RBC Bearings Incorporated

Good morning. Thank you for joining us for RBC Bearings Fiscal Second Quarter 2027 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, and 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. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC Bearings' 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 listed in the press release along with a reconciliation between GAAP and non-GAAP financial information. With all that said, I'll now turn the call over to Dr. Hartnett.

Thank you, Josh, and good morning to everyone, and thank you for joining us. Again, as normal, I'll begin today's call with a brief review of our second quarter results and discuss some trends. We are seeing across the end markets. Before turning the call over to Rob, who will provide additional details. We delivered a strong second quarter with net sales increasing 15.2% year over year to $524.6 million. This was driven by continued demand in our aerospace and defense environment and a 14.8% growth from our industrial business. Consolidated gross margin for the quarter was 45.6%. Adjusted EPS increased 29.9% year-over-year to $3.74 compared to $2.84 in the prior year. Adjusted EBITDA rose 20.4% to $175 million versus $145.3 million last year. That's 33.4% of revenues. Pre-cash flow remained strong at $85.2 million. And that was net of a $24 million acquisition. And we retired $96 million of debt during the period. Turning now to our two business segments, approximately 56% of our revenue during the quarter came from our industrial segment. Aerospace and Defense, which was 44% of sales, continues to expand. Segment revenue increased 15.8%. The components were commercial aerospace was up 17.4%, defense 13.6%. Both were constrained by production capacity, which is easing as new equipment comes online. Across the A&D business, including space, we are seeing record order activity, increasing inquiries, customer requests for accelerated deliveries, and long-term commitments. On space, this sector continues to shine. In the first half, revenues expanded 78%, showing a continuous demand for components from an even ever-expanding stream of new and old customers. Of course, this business is still in the early stages of maturity. We recognize the long-term growth prospects it represents to RBC and are planning future expansions accordingly. On marine, we continue to boost production of components for submarines and are working to triple our output on these products from our baseline. We are now about 30% complete, 70% to go to reach our goal. We are planning continued expansion through FY28. Turning now to our industrial business, performance remains strong during the period with OEM revenues increasing 24.2% and distribution revenues increasing 10.6%. Overall, the sector was up 14.8%. During the quarter, we saw growth across aggregates, metals, food and beverage, warehousing, semiconductors, grain, and power generation. No significant contraction was seen in any of the core industrial markets. Overall, we remain invigorated by the strength, breadth, and outlook of the total RBC business. To the RBC team listening today, thank you for always going the extra mile in support of our customers. We believe and continue to believe our differentiators that make the difference are outstanding service levels, strong brands, unique certified products, leading market positions, technical expertise, most of all our dedicated employees. With that, I'll turn over the call to Rob who will walk us through the financials.

Thank you, Mike. We delivered another strong quarter ahead of our expectations with net sales growing 15.2% which led to a 19.1% increase in our reported gross margin. Gross margins of 45.6% on both the reported and adjusted basis compared to 44.1% reported and 44.9% adjusted in the same period last year. The gross margins this quarter reflect the benefits of increased volumes running through our production facilities along with the impacts of contract renewals and favorable mix. Second quarter A&D sales increased 15.8% year over year. Net sales from our industrial business increased 14.8% during the period or approximately 14% excluding 2 million of sales from PSC, which was acquired in August. A&D reported gross margins during the quarter were 42.2% and industrial margins were 48.2% compared to 38.7 and 48.2% in the prior year period respectively. On the SG&A line, we had total costs of $83.4 million or 15.9% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $175 million or 33.4% of net sales for the quarter. That represents a 20.4% increase in adjusted EBITDA dollars during the quarter compared to the same period last year. Interest expense for the quarter was $9.3 million. This was down 30.6% year over year, reflecting the improved leverage position achieved over the last 12 months, coupled with lower interest rates. We paid off $96 million of debt during the quarter, which included repaying the remaining balance of our term loan ahead of the November 2026 target we set a year ago. The tax rate in our adjusted EPS calculation was 22.2% compared to last year's 22.0%. This led to an adjusted diluted earnings per share of $3.74 representing growth of 29.9% year over year. Free cash flow in the quarter came in at 85.7 million with conversion of 91.4% of net income compared to 71.7 million and 119.5% last year. Conversion through six months stands at approximately 119% of that income. Our strong balance sheet and improved financial flexibility provides us opportunities to pursue a balanced capital allocation strategy as we continue to deleverage. Looking into the third quarter of fiscal 2027, we are guiding revenues of $520 to $525 million, representing year-over-year growth of 12.7% to 13.7%. On a nine-month basis, that would mean sales of $1.564 billion to $1.569 billion, representing growth of 15.6% to 16% year-over-year. The outlook reflects the normal seasonal impact of the holiday period on our third quarter. Adjusted gross margins in the next quarter are expected to be in the range of 45.5% to 45.75%, and SG&A as a percentage of net sales is expected to be in the range of 16.25% to 16.5%. With that, operator, please open the call for Q&A.