Q4 2022 RBC Bearings Inc Earnings Call

May 26, 2022

Good day and thank you for standing by welcome to the RBC bearings fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Josh Carol Investor Relations. Please go ahead.

Good morning, and thank you for joining us for RBC bearings fiscal 2022 fourth quarter and full year earnings conference call.

With me on the call today is Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Herz, Ryan Director, Vice President and Chief Operating Officer, Robert Sullivan.

Vice President and Chief Financial Officer.

Before beginning today's call, let remind you that some of that 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 variety of factors.

Were you to RBC bearings recent filings with the SEC for a more detailed discussion 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 <unk>.

Company's web site.

In addition, reconciliation between GAAP and non-GAAP financial information.

Part of the release, it's available on the company's website.

Now I'll turn the call over to Dr. Hartnett.

Okay. Thank you Josh.

Good morning, and welcome.

<unk>.

I will present, the highlights of our fourth quarter and following the Robin Dan will discuss some of the details of this summary.

RBC bearings net sales for the third quarter of fiscal 2022.

Fourth quarter of 2022.

$358 9 million versus $160 3 million for the same period last year.

The increase in one hundreds of 123, 9%.

For the fourth fiscal quarter of 2022 sales of industrial products represented 71% of our net sales.

And aerospace products represented 29% of revenues.

Adjusted gross margin for the quarter was $144 3 million or 42% of net sales.

This compares to $67 2 million or 39, 1% for the same period last year.

Adjusted operating income was $70 4 million 19, 6% of net sales. This compares to last years, 3% to $32 $5 million or 23.

3%.

116% increase.

Adjusted diluted EPS was $1 26, a share in.

Cash EPS was $2 15 per share for the three months period.

Revenues.

Diluted EPS and cash EPS for the full year.

$942 9 million.

$3 eight nine.

<unk> per share and.

$6 five $1 per share respectively.

Five months of Dodge industrial revenue, which was our period of ownership.

$291 $9 million and Rbc's revenues net of Dodge industrials revenues.

For the full year were $651 million.

Adjusted EBITDA for the fourth quarter was $104 4 million.

Nine 1% of net sales comp.

Compared to $45 9 million and 28, 6% for the same period last year.

127% increase.

It's very clear we are thrilled with the record performance of the business this quarter.

And with the overall speed of integration and management cohesion.

Of these two extraordinary and complementary businesses.

Now, let's talk a little bit about our sectors industrial and aerospace.

During the period demand for industrial products continue to exceed both our capacity and.

That of some of our suppliers.

We have worked through these constraints tirelessly over the past many months and see some relief as we head into our second quarter.

The problem will continue to test us during the next few months.

And we will have.

Reduced impact on our revenues.

Our industrial businesses were up about 300% on a quarter over quarter basis, mainly because of the <unk> acquisition completed in November .

Good base for classic RBC industrial businesses.

Stand at approximately 16% for both the OEM and distribution.

With both OEM and distribution expanding.

In the mid teens range.

As stated earlier the industrial total industrial revenues were $253 9 million.

Demand from all industrial markets served who is very strong.

Turning now to aerospace and defense.

<unk> fourth quarter fiscal 2022, net sales were up by eight 8%.

Led by aircraft OEM, which expanded at 21%.

We are experiencing a sea change in demand for aircraft Oems from both Boeing and Airbus.

As they increase their build rates for the single aisle 737, <unk> hundred 20 ships. This is complemented by the introduction of new products that we're supplying for both of these planes.

Looking ahead each successive quarter.

<unk> is more robust than the last reflecting the rate increase is planned by the major builders.

Consequently, we are seeing a step increase in demand for our commercial plant from our commercial plane manufacturers. This.

This will impact successive quarters, this year and through next fiscal year and beyond.

Currently adding to our installed capacity to accommodate these higher volumes of single aisle production.

And for the new products that we're producing for these fleets.

We look forward to the increased build rates of the wide body Jets next year.

As our content per plane is several multiples of those for the narrow bodies.

Increased production rates.

787, and triple seven.

Greater.

Plan for 2023 and <unk>.

Beyond are welcome and will be meaningful to.

To us for the next several years.

And defense, our defense OEM business revenues were down about 2%.

Which is more reflective of timing on shipments and demand for these products.

OEM demand for defense.

Priority programs is substantial and building for us today.

These products are normally complex and highly engineered and requiring longer engineering and manufacturing cycles. Hence.

Hence lumpier revenues through the quarters.

The defense and aircraft market sectors.

We're about flat with last year.

Although we have seen a flurry of MRO defense products and recently.

For MRO defense products in recent weeks.

That doesn't surprise anyone.

Following this activity we are expecting to see increased spending.

From from the military in the quarters ahead.

As we are still within production lead times and the fiscal year.

Any defense bolt would show up.

As soon as our fourth quarter.

Regarding our fourth quarter, we are expecting sales to be between $355 and $365 million.

I'll turn now the call over to <unk>.

To Rob for more detail on the financial performance.

Thank you, Mike and expanding on gross margin that Mike has already covered.

Gross margin for the fourth quarter of fiscal 2022.

Was affected by a $6 8 million inventory step up related to the Dodge acquisition. This is not expected to impact future quarters.

SG&A for the fourth quarter of fiscal 2022 was $56 million compared to $27 4 million for the same period last year.

As a percentage of net sales SG&A was 15, 6% for the quarter of fiscal 2022 compared to 17, 1% for the same period last year.

Other operating expenses for the fourth quarter of fiscal 2022 totaled $23 7 million compared to $5 3 million for the same period last year.

For the fourth quarter of fiscal 2022 other operating expenses included $5 7 million of costs associated with the <unk> acquisition, including $4 7 million.

Costs associated with transition services.

There was also a $17 2 million of amortization of intangible assets and zero point $8 million of other items.

Other operating expense for the same period last year consisted mainly of $2 5 million of amortization of intangible assets $1 5 million of costs associated with the cyber event 1.0 million of restructuring costs and related items and <unk> 3 million of other costs.

Operating income was $57 8 million for the fourth quarter of fiscal 2022 compared to operating income of $29 7 million for the same period in fiscal 2021.

On an adjusted basis operating income was $70 4 million for the fourth quarter of fiscal 2022 compared to adjusted operating income of $32 5 million for the fourth quarter of fiscal 2021.

For the fourth quarter of fiscal 2022, the company reported a net income of $32 2 million compared to net income of 25.0 million for the same period last year on an adjusted basis net income was 42.0 million for the fourth quarter of fiscal 2022 compared to $27 4 million for the same period last year.

Net income available to common stockholders for the fourth quarter of fiscal 2022 was $26 5 million compared to net income of 25.0 million for the same period last year.

On an adjusted basis net income available to common stockholders for the fourth quarter of fiscal 2022 was $36 3 million compared to $27 4 million for the same period last year.

Diluted earnings per share was <unk> 92 per share for the fourth quarter of fiscal 2022 compared to 99 per share for the same period last year on.

On an adjusted basis diluted earnings per share for the fourth quarter of fiscal 2022 was $1 26 per share compared to adjusted diluted earnings per share of $1 <unk> per share for the same period last year.

Diluted cash earnings per share was an adjusted $2 15 for the fourth quarter of fiscal 2022 compared to $1 36 for the same period last year.

Adjusted net cash net income and adjusted cash earnings per share excludes non cash expenses for depreciation and amortization of fixed and intangible assets stock compensation and amortization of deferred financing fees.

Net of the tax impact, we believe that adjusted cash net income and adjusted cash earnings per share are useful in assessing our financial performance by excluding items that do not affect the cash available to common stockholders.

Turning to cash flow the company generated $46 9 million in cash from operating activities in the fourth quarter of fiscal 2022 compared to $41 9 million for the same period last year and $183 million in cash from operating activities for the 12 month period fiscal 2022 compared to $152 5 million for the same.

<unk> last year.

Capital expenditures were $8 million in the fourth quarter of fiscal 2022 compared to $3 million for the same period last year.

Total debt as of year end was $1 69 billion.

And cash on hand was $182 9 million.

I'd now like to turn the call back to the operator for the question and answer session.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw.

While your question press the pound key.

First question comes from Kristine <unk> with Morgan Stanley . Your line is open.

Hey, good morning, guys good morning.

Morning.

So I'm looking at your gross margins in the quarter, I mean, 40% plus gross margins pretty impressive.

I was wondering if you could talk about what were the key drivers into that how much was on pricing versus.

Synergies from the deal.

Yes.

Where do we start.

First of all on the RPC side of the business that classic RBC side, we had some favorable mix.

That was that was positive.

On the Dod side, I would say where the synergy wise.

First.

Let's talk about pricing.

Obviously with what's going on in supply chain.

There is shortages and theirs.

Inflationary impacts that are that are meaningful.

So we've been able to.

Price the product.

In accordance with neutralizing the inflationary impact that we've been experiencing and so.

For the most part that's that's been pretty pretty neutral.

We've been on our game in terms of understanding with that with that pricing.

Impact.

It needs to be and with the inflationary impact is.

And <unk>.

Metrics have been good systems systems have been clear.

Actions the right action has been taken so we sort of.

Sure.

Trim trim the ship just the way the shift needed to be trimmed during during the period. So we're pretty happy with that and we're pretty happy with.

The people that.

We're in the middle of managing that.

I think in terms of the synergy I think one of the more important.

And more immediate synergistic.

Elements of the <unk>.

<unk> acquisition is that we moved pretty much move them into.

Rpc's operating management schedule.

We're basically.

We are.

<unk>.

Kind of review plant by plant.

What the forecast is with the product build is going to be with the what the.

Expenses are going to be with the efficiencies of the plant.

With the needs of the capital of the <unk>.

Capital requirement for the plant might be and so on and so forth and we do that sort of monthly with.

Every one of the RBC plants and now every one of the Dodge plants and Thats had the effect of sort of keeping people.

Focused on the important elements of running the business.

And.

And so that focus is has created a.

An environment, where.

The details of running the operations are.

Clear and the actions that need to be taken are clear and the Dodge folks have have responded.

Extraordinarily extraordinarily well to this to this process.

Probably better than any acquisition, we've ever ever had in the past.

And they embraced it.

And so I think that that really helped their operational efficiencies quite a bit during the period.

So thats.

In terms of turns a synergy that's the most immediate thing that we could do that we did do in order to.

Sort of.

Sort of gain the.

Gave the efficiency needs that we thought.

Would be inherent in the business.

I think in terms of other synergies.

Clearly, it's very early in the game for us.

The RBC.

Side of the business the most.

Impactful supply chain issues, we've had to date are.

With Dodge.

And so the RBC resources.

It hasn't been applied to assist in.

Remedying some of those some of those supply chain constraints and.

And so.

Some of the RBC production sites will will be.

Effective in the future and.

Taking over some of that.

Supply responsibility.

That's really helpful. And then so when we think about your next fiscal year.

Is that 40% gross margin.

Good starting point for the year.

Well I think we're going to live in that neighborhood.

I think Robin Dan have kind of their own opinion about that I'll, let them speak to it but I think we're going to live in that neighborhood.

Yes, Christine as it stands right now we're targeting internally at least 50 bps by by the end of the year and it will be lumpy and.

Quarter to quarter as it always is but.

I think thats definitely achievable number for us.

Wow.

Great to hear.

And if I could sneak one more and.

In terms of integration with Dodge.

You've now owned the business for a few quarters now.

What.

Have been the surprises that you've seen as youre doing the integration and are there any unexpected negatives that you.

<unk> had to address.

Yes.

I think the biggest surprise that we've had there is no. There is no question about it.

Certainly we started the acquisition process sort of last one.

Just I think right.

We had a signed agreement and we started working through the details of everything and learning more about the business.

We've had enough experience with acquisitions to know.

What goes who goes bang in the night and what to watch out for.

We've never had an acquisition where the problem was we had too much business.

[laughter].

Well have all the good problem to have.

All of the things that we anticipated we didn't really have that we didn't have that teed up but it became clear.

As we move towards the closing date.

They are there the demand for their product was just overwhelming.

Beyond beyond anything we.

<unk> experienced so.

Obviously.

But as Mike Tyson.

Into into a fight with a strategy.

That goes out the window. So there's 70 punches in the face.

And so we went into their into the into the acquisition with a certain strategy, but we had a we had.

To put a lot of it on ice.

While we dealt with the lower media problem of getting product to our customers.

Great. Thank you. Thank you for that color that's wonderful to hear about this is if I just ask for the acquisition.

Biggest problem, we have that but thats a great problem I'll pass it onto the next analyst.

Thank you. Our next question comes from Pete Skibinski with Alembic Global Your line is open.

Hey, good morning, everyone.

So.

It sounds like your message of last quarter, which was I think your demand signals in industrial are through the roof. It sounds like that message is continuing.

Yes.

People are talking about a recession right. So.

You're talking about adding capacity so.

Do you feel pretty confident that that demand is going to remain strong for the fourth.

Seeable future at least for another year or so.

And maybe you can give us a sense of how much capacity youre looking to add.

Well.

Yes.

It's.

It's a question that has lots of answers because we have lots of divisions that have lots of needs.

I'll try to keep it to the to the top of the parade out here.

In terms of in terms of Dodge capacity.

It's hard for us to predict.

The industrial economy is going to do for the rest of the year now.

Having said that.

We employ all sorts of economists that are specialists in the industrial world.

Who give us projections.

What the future looks like and all of those projections.

We've seen to date have been have been positive.

For the industrial.

Real business.

We see.

We see the.

On the on the aircraft business.

We look at Boeing's build out rate and Airbus has built out right.

It doesn't look like a short term recession.

If that is in the cards will really impact that buildout right.

Remember what are the what are the key things that are driving that.

Need for the Boeing 737, Max is it fuel efficiency.

And now with fuel prices, where they are.

Even more justification for the for the plane operators.

Two.

To buy more Max machines.

So I think I think the aircraft business is going to be really solid.

And I think the defense business.

The defense business is.

As.

Really good today, and we're actually talking about the need for probably building another plant to support the defense business because.

Our capacity is strange very.

Very much in that area right now.

Okay. That's great and did you have a estimate for the capex spend that youre expecting in fiscal 'twenty three.

Yes, we're going to hover right around that two 5% to 3%.

The sales as we move forward.

Okay.

Last one for me Mike.

Did you guys see in industrial did you see any negative impact from the shutdowns in China.

Yes.

We actually have a plant in China and so.

We're having.

Our revenues or its a small plant.

Revenues were modestly impacted by that shutdown right now.

We are we are seeing.

We are having we do have suppliers in China that.

That are part of the supply chain.

We actually have to fly.

Hardware over.

To keep some of our lines running and some of the plants.

And so we are doing that.

It's just just the cost of doing business.

Okay.

So excluding the power you have in China. Some of the some of the product that you that you export sales into China.

It sounds like you didn't see a meaningful decline in demand there.

No Thats correct.

Okay. Okay.

Okay. Thanks, guys.

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Hi, Hey, good morning, guys nice Nathan to your fiscal year.

Thank you.

So my first question just want to understand the supply chain comment it sounded like there was an expectation that things would get better in the next few months.

Maybe just kind of provide some color around your visibility.

Where you are being impacted today and then also have visibility on a big revision.

Yes, let's see where we are being impacted today, obviously the.

Maybe maybe it's not obvious but yes, we've been impacted with steel shortages of steel we've been impacted with shortages bearings.

We've put it impacted with shortages bearing components.

And we've been impacted with shortages of castings.

So those have been sort of the high watermark.

And what we felt to date.

We believe.

Either much of that is either been.

Repaired already or.

Repair has been.

Is in the process of being implemented and so so the impact should be mitigated going forward.

But.

Even even to date, a tad really impactful it is in fact that our fourth quarter revenues by.

A significant amount.

Okay great.

Bold color.

I also wanted to go back to the.

The recession question.

Fully recognizing that the demand levels that youre seeing right now are still very strong.

Yes, Yes, you got a new asset.

I'm just curious when you kind of think about it.

Scenario planning.

In fact, we've already got.

Did you see some sort of downturn.

How should we think about what the playbook is for that.

The new company.

Obviously, clearly can do asset.

You haven't experienced the recession with support.

Well.

Yes, I think unlike unlike RBC.

Half of their cost of sales is variable materials.

So.

As the.

Okay.

There is a decline in revenue.

Yeah.

Pretty much immediate decline.

Half of your cost cost base.

So then the <unk>.

Rest of your cost base is.

Pretty much pretty much labor and variable supplies to run the plant.

Some salaries to run the operation so that.

That is.

Budget a bowl.

And it can be it can be it.

Can be mitigated by.

But re leaving out some of the some of the.

Budgetary.

Allowances in your quarter.

So if you have.

You're running $10 million group through a plant in Europe .

Your variable cost.

Supplies tooling and hardware and oil and.

<unk> filters and other is.

5% of your of your revenues.

If your revenue is going to go down $2 million, then it's 5%.

8 million rather than $10 million so.

You just have to you have to get on that and you have to.

Put some metrics in place.

That.

Allow you to the visibility that the local management is doing what they need to do in order to in order.

Back down their requirements.

I think the rest of the.

The rest of the plant cost is normally in labor.

There you can you can flex schedules you can you can have.

You can reduce the number of workdays per quarter, I mean, theres all sorts of.

Menu items that can be chosen.

In order to reduce the overall plant cost and.

And so.

I would say that the new acquisition is it's a little bit easier to manage than an existing RBC plant because because.

It has so much variable material in their cost of sales.

That was super helpful. Thank you very much.

Thank you. Our next question comes from Steve Barger with Keybanc capital. Your line is open.

Hey, good morning, guys.

Yes.

I got on the call a little late did you say, what the organic growth rate for Dodge was versus last year.

I didn't say.

Thank you.

Yes, so compared to March of last year Dodge grew at about just under 8% year over year.

Got it. Thank you and do you expect a similar contribution from Dodge and <unk> somewhere in that low under $80 million range.

Yes.

Perfect.

You had the $8 million in transaction costs, and almost $5 million in transition can you tell us what's in those two categories and do you expect to incur cost at that level in <unk>.

So to answer the second part of the question first we don't expect it to continue at that level within the $8 million or roughly thereabouts you have the inventory step up.

Purchase price amortization of that $6 eight.

That's going to that should go away after this quarter.

We are anticipating and then there is $1 million of other ancillary costs.

Yes.

Associated with legal accounting things like that that are associated with the acquisition.

And then the.

Other costs would be the transition services agreement, which runs.

Can you kind of waters down overtime through November .

So we expect that that should start to decline a little bit in next in the Q1 period and more in Q2 and Q3.

Got it and so it sounds like maybe half of that was cash cost of the inventory step up was noncash.

Just trying to get to how free cash flow would have looked like.

These integration costs.

It's a fair way of looking at the $6 eight of inventories noncash TSA and any other components are primarily cash.

Got it.

And.

What do you expect for SG&A inflation in 'twenty three or for the next few quarters should we think this $56 million run rate is kind of sustainable.

We're kind of thinking SG&A is going to.

Fluctuate between 15, 5% 16, 5% of sales over the coming period.

Alright, and then one more for me.

You said supply chain affected <unk> revenue by a significant amount Mike.

Mike can you tell us how much revenue was delayed and did you build in a similar delay.

<unk> were pushed out into the <unk> range.

Yes, I can only I can only say it's.

It's it was a significant amount.

Thanks.

Sure.

Probably an eight figure kind of an amount.

And yes, we built and we expect.

That to be.

We're building that into our plan in the first quarter.

Got it yes, and honestly I mean every prediction that anybody's made about when supply chain gets fixed has been wrong, but.

Do you just think about it do you is there is it reasonable to think that as you go into the back half of your fiscal year, you're running at that higher rate or the revenue delays kind of.

Go away.

Yes.

We've built.

We've built our annual plan with <unk>.

Seeing these revenue delays.

Being substantially mitigated and.

And I think it's reasonable because because we've brought on other suppliers and we have done.

All sorts of things too.

We're bringing on some of the RBC capacity to support the Dutch business that that was available to us.

So I think it'll be it'll be.

It will definitely be mitigated it's hard to say.

Exactly how much.

It will be mitigated.

So the demand is there and if it is mitigated then in the back half Youre running some number 10 digits higher per quarter on a on a run rate basis is that fair.

That's fair.

Perfect. Thanks.

Okay.

Thank you and our next question comes from Seth Weber with Wells Fargo. Your line is open.

Hey, guys. This is Larry stood at Essakane process.

Just to clean up.

The last last question.

Looking for $180 million or so in revenue from Dodge and in the first quarter.

Thereabouts.

Yes, Okay, and then how do you.

I think I'm not sure if I missed it but how do you envision the cadence in terms of the seasonality between both.

And the legacy business.

In terms of I know, you're only giving first quarter revenue guidance, but any color on.

The season, the normal seasonality.

Having having these.

The shortage is pushed out.

Revenue short revenue shortages from fourth <unk> pushed out.

Yes, I think the seasonality that.

We're dealing with.

Yes.

A couple of issues there I mean you have.

A lot of the seasonality or a certain amount of it is driven by.

The vacation schedule in the summer and obviously the holidays in the third quarter. So that's.

That's sort of built in <unk>.

Seasonality that drives your capacity.

So we're going to probably have to do a work around some of that.

Offsetting the seasonality is.

The Dodgers Dodgers.

Some of the some of the core businesses are.

Extraordinarily strong and theres macro effects impacting them.

That will.

They will pull pull demand through and I think some of those macro effects or things like the infrastructure Bill is we haven't.

Felt the effects of that but it's the timing is such that that will start to show up in that particular sector is already very busy.

Then.

The grain shortages are driven by the Ukraine is.

Is going to create.

Demand for farm groups here.

<unk>.

That's another big issue.

Source for Dutch.

We have the defense programs, which are just.

Defense OEM programs, which are just.

It's very demanding on us right now.

And we're trying to address the needs of those programs and we have the aircraft build rate.

The step up rate and frankly, we're concerned about being able to.

Meet the cadence and get our plant staffing properly and so on and so forth.

We've been worried about this for some time, but.

It is upon us now and.

We hope we've got this right.

Okay.

Okay that makes sense. Okay. Thank you guys I'll pass it on.

Thank you. Our next question comes from Elizabeth Grenfell with Bank of America. Your line is open.

Hi, good morning, everyone.

Good morning.

Just wanted to confirm I think the initial expectation was for synergies with the Dodge acquisition to have around $70 million to $100 million and I was wondering if that was still the target or that had moved around a bit and then within that I think part of it was.

Using that just sales force and then.

The greater magnitude of the sales force that they have I was wondering how that's playing out.

The impact there.

And then I have one quick one final question.

Yes, that's still our range by year five.

In that range.

We have already.

And all of the synergies that we identified back in.

October November all of those programs have been initiated but as Mike said some of them.

Our accelerating quicker because of the needs of the current business right now.

Like we're trying to find as much capacity within RBC to be able to help out our our Dodge.

Friends down in Greenville.

And.

On the sales side, we've started working with our sales teams, there's a lot of interaction going on and so we're seeing some benefit from that.

So I think we are on target and pay ahead of target from where we thought we would be.

Just five months under our belt here.

Okay, and one clarification question for for both gross margins and SG&A as a percentage of sale sorry, the gross margins.

Can you clarify what youre expecting for the first quarter versus full year.

Yes, so we were expecting gross margins to we're looking at a 50 basis point increase throughout the course of the year.

It should be pretty similar in Q1 is just can be just a little bit lumpy throughout the year as it always is but thats for a full year trend what we're expecting.

Yes. So we ended the fiscal year 'twenty two at 39, 4%. So we're opening close to 40% for the full year.

As Rob said it gets lumpy it gets a little lumpy in the third quarter, because it's our weakest quarter from a <unk>.

Sales and production standpoint, and our fourth quarter is always our strongest quarter, because we have more production base in there and get better utilization.

And then the SG&A the 15 five to $16.

The full year.

That's correct yes.

Thank you very much.

Thank you and our next question comes from Michael CMO Lee with <unk>. Your line is open.

Hey, good morning, guys. Thanks for taking the questions.

Nice results here.

Just.

Quickly, maybe some housekeeping for 'twenty, three it's $400 million in cash flow and trying to get under that three times leverage or are those still.

Right right metrics, we should be looking for.

Our intention of getting to that $400 million by the end of fiscal 2003 that we put out there was it was still the target for EBITDA.

Yes in our target still is by fiscal 'twenty three to pay down at the minimum $400 million of debt and I think all the way through this quarter already we paid down about $100 million to fourth quarter.

Yes, Okay, and so we will continue every quarter at reducing that to allocating our capital.

To get to get to our targets and get that leverage down.

Okay, Perfect and then did I hear correctly. The are you guys, adding capacity for commercial aerospace that did I hear that correctly, yes, that's correct.

Is that I mean, I would've thought did you have the capacity I know you were adding a lot of capability and capacity before the Max and before the downturn.

Are you, bringing in new capacity or are you kind of.

Ramping back up the tooling and maybe labor that you already had or is this kind of fresh additional capacity.

Well its for the most part it's fresh additional capacity because.

Sure.

Building these single aisles at a rate that's beyond 2019.

And their intention, particularly if you look at Airbus.

Intention is to go to 65 planes a month on the.

On the single aisle and.

And when you when you start layering back the bill of materials of what we supply.

We.

We have to we have to.

To add capacity because we are the sole supplier of a lot of hardware on that plane.

Yes.

<unk> two.

To produce so yes, we're adding capacity.

Okay. Okay.

Any color on what kind of capacity what capability you are adding.

Yes.

Let's say for the most part.

Yes.

It's probably an engine components.

Okay got.

Got it.

Sure.

Okay, and then just the last one I had.

As it relates to the integration I know you originally called out potentially $200 million of kind of.

Internal component sourcing, obviously supply chain complicated a lot of material availability, but any any sort of thoughts there.

If you look at your internal supply chain external supply chain and think about do we do we move some of that in house, if you have the opportunity or where things stand kind of with realizing some of those savings.

Yes, there's no question that we have.

Onshore some of them some of them are DOCSIS business.

And so we're going to we're going to work.

Work on that we're working on that.

And that'll that'll take a little bit of time.

So.

In some cases it will take time in some cases, we already have the capacity available and it's a matter of getting the materials and.

And the engineering drawings and beginning the production so.

It's a little mixed.

Okay.

It's.

It's one of the major synergies that we identified last year. When we were looking at the acquisition.

Got it alright, perfect alright, thanks, guys.

That's all the questions. So I'd like to turn the call back to Dr. Hartnett for final remarks.

Okay, well that was.

Thanks, Thanks for your questions and your interest.

Those were some interesting discussions we just add in.

We appreciate it I appreciate you calling in and look forward to talking to you again in July to.

Good day.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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Good day and thank you for standing by welcome to the RBC bearings fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Josh Carol Investor Relations. Please go ahead.

Good morning, and thank you for joining us for RBC bearings fiscal 2022 fourth quarter and full year earnings conference call with me on the call today, Dr. Michael <unk>, Chairman, President and Chief Executive Officer.

Daniel Zhang Director, Vice President and Chief operating Officer.

Robert Sullivan.

Vice President and Chief Financial Officer.

Before beginning todays call, let me remind you that some of that statements made today will be forward looking.

Private Securities Litigation Reform Act of 1985.

Actual results may differ materially from those projected or implied due to a variety of factors.

Are you to RBC bearings recent filings with the SEC for a more detailed discussion of risks that could impact the company's future operating results.

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.

Part of the release is available on the company's website.

Now I'll turn the call over to Dr.

Okay. Thank you Josh.

Good morning, and welcome.

I will present, the highlights of our fourth quarter and following me Robin Dan will discuss some of the details of the summary.

RBC bearings net sales for the third quarter of fiscal 2022.

Fourth quarter of 2022.

We're $358 9 million versus $160 3 million for the same period last year.

The increase in 100 of 123, 9%.

For the fourth fiscal quarter of 2022 sales of industrial products represented 71% of our net sales and.

In aerospace products represented 29% of revenues.

Adjusted gross margin for the quarter was $144 3 million or 42% of net sales.

This compares to $67 2 million or 39, 1% for the same period last year.

Adjusted operating income was $70 4 million 19, 6% of net sales. This compares to last year's $32 5 million or 20 <unk>.

3%.

A 116% increase.

Adjusted diluted EPS was $1 26, a share and.

And cash EPS was $2 15 per share for the three months period.

Revenues.

Diluted EPS and cash EPS for the full year.

$942 9 million.

389.

<unk> per share and.

$6 five $1 per share respectively.

Five months of Dodge industrial revenue, which was our period of ownership.

Were $291 $9 million in Rbc's revenues net of Dodge industrials revenues.

For the full year were $651 million.

Adjusted EBITDA for the fourth quarter was $104 4 million.

Nine 1% of net sales.

<unk> to $45 9 million and 28, 6% for the same period last year.

It won't be 127% increase.

It is very clear we are thrilled with the record performance of the business this quarter.

And with the overall speed of integration and management cohesion.

Of these two extraordinary and complementary businesses.

Now, let's talk a little bit about our sectors industrial and aerospace.

During the period demand for industrial products continue to exceed both our capacity and.

That of some of our suppliers.

We have worked through these constraints tirelessly over the past many months and see some relief as we head into our second quarter.

The problem will continue to test us during the next few months.

And we will have.

Reduced impact on our revenues.

Our industrial businesses were up about 300% on a quarter over quarter basis, mainly because of the <unk> acquisition completed in November .

It's a good base for classic RBC industrial businesses.

And at approximately 16% for both the OEM and distribution.

With both OEM and distribution expanding.

In the mid teens range.

As stated earlier the industrial total industrial revenues were $253 9 million.

Demand from all industrial markets served who is very strong.

Turning now to aerospace and defense.

Fourth quarter fiscal 2022, net sales were up by eight 8%.

Led by aircraft OEM, which expanded at 21%.

We are experiencing a sea change in demand for aircraft Oems from both Boeing and Airbus as.

As they increase their build rates for the single aisle seven.

737, <unk> hundred 20 ships. This is complemented by the introduction of new products that we're supplying for both of these planes.

Looking ahead, each successive quarter stands more robust in the last reflecting the rate increase is planned by the major builders.

Consequently, we are seeing a step increase in demand for our commercial planning from our commercial plane manufacturers.

This will impact successive quarters, this year and through next fiscal year and beyond.

Currently adding to our installed capacity to accommodate these higher volumes of single aisle production.

And for the new products that we're producing for these fleets.

We look forward to the increased build rates of the wide body Jets next year.

As our content per plane is several multiples of those for the narrow bodies.

<unk> increased production rates.

787, and triple seven.

Greater.

Plan for 2023 and beyond are welcome and will be meaningful to.

To us for the next several years.

On defense Defense OEM business revenues were down about 2%.

Which is more reflective of timing on shipments and demand for these products OE.

OEM demand for defense.

Priority programs is substantial and building for us today.

These products are normally complex and highly engineered and requiring longer engineering and manufacturing cycles. Hence.

Hence lumpier revenues through the quarters.

The defense and aircraft market sectors.

We're about flat with last year.

Although we have seen a flurry of MRO defense products and <unk>.

For MRO defense products in recent weeks.

Sure that doesn't surprise anyone.

Following this activity we are expecting to see increased spending.

From from the military in the quarters ahead as.

As we are still within production lead times and the fiscal year.

Any defense boats, which show up as soon as our fourth quarter.

Yeah.

Regarding our fourth quarter, we are expecting sales to be between $355 and $365 million.

I'll turn now the call over to <unk>.

To Rob for more detail on the financial performance.

Thank you, Mike and expanding on gross margin that Mike has already covered.

Gross margin for the fourth quarter of fiscal 2022.

<unk>.

It was affected by a $6 8 million inventory step up related to the Dodge acquisition. This is not expected to impact future quarters' SG.

SG&A for the fourth quarter of fiscal 2022 was $56 million compared to $27 4 million for the same period last year.

As a percentage of net sales SG&A was 15, 6% for the quarter of fiscal 2022 compared to 17, 1% for the same period last year.

Other operating expenses for the fourth quarter of fiscal 2022 totaled $23 7 million compared to $5 3 million for the same period last year.

For the fourth quarter of fiscal 2022 other operating expenses included $5 7 million of costs associated with the <unk> acquisition, including $4 7 million.

Costs associated with transition services.

There was also a $17 2 million of amortization of intangible assets and zero point $8 million of other items.

Other operating expense for the same period last year consisted mainly of $2 5 million of amortization of intangible assets $1 $5 million of costs associated with the cyber event 1.0 million of restructuring costs and related items and zero point $3 million of other costs.

Operating income was $57 8 million for the fourth quarter of fiscal 2022 compared to operating income of $29 7 million for the same period in fiscal 2021.

On an adjusted basis operating income was $70 4 million for the fourth quarter of fiscal 2022 compared to adjusted operating income of $32 5 million for the fourth quarter of fiscal 2021.

For the fourth quarter of fiscal 2022, the company reported a net income of $32 2 million compared to net income of 25.0 million for the same period last year.

On an adjusted basis net income was 42.0 million for the fourth quarter of fiscal 2022 compared to $27 4 million for the same period last year net.

Net income available to common stockholders for the fourth quarter of fiscal 2022 was $26 5 million compared to net income of 25 zero million for the same period last year.

On an adjusted basis net income available to common stockholders for the fourth quarter of fiscal 2022 was $36 3 million compared to $27 4 million for the same period last year.

Diluted earnings per share was <unk> 92 per share for the fourth quarter of fiscal 2022 compared to 99 per share for the same period last year on.

Diluted cash earnings per share was an adjusted $2 15 for the fourth quarter of fiscal 2022 compared to $1 36 for the same period last year.

Adjusted net cash net income and adjusted cash earnings per share excludes noncash expenses for depreciation and amortization of fixed and intangible assets stock compensation and amortization of deferred financing fees.

Turning to cash flow the company generated $46 9 million in cash from operating activities in the fourth quarter of fiscal 2022 compared to $41 9 million for the same period last year and $180 3 million in cash from operating activities for the 12 month period fiscal 2022 compared to $152 5 million for the same.

Period last year.

Capital expenditures were $8 million in the fourth quarter of fiscal 2022 compared to $3 million for the same period last year total debt as of year end was $1 69 billion.

And cash on hand was $182 9 million.

I would now like to turn the call back to the operator for the question and answer session.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

While your question press the pound key.

Our first question comes from Kristine <unk> with Morgan Stanley . Your line is open.

Hey, good morning, guys. Good morning, good morning morning.

So looking at your gross margins in the quarter, I mean, 40% plus gross margins pretty impressive.

I was wondering if you could talk about what were the key drivers into that how much was on pricing versus.

Synergies from the deal.

Yes.

<unk>.

Where do we start.

First of all on the RPC side of the business that classic RBC side, we had some favorable mix.

That was that was positive.

On the Dod side, I would say where the synergy wise.

First.

Let's talk about pricing.

Obviously with what's going on in supply chain.

There is shortages and theirs.

Inflationary impacts that are that are meaningful.

So we've been able to.

Price the product.

In accordance with neutralizing the inflationary impact that we've been experiencing and so.

For the most part that's that's been pretty pretty neutral.

We have been on our game in terms of understanding with that with that pricing.

Impact.

It needs to be and with the inflationary impact is.

And <unk>.

Metrics have been good systems systems have been clear.

Actions the right action has been taken so we've sort of.

Sure.

Trim trim the ship just the way the ship needed to be trimmed during during the period. So we're pretty happy with that and we're pretty happy with.

The people that.

We're in the middle of managing that.

I think in terms of the synergy I think one of the more important.

And more immediate synergistic.

Elements of the of the <unk> acquisition.

Position is that we moved pretty much moved them into.

Rpc's operating management schedule.

We're basically.

We are.

We kind of review plant by plant.

<unk>.

What the forecast is with the product build is going to be what the what the.

Expenses are going to be with the efficiencies of the plant.

With the needs of the capital.

Capital requirement for the plant might be and so on so forth and we do that sort of monthly with.

With.

Every one of the RBC plants and now every one of the the Dodge plants and Thats that had the effect of sort of keeping people.

<unk> focused on the important elements of running the business.

<unk>.

And so that focus has created a.

An environment, where.

The details of running the operations are.

Clear and the actions that need to be taken.

<unk> and <unk>.

The Dodge folks have have responded extra.

Extraordinarily extraordinarily well to this to this process.

Probably better than any acquisition, we've ever ever had in the past.

And they embraced it.

And so I think that that really helped their operational efficiencies quite a bit during the period.

So thats.

In terms of in terms of synergy that's the most immediate thing we could do that we did do in order to.

Sort of.

Sort of gain.

Gain the efficiency needs that we saw.

Would be inherent in the business.

I think in terms of other synergies.

Clearly, it's very early in the game for us.

RBC.

Side of the business the most.

Impactful supply chain issues, we've had to date or.

With Dodge.

And so the RBC resources.

It has been applied to assist in.

Remedying some of those some of those supply chain constraints and.

And so.

Some of the RBC production sites will will be.

Effective in the future and.

Taking over some of that.

Supply responsibility.

Yeah.

Okay. That's really helpful. And then so when we think about your next fiscal year.

Is that 40% gross margin.

Good starting point for the year.

Well I think we're going to live in that neighborhood.

I think Rob and Dan have kind of their own opinion about that I'll, let them speak to it but I think we're going to live in that neighborhood.

Yes, Christine as it stands right now where we're targeting internally at least 50 bps by by the end of the year and it will be lumpy and.

Quarter to quarter as it always is but.

I think that's definitely achievable number for us.

Wow, that's a lot.

It's great to hear.

And if I could sneak one more and.

In terms of integration with Dodge.

You've now owned the business for a few quarters now.

What.

Have been the surprises that you've seen as youre doing the integration and are there any unexpected negative that you.

<unk> had to address.

Yes.

I think the biggest surprise that we've had there is no. There is no question about it.

Certainly we started the acquisition process sort of less well off.

At least I think right.

But we have a signed agreement and we started working through the details of everything and learning more about the business.

<unk>.

We've had enough experience with acquisitions to know.

What goes who goes bang in the night and what to watch out for.

We've never had an acquisition where the problem was we had too much business.

[laughter] well have all the goods.

On behalf of.

All of the things that we anticipated we didn't really have that we didn't have that teed up but it became clear.

As we move towards the closing date.

They are there the demand for their product was just overwhelming and beyond beer.

And anything we.

<unk> experienced so far.

Obviously.

But as Mike Tyson.

<unk> entered into a fight with a strategy.

And as that goes out the windows seven punched in the face.

And so we went into their into the into the acquisition with a certain strategy, but we had a we had to put a lot of it.

On ice.

We.

While we dealt with the Lora media problem of getting product to our customers.

Great. Thank you. Thank you for that color that's wonderful to hear about I mean this is your.

Acquisition. So if that is the biggest problem, we have that but thats a great problem I'll pass it onto the next analyst.

Thank you. Our next question comes from Pete Skibinski with Alembic Global Your line is open.

Hey, good morning, everyone.

So.

Mike It sounds like your message last quarter, which was I think your demand signals in industrial are through the roof. It sounds like that message just continuing.

And some people are talking about a recession right. So.

You are talking about adding capacity so.

Do you feel pretty confident that that demand is going to remain strong for you al.

Foreseeable future at least for another year or so.

And maybe you could give us a sense of how much capacity youre looking to add.

Well.

Yes.

It's.

It's a question that has lots of answers because we have lots of divisions that have lots of needs.

So I'll try to keep it to the to that.

Top of the parade out here.

In terms of in terms of Dodge capacity.

It's hard for us to predict what the industrial economy is going to do for the rest of the year now.

Having said that.

We employ all sorts of economists that are specialists in the industrial world, who who give us projections.

The future looks like and all of those projections.

We've seen to date have been have been positive.

For the industrial business.

We see.

We see the.

On the on the aircraft business.

We look at Boeing's build out rate and Airbus has built out right.

It doesn't look like a short term recession.

If that is in the cards will really impact that buildout right.

Remember what are the what are the key things that are driving that.

Indeed for the Boeing 737, Max is it fuel efficiency.

And now with fuel prices, where they are.

Even more justification for the for the plain operators.

Two.

To buy bulk more Max machines.

So I think I think the aircraft business is going to be really solid.

And I think the defense business.

The defense business.

As.

Really good today, and we're actually talking about the need for probably building another plant to support the defense business because.

Our capacity is strange.

Very much in that area right now.

Okay. That's great and did you have a estimate for the capex spend that youre expecting in fiscal 'twenty three.

We're going to hover right around that two 5% to 3%.

Sales as we move forward.

Okay. Okay.

Last one for me.

Did you guys see in industrial did you see any negative impact from the shutdowns in China.

Yes.

We actually have a plant in China and so.

<unk>.

We are having.

Our revenues or its a small plant.

Our revenues were modestly impacted by that shutdown right now.

We are we are seeing.

We are having we do have suppliers in China that.

That are part of the supply chain.

We actually have to fly.

Yeah.

Hardware over.

To keep some of our lines running and some of the plants.

And so we're doing that.

It's just just the cost of doing business.

Okay sure.

So excluding the play you have in China. Some of the some of the product that you that you export.

Sales into China.

It sounds like you didn't see a meaningful decline in demand there.

No Thats correct.

Okay.

Thanks, guys.

Thank you. Our next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Hi, Hey, good morning, guys nice Nathan to your fiscal year.

Thank you.

So my first question just wanted to understand the supply chain comment it sounded like there is an expectation that things will get better in the next few months.

Maybe just kind of provide some color around your visibility.

Where you are being impacted today and then the visibility I think.

Perfect.

Yes, let's see where we are being impacted today, obviously the.

Yes.

Maybe maybe it's not obvious but we've been impacted with steel shortages of steel we've been impacted with shortages of bearings.

We put it impacted with shortages of bearing components.

And we've been impacted with shortages of castings.

So those have been sort of a high watermark.

And what we felt to date.

We believe.

Either much of that has either been.

Okay.

Repaired already or.

Repair has been.

<unk> is in the process of being implemented.

So the impact should be mitigated going forward.

But.

Even even to date, a tad really impactful its in fact that our fourth quarter revenues by.

A significant amount.

Okay great.

Color.

I also wanted to go back to the.

And the recession question, hi, fully recognizing that the demand levels that youre seeing right now are still very strong.

Yes, you got a new asset.

I'm just curious when you kind of think about.

Yes scenario planning.

In fact, we've already got.

Good to see some sort of downturn.

How should we think about what what the playbook is for that.

The new company.

Obviously, clearly like a new app that.

You haven't experienced the recession with support.

Well.

Yes, I think unlike unlike RBC.

<unk>.

Half of their cost of sales is variable materials.

So.

As the.

Okay.

If there is a decline in revenue.

Pretty much immediate decline.

And half of your cost cost base.

So then the rest of your cost base is.

Pretty much pretty much labor and variable supplies to run the plant.

In some salaries to run the operation and so that.

That is.

Budgeted bowl and it can be it can be.

It can be mitigated by.

But re leaving out some of the some of the.

Budgetary.

Balances.

Your quarter.

If you have.

If you're running $10 million group through a plant and.

And you're right.

In your variable cost.

Supplies tooling and hardware and oil and.

Filters and other is.

5% of your of your revenues.

Well, if your revenues go down $2 million.

5%.

8 million, rather than $10 million or so.

You just have to you have to get on that and you have to.

Put some metrics in place.

That.

Allow you the visibility that the local management is doing what they need to do in order to.

In order to back down their requirements.

The rest of the.

The rest of the plant cost is normally in labor.

There you can you can flex schedules you can you can have.

You can reduce the number of work days per quarter, I mean, theres all sorts of menu.

Items that can be chosen.

In order to reduce the overall plant cost and.

And so.

I would say that the new acquisition is.

A little bit easier to manage than an existing RBC plant because because it has so much variable material in their cost of sales.

That was super helpful. Thank you very much.

Thank you. Our next question comes from Steve Barger with Keybanc capital. Your line is open.

Hey, good morning, guys.

I got on the call a little late did you say, what the organic growth rate for Dodge was versus last year.

I didn't say.

Could you.

Yes, so compared to March of last year Dodge grew at about just under 8% year over year.

Got it. Thank you and do you expect a similar contribution from Dodge and <unk> somewhere in that low $180 million range.

Yes.

Perfect.

You add the $8 million of transaction costs, and almost $5 million in transition can you tell us what's in those two categories and do you expect to incur cost at that level in <unk>.

So to answer the second part of the question first we don't expect it to continue at that level within the $8 million or roughly thereabouts you have the inventory step up purchase price amortization of that $6 eight so thats going to that should go away. After this quarter.

That's what we're anticipating and then there's a $1 billion of other ancillary costs.

As.

Associated with legal accounting things like that and there were associated with the acquisition.

Then the.

Other costs would be the transition services agreement, which runs.

You kind of waters down overtime through November so.

So we expect that that should start to decline a little bit in next in the Q1 period and more in Q2 and Q3.

Got it and so it sounds like maybe half of that was cash cost of the inventory step up was noncash I'm just trying to get to how what level of free cash flow would have looked like.

These integration costs.

It's a fair way of looking at the $6 eight of inventories noncash TSA and any other components are primarily cash.

Got it.

<unk>.

What do you expect for SG&A inflation in 'twenty three or for the next few quarters should we think this $56 million run rate is kind of sustainable.

We're kind of thinking SG&A is going to.

Fluctuate between 15, five to 16, 5% of sales over the coming period.

Alright, and then one more for me.

You said supply chain affected 40 revenue by a significant amount Mike.

Mike can you tell us how much revenue was delayed and did you build in a similar delay.

<unk> were pushed out into the <unk> range.

Yes, I can only I can only say it's.

It's it was a significant amount.

Thanks.

Sure.

Probably an eight figure kind of an amount.

And yes, we built.

We expect we expect that to be.

We're building that into our plan in the first quarter.

Got it yes, and honestly I mean every prediction that anybody's made about one supply chain gets fixed theres been wrong, but.

You just think about it do you is there is it reasonable to think that as you go into the back half of your fiscal year, you're running at that higher rate or the revenue delays kind of.

Go away.

Yes.

We've built.

We've built our annual plan with <unk>.

Seeing these revenue delays.

Being substantially mitigated and.

And I think it's reasonable because because we've brought on other suppliers and we've done all sorts of things too.

We're bringing on some of the RBC capacity to support the Dutch business that that was available to us.

And so I think.

It'll be it'll be.

It will definitely be mitigated it's hard to say.

Exactly how much.

It will be mitigated.

So the demand is there and if it is mitigated then in the back half Youre running some number 10 digits higher per quarter on a on a run rate basis is that fair.

That's fair.

Perfect. Thanks.

Okay.

Thank you and our next question comes from Seth Weber with Wells Fargo. Your line is open.

Hey, guys. This is Larry stood this process.

Just to clean up.

The last last question.

Looking for $180 million or so in revenue from Dodge and in the first quarter.

Thereabouts.

Yes, okay.

Then have you.

I think I'm not sure if I missed it but how do you envision the cadence in terms of the seasonality between both.

And the legacy business.

In terms of I know, you've only given the first quarter revenue guidance, but any color on.

The <unk> the normal seasonality.

Having having these.

The shortage is pushed out.

Revenue shortage revenue shortages from fourth <unk> pushed out.

Yes, I think the seasonality that.

We're dealing with.

Yeah.

A couple of issues there I mean you have.

A lot of the seasonality or a certain amount of it is driven by.

The vacation schedule in the summer and obviously the holidays in the third quarter. So that's.

That's sort of built in <unk>.

Seasonality that drives your capacity.

So we're going to probably have to do a work around some of that.

Offsetting the seasonality is.

The Dodgers Dodgers.

Some of the some of the core businesses are.

Extraordinarily strong and theres macro effects impacting them.

That will.

It will pull pull demand through and I think some of those macro effects or things like the infrastructure Bill is we haven't.

Felt the effects of that but it's the timing is such that that will start to show up in that particular sector is already very busy and then.

Then.

Grain shortages are driven by the Ukraine is.

Is going to going to create.

Demand for farm groups here.

<unk>.

That's another big issue with.

Source for Dash.

We have the defense programs, which are just.

Defense OEM programs, which are just.

It's very demanding on us right now.

And we're trying to address the needs of those programs and we have the aircraft build rate.

The step up rate and frankly, we're concerned about being able to.

Meet the cadence and get our plant staffing properly and so on and so forth.

We've been worried about this for some time.

It's upon us now and.

We hope we've got this right.

Okay. Okay. Okay.

Okay. Thank you guys I'll pass it on.

Thank you. Our next question comes from Elizabeth Grenfell with Bank of America. Your line is open.

Hi, good morning, everyone.

Good morning.

Just wanted to confirm I think the initial expectation was for synergies with the Dodge acquisition to have around $70 million to $100 million and I was wondering if that was still the target that had moved around a bit and then within that I think part of it was.

Using that sales force and then.

The greater magnitude of the sales force that they have I was wondering how that's playing out.

Impact there.

And then I have one quick one final question.

Yes, that's still our range by year five to be in that range.

We've already.

On all these synergies that we identified back in October .

October and November all of those programs have been initiated but as Mike said some of them.

Our accelerating quicker because of the needs of the current business right now.

Like we're trying to find as much capacity within RBC to be able to help out our our Dodge.

Friends down in Greenville.

And.

On the sales side, we've started working with our sales teams, there's a lot of interaction going on and so we're seeing some benefit from that.

So I think we're on target and probably ahead of target from where we thought we would be.

Just five months under our belt here.

Okay, and one clarification question for for both gross margins and SG&A as a percentage of sale sorry, the gross margins.

Can you clarify what youre expecting for the first quarter versus full year.

Yes, so we were expecting gross margins to we're looking at a 50 basis point increase throughout the course of the year.

It should be pretty similar.

Q1 is just going to be it's a little bit lumpy throughout the year as it always is but that's for a full year trend what we're expecting yes.

So we ended the fiscal year 'twenty two at 39, 4%. So we're opening close to 40% for the full year as Rob said it gets lumpy it gets a little lumpy in the third quarter, because it's our weakest quarter from a sales and production standpoint, and our fourth quarter is always our strongest quarter, because we have more production base in there.

Get better utilization.

And then the SG&A the 15 five to $16 for the full year.

That's correct yes.

Thank you very much.

Thank you and our next question comes from Michael CMO.

Molly with Trust your line is open.

Hey, good morning, guys. Thanks for taking the questions.

Nice result.

Sure.

Just quickly maybe some housekeeping for 'twenty three is $400 million in cash flow and trying to get under that three times leverage or are those still.

Right right metrics, we should be looking for.

Kevin or our intention of getting to that $400 million by the end of fiscal 'twenty three that we put out there was still the target for EBITDA.

And our target still is by fiscal 'twenty three pay down at the minimum $400 million of debt and I think all the way through this quarter already we paid down about $100 million to fourth quarter.

Yes, okay.

So we will continue every quarter at reducing that to allocating our capital.

To get to get to our targets and get that leverage down.

Okay, perfect and then can I ask here.

Are you guys, adding capacity for commercial aerospace.

That correctly, yes, that's correct.

Is that.

Would have thought did you have the capacity I knew you were adding a lot of capability and capacity before the Max and before the downturn.

Are you, bringing in new capacity or are you kind of ramping back up the tooling and maybe labor that you already had or is this kind of fresh additional capacity.

Well its for the most part it's fresh additional capacity because.

Sure.

Building these single aisles at a rate that's beyond 2019.

Their intention, particularly if you look at Airbus.

Tension is to go to 65 planes a month.

On the single aisle and.

And when you when you start layering back the bill of materials of what we supply.

We.

We have to we have to add capacity because we are the sole supplier of a lot of hardware on that plane.

Yes.

We are obligated to do.

We produce so yes, we're adding capacity.

Okay. Okay.

Any color on what kind of capacity what capability or adding.

Let's see yes for the most part.

It's probably an engine components.

Okay.

Got it.

Okay, and then just the last one I had.

As it relates to the integration I know you originally called out potentially $200 million of kind of.

Internal component sourcing, obviously supply chain complicated a lot of material availability, but any any sort of thoughts there.

You look at your internal supply chain external supply chain think about do we can we move some of that in house. If you have the opportunity or where things stand kind of with realizing some of those kind of savings.

Yes, there's no question that we have.

Sure some of them some of them are diagnosed business.

And so we're going to we're going to work on that we're working on that.

And that'll that'll take a little bit of time.

So.

Yeah.

In some cases it will take time in some cases, we already have the capacity available.

And it's a matter of getting the materials and.

And the engineering drawings and beginning the production so.

It's a little mixed.

Okay.

It's one of the major synergies that we identified last year. When we were looking at the acquisition.

Got it alright, perfect alright, thanks, guys.

Yeah.

That's all the questions Michelle I'd like to turn the call back to Dr. Hartnett for final remarks.

Okay, well that was.

Thanks, Thanks for your questions and your interest.

Those were some interesting discussions we just add in.

We appreciate it I appreciate you calling in and look forward to talking to you again in July to.

Good day.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q4 2022 RBC Bearings Inc Earnings Call

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