21.7%. This led to adjusted diluted earnings per share of $3.62, representing growth of 27.9% year over year. Pre-cash flow in the quarter came in at 67.5 million, with conversion of 73.6% compared to 55 million and 75.7% last year. For the full year, free cash flow was 342.6 million, with conversion of 119.1% compared to 243.8 million and 99% last year. Our capital allocation strategy continues to remain focused on deleveraging by using the cash that we generate to pay off our outstanding debt, and we continue to remain on track to pay off the remainder of the term loan by November of 2026. Looking into the first quarter of fiscal year 2027, We are guiding revenues of $500 million to $510 million, representing year-over-year growth of 14.7% to 17%. Adjusted gross margin is expected to be in the range of 45.25% to 45.5%, and SG&A as a percentage of net sales is expected to be in the range of 16.5% to 16.75%. With that, operator, please open the call for Q&A.