RBC

Good morning, and thank you for joining us for RBC Bearings' 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; and Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today may be forward-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 risk 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 that, I'll now turn the call over to Dr. Hartnett.

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. I'll turn the call over to Rob Sullivan, who'll 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 gross 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. Free cash flow remained a strong $67.5 million, and we paid down an additional $116 million of debt during the quarter. 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%, 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 tailwind 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 VACCO 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 8 months' contribution by VACCO. 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 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 wanna thank our employees across the organization for their hard work, dedication, and 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&D sales increased 41.2% year-over-year. With the VACCO acquisition excluded, our A&D 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 VACCO, our aerospace and defense gross margins were 43.7% during the period. We are encouraged by the margin improvement we've achieved with 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. Free 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-$510 million, representing year-over-year growth of 14.7%-17%.

Adjusted gross margin is expected to be in the range of 45.25%-45.5%, and SG&A as a percentage of net sales is expected to be in the range of 16.5%-16.75%. With that, operator, please open the call for Q&A.

Thank you. We'll now be conducting the Q&A session. To ask a this time question you may press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. If you would like to withdraw your question you may press star two. For participants using the speakerphone it may be necessary to pick up your handset before pressing the star key. One moment for our first question. Thank you. Our first question comes from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.

Hey, good morning, everyone. You know, I wanted to dive a little bit deeper into your comments about the missile end markets. First, you know, you talked about how you know, VACCO was able to increase share of content on programs. Can you expand more about, you know, what that looked like? And also, you know, the genesis of this question ultimately with the multi-year agreements that we're seeing the Department of Defense sign with the missile providers. We're seeing volumes of, you know, 200%-1,000% growth in the next 5 years-7 years. Just wanna understand more, you know, how VACCO plays into that.

Also, you know, with VACCO's deeper relationships with some of these customers, are there avenues in which you know, RBC Bearings can increase total company share into some of these end markets to solve for the shortages that the industry is facing? Thanks.

Well, Kristine, good morning. There was a lot of questions in there.

Oh, sorry. I hope you answered them all, though, Mike.

Well, VACCO provides some pretty unique components to manage fuel systems. In the case where their fuel system is generated by liquid propulsion, VACCO has products that are pretty widely used, particularly on some of the more significant programs like the Tomahawk. We expect to see more expansion with VACCO on these missile programs as time goes on. Sort of enough said there. On the RBC Bearings side, We sort of took a little survey around our plants to see exactly which systems we were servicing, and it's a pretty broad range of systems.

It certainly gets the well-known Patriot and the GMLRS and the Tomahawks, but there's also the Standard Missile, the JAGM, the ASTER missile in Europe. There's a next gen missile that's recently been developed to replace the Hellfire. We're, you know, we're on all those systems. It is, and we are definitely expanding our production capability to participate further in all of these programs. That's happening now. I'm not sure I got all of your questions answered, but I think I might have touched on a few of them.

Yeah. That's super helpful to get the context for those programs. I guess, you know, Mike, you know, as you kind of look at, the significant growth the industry needs to build to be able to meet the capacity needs of the Pentagon, you know, it just seems like a very big number, right? I guess my follow-up question to that is, you know, you have your existing share, and you've got this volume, and it sounds like, you know, you'll be prepared for that. Are there other avenues where you could take higher ship-set content in these programs, so you would get the double benefit of the volume plus potential share increase?

Yeah, the answer there is yes, and we're working on that now. So we're working on both. You know, the volume is pretty substantial on some of these, some of these programs. I think one of the programs I didn't mention was the hypersonic missile program, which we're also part of, which is a significant program for us. Yeah, I mean, we're gonna have our hands full with volume, and at the same time, we're increasing mix. Increasing the mix is a little bit slower because it requires tooling and that sort of thing. But it's within, it's within a three year, certainly within a three year period.

Great. Super helpful. You know, you also called out your space revenue exposure, you know, which is larger right now than your missile exposure. For this end market, can you give us an idea about, you know, your customer set? Are these traditional space companies? Are these the new space companies? What's your role in that ecosystem, and where do you see the growth coming from?

Well, it's both. It's both the existing, you know, people that service the, that have serviced the space industry since Apollo. You know, it's the Boeings and the Lockheeds and the Northrops and the Raytheons, the Collins and so on. It's that standard group, which we've, you know, been long associated with. It's also the new, the new people, such as SpaceX, Blue, Rocket Lab and a few others whose names don't come to mind quickly. You know, I mean, we're it's both sides of the street.

It's, you know Right now, you know, I like to think of it as, you know, 50 years ago, when there was the Apollo program, the only table in the casino was NASA. Now it's a huge casino with many tables, NASA being one of the tables. So there's just a lot of places to do business for our particular mix of talents and manufacturing skills. So we're really very actively engaged in trying to, trying to determine how to take that forward in the best possible way for our shareholders.

Great. Thank you very much for the color, and, you know, very great to see a solid quarter from you. Thanks.

Thank you. Thanks.

Our next questions are from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your questions.

Thanks. Good morning.

To you Steve.

Mike, for the last few quarters to include your comments today, you've talked about adding equipment and headcount to support customer ramps. I'm curious, where are you tightest capacity-wise by end market or program? What do you think the entire company is capacitized to from a revenue standpoint?

Well, you're asking even bigger questions, Steve. Well, certainly we're tight on producing marine hardware. There's no question about that. It's got our attention and we're adding equipment and floor space and test labs and people to accommodate that. I mean, the submarine business has been, you know, sort of dormant since they canceled the Seawolf. Now, it has to, you know, the entire support system is in this extremely aggressive ramp and doing everything they can to keep up with the priority right now being the Columbia. Yeah, it's taxing. We're up to it. We're making progress. We're adding capacity. We're attempting to double our revenues over a short period of time.

Years, not months, Steve. It's all production related, but we're definitely gonna double our revenues in that sector, over the next 24 months-36 months.

Just overall company, like you're running at $500 million run rate, so you know, $2 billion annualized. How much does the current footprint with incremental kind of tweaks like support $2.5 billion or $3 billion? Just trying to get a sense for when you need a more robust and long life kind of capacity expansion or CapEx cycle.

Well, the CapEx cycle, this past year has been on adding bricks and mortars and sort of moving some plants around because the infrastructure and existing plants got a little tired and it seemed better to build a new one than it did to fix the old one. We've spent a little bit of money on brick and mortar, but going forward, it's gonna go into equipment. We expect to be in that 3.5%, maybe 4% range some years, and it will be hard equipment.

You know, in terms of production ability, we have some great plants in Mexico that are well-staffed and well-tooled and are big production aids for us. Our ability to flex those plants is high. That really helps with the capacity situation. It's more difficult to hire in the United States in many areas. It's taxing. It's less difficult in Mexico. That's been part of our strategy in terms of increasing our throughput.

Got it. For a follow-up, you know, with multiple programs ramping at the same time, are you seeing supply chain constraints for the things outside your control that could affect the programs you sell into? Any issues with castings or forgings or things that you source?

On the A&D side, there's always the issue of titanium. We haven't seen it yet, but we're watching aluminum. High alloy steel is available at a price that's extraordinary. If you have the money, you'll get the steel. Those are some of the areas to watch for us.

Got it. Thanks.

Yep.

The next question is from the line of Scott Deuschle with Deutsche Bank. Please proceed with your question.

Hey, good morning. Dr. Hartnett, can you give us any sense as to what level of commercial aerospace growth you're planning for in fiscal 2027?

Well, yeah. Certainly the demand will be greater than our growth, and our growth will be beyond we're planning for growth, on commercial aerospace beyond 15%.

Okay. Will you expect defense and space together to grow faster or slower than commercial aerospace?

Faster.

Okay. Good news. There's been some recent notable strength in the industrial automation market recently. I guess, can you remind us as to how much exposure you have to industrial automation, and then speak to the demand trends that RBC is seeing in that vertical specifically?

Industrial automation as a supplier to industrial automation?

Yes.

Yeah. Well, I mean, that part of it, as a supplier to that's a little bit of a small sector for us, but it's, you know, we like it. I mean, I think we're in the $40 million-$50 million a year range, kind of in that space. You know, certainly semicon fits into that space nicely, where we supply robotic components for chip manufacturing and, that demand has been strong. It hasn't shown up in FY 2026 as a significant contributor, but it will in 2027.

Okay. Can you share any detail on what the current level of annualized sales is for RBC into the humanoid robot sector and what type of growth you've been seeing there recently?

It's small. It's, you know, You know, for us, that's still sample making and, you know, and we continue to support the industry as it's being developed. We don't see any volumes there from anybody.

Okay. Thank you very much.

Yep.

The next question is from the line of Pete Skibitski with Alembic Global. Please proceed with your questions.

Good morning, guys. Nice quarter.

Hey, Pete. Please, Pete.

Hey, Mike, in the way of understanding, you know, kind of recent trends, are you guys seeing any, you know, headwinds in the commercial aerospace aftermarket, just from airlines kind of tightening their belts in this higher jet fuel environment? You know, if we think about April and kind of May to date.

I'd say we haven't seen it yet.

Got it.

We're watching it, you know. It's on the bubble.

Okay. Your aftermarket, is it more leverage to the engine than to the airframe?

Yes.

Okay. Okay. I guess last one for me, just on can you update us on where you're at with the your commercial OEM, the LTA repricings? I'm just wondering if all of your LTAs have repriced at this point in to sort of the post-COVID inflation environment. I think I'd written down that January 1, 2026, you'd have, I don't know if it was 100% of your contract would be repriced at that point or some lower percent. I'm just wondering if you could shed light on that.

Yeah, I would say that's about 60%.

Okay.

There's still. There's still another 40% to go.

Okay. I guess by the end of this fiscal year, or maybe two more fiscal years?

Effective January 27th.

Okay. Okay. Okay. Thanks, guys.

Yep, thanks.

Thank you. As a reminder if you want to ask a question you may press star one at this time. The next question is from the line of Alexandra Mandery with Truist. Please proceed with your questions.

Hi, nice results, and thanks for taking my question. I just wanted to see if you could provide any further details underpinning the fiscal 1Q guidance and any initial thoughts on fiscal 2027.

Yeah. You know, just like we typically do when we put this together, we have a range of outcomes, both in aerospace and industrial, and that's kind of where we led to the 5-510 on sales. The aerospace margins have obviously been accelerating, and we're very happy with that. That, you know, was contemplated when we were looking at the consolidated margins that you see in Q1. You know, the industrial margins have obviously been coming in at a higher level. As aerospace and defense has been growing faster, you know, it just puts a little bit of dilutive effect on the consolidated margins. For the full year, we think we can still expand the consolidated gross margins by about 50 basis points.

That's kind of how we put it together. SG&A, it's just a reflection of our kind of continued investment in the, in the organization to effectively be able to achieve the growth that we see in front of us.

Great. Thanks. I guess, what is your M&A appetite going forward, and what capabilities or company profile might you be looking for if you're interested?

Well. The profile would be mechanical products servicing a customer base very similar to almost by name to the customer base that we currently service.

It would be a company that would be preferred to be insolvent. It would be in a geography that would be easy for us to get to repair an insolvent company.

Great. Thank you.

Thank you. The next question is a follow-up from the line of Scott Deuschle with Deutsche Bank. Please proceed with your question.

Hey, Rob, the SG&A costs came in a bit high relative to guidance this quarter. Can you speak to what drove that? It looks like stock comp is a piece of it, but I think there were some other pieces of it as well.

Yeah. It's really primarily personnel costs that kind of flowed through just the timing, and certain compensation matters that kind of flowed through stock comp specifically was up notably. Then just a few other administrative costs that kind of came through.

Okay. Should we expect it to trend above $80 million a quarter going forward? It looks like that's what the first quarter guide implies, but just wanted to check if I should continue to have that in the model.

Yeah. I think that's probably right. It'll be, you know, a little bit above $80.

Okay. Last question for Dr. Hartnett. As SpaceX ramps up production of Starship, should we expect that to drive an acceleration in your space revenue growth?

Modestly, I think. I think we're still working on some Starship programs, but I'd say right now the outlook there for us would be modest.

Okay. Thank you very much.

Next question is from the line of Steve Barger with KeyBanc. Please proceed with your question.

Thanks. Hey, Mike, last quarter, you were early versus other companies talking about an industrial inflection, saying demand improved in December and January. Has that momentum really held up, exiting your 4Q into 1Q?

Yeah, I would say it has, yeah. I mean, it's modest, but it's held up.

Yeah, I would say the story through industrial earnings has been kind of a broadening out of orders across automation, semis, power, some of the same things that you talked about. I guess, are you seeing more breadth in the industrial order book?

Breadth in terms of sectors serviced?

Yeah, across more end markets. You know, last year, Aerospace Defense and I guess things related to data center were really the drivers. Is that broadening out to some degree?

Well, you know, when you look at the amount of money that's going into the AI and the build-out of the server farms, there's an enormous amount of build-out that's occurring right now. Since our aggregate business is our aggregate business up 20%, 17%, something like that. You know, you can see it through our aggregate business.

Yeah.

That something extraordinary is happening someplace in North America. That's. Yeah, that has breadth.

Yeah. No, I think that's an interesting comment on just kind of that should be a leading indicator to a lot of other industrial end markets as that kind of flows through. Does that make sense to you?

Yeah, it does. Yeah.

Perfect. Thanks.

Yep.

Thank you. The next question is from the line of Ross Sparenblek with William Blair. Please proceed with your question.

Hey, good morning, guys.

Good morning.

Morning.

Just one quick question from me. Did I hear you right that the ex-VACCO Aerospace and Defense gross margins were 43.7%?

Correct.

That puts VACCO around 48% gross margins in the quarter?

VACCO was about it was over 46% this quarter. They had some really strong, you know, unique items flow through this quarter. Great mix, and that kind of pushed it. I would not expect that to be the naturalized run rate. I believe their adjusted margins were probably more in the, you know, mid-30s, which is their normal operational level.

Okay. Yeah.

The forecast for Q1.

As you said, that's a pretty exceptional trajectory if we were to assume that into 2027.

Yeah, yeah. Yeah, don't assume that.

All right. Nice quarter, gentlemen. Thank you.

Thank you.

Thank you. At this time, I'll turn the floor back to Dr. Hartnett for closing comments.

Okay. Well, we thank everybody for their participation and interest today in our RBC, and look forward to speaking again in late July. Good day.

Ladies and gentlemen, this will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.