Q2 2026 RBC Bearings Inc Earnings Call

Berman, 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 maybe forward looking 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 U S. D. C for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.

These factors are also listed in the press release, along with a reconciliation between GAAP and non-GAAP financial information.

With that I'll now turn the call over to Dr. Hartnett.

Speaker #1: Good morning, and thank you for joining us for RBC Bearings' Fiscal Second Quarter 2026 Earnings Call. I'm Josh Carroll from the Investor Relations Team. With me on today's call are Dr. Mike 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.

Okay.

Good morning, and thank you.

You.

So good morning, everyone and thank you for joining us as usual I'm going to start today's call with a short review of our financial results.

With some comments and I'll finish our outlook on the industry in fiscal 2026.

Speaker #1: As a reminder, some of the statements made today may be forward-looking and are under the private security litigation reform act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors.

Rob Sullivan will follow me with some more details on the results.

Second quarter net sales were $455 3 million, a 14, 4% increase over last year.

Speaker #1: We refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.

Driven contingent by continued strong performance in our aerospace.

And defense segment.

And steady performance from our industrial businesses.

Speaker #1: These factors are also listed in the press release along with the reconciliation between GAAP and non-GAAP financial information. With that, I'll now turn the call over to Dr. Hartnett.

Consolidated gross margin for the quarter was 44, 1%.

Joshua Carroll: With that, I'll now turn the call over to Dr. Hartnett. Good morning, and thank you. Good morning, everyone, and thank you for joining us. As usual, I'm going to start today's call with a short review of our financial results, with some comments, and I'll finish our outlook on the industry and fiscal 2026. Rob Sullivan will follow me with some more details on the results. Q2 net sales were $455.3 million, a 14.4% increase over last year, driven by continued strong performance in our aerospace and defense segment and steady performance from our industrial businesses. Consolidated gross margin for the quarter was 44.1%, versus 43.7% for the same period last year, and adjusted EPS was $2.88 versus $2.29 last year. Clearly, our performance exceeded our expectations for the second quarter of fiscal 2026, and the company is showing good momentum moving into the second half of RBC's year.

<unk> <unk> 43, 7% for the same period last year.

And adjusted EPS was $2 88 versus $2 29.

Speaker #2: Good morning and thank you. So good morning, everyone, and thank you for joining us. As usual, I'm going to start today's call with a short review of our financial results.

Last year.

Clearly our performance exceeded our expectations for the second quarter of fiscal 'twenty six.

Speaker #2: With some comments, and I'll finish our outlook on the industry and fiscal 2026. Rob Sullivan will follow me with some more details on the results.

And the company is showing good momentum moving into the second half of Rbcs year.

Free cash flow for the period was a strong 71 $7 million.

56% of our revenues were industrial.

Speaker #2: Second quarter net sales were $455.3 million, a 14.4% increase over last year, driven by continued strong performance in our aerospace and defense segment and steady performance from our industrial businesses.

Sector, and 44% aerospace and defense.

With the aerospace and defense sector now racing to parity, we think next year.

Total A&D sales were up $38.

8%.

Year on year <unk>.

Speaker #2: Consolidated gross margin for the quarter was 44.1% versus 43.7% for the same period last year, and adjusted EPS was 288 versus 229. Last year, clearly, our performance exceeded our expectations for the second quarter of fiscal 26, and the company is showing good momentum moving into the second half of RBC's year.

Commercial aerospace expanded 21, 6%.

Defense expansion was 73, 3%.

Organically the performance it looks like this.

Commercial aerospace increased by 21, 2% defense increased by 22, 4%.

Demand across the A&D sector is impressive and momentum is strong.

Backlog is up to one $6 billion today.

Speaker #2: Free cash flow for the period was a strong 71.7 million dollars, 56% of our revenues were industrial sector, and 44% aerospace and defense, with the aerospace and defense sector now racing to parity we think next year.

Joshua Carroll: Free cash flow for the period was a strong $71.7 million. 56% of our revenues were industrial sector and 44% aerospace and defense, with the aerospace and defense sector now racing to parity, we think, next year. Total A&D sales were up 38.8% year-on-year. Commercial aerospace expanded 21.6%. Defense expansion was 73.3%. Organically, the performance looks like this. Commercial aerospace increased by 21.2%. Defense increased by 22.4%. Demand across the A&D sector is impressive, and momentum is strong. Backlog is up to $1.6 billion today, from $940 million in March and $860 million last year at this time. We fully expect to approach $2 billion in backlog by year's end. Which will be an amazing milestone, especially when you consider that more than half of our revenues preclude backlog production.

From $940 million in March and $860 million last year at this time.

We fully expect to approach $2 billion and Becky.

Slide backlog by year's end.

Which will be an amazing milestone, especially when you consider that more than half of our revenues preclude backlog production.

Speaker #2: Total A&D sales were up 38.8% year on year. Commercial aerospace expanded 21.6%. Defense expansion was 73.3%. Organically, the performance looks like this. Commercial aerospace increased by 21.2%.

Although revenues are currently capped by production capacity.

We are working hard to expand manufacturing capacities in our marine and aircraft RBC plants.

Adding more capacity each quarter.

Clearly this will be impactful to margins.

Speaker #2: Defense increased by 22.4%. Demand across the A&D sector is impressive and momentum is strong. Backlog is up to $1.6 billion today. From $940 million in March and $860 million last year at this time.

Primary drivers here are submarine aircraft and engine customers.

Proprietary components are quiet valves and actuators for submarines.

That is the Virginia, and Columbia boats, as well as MRO supplies for existing fleets.

Both <unk> and <unk> are the RBC contributors here.

Speaker #2: We fully expect to approach $2 billion in backlog by year's end, which will be an amazing milestone. Especially when you consider that more than half of our revenues preclude backlog production.

On airframe and engines as Boeing and Airbus and Embraer continue increasing build rates.

To unprecedented levels production of our products of course must follow.

As most of you know we have substantial content content in these airframes and engines, where we supply precision and line bearings as well as integrated structural components across aircraft and engine spectrum.

Speaker #2: Although revenues are currently capped by production capacity, we are working hard to expand manufacturing capacities in our marine and aircraft RBC plants, adding more capacity each quarter.

Joshua Carroll: Although revenues are currently capped by production capacity, we are working hard to expand manufacturing capacities in our marine and aircraft RBC plants, adding more capacity each quarter. Clearly, this will be impactful to margins. Primary drivers here are submarine, aircraft, and engine customers. Proprietary components are quiet valves and actuators for submarines. That is the Virginia and Columbia boats, as well as MRO supplies for existing fleets. Both Sargent and Vacco are the RBC contributors here. On airframe and engines, as Boeing, Airbus, and Embraer continue increasing build rates to unprecedented levels, production of our products, of course, must follow. As most of you know, we have substantial content in these airframes and engines, where we supply precision and line bearings as well as integrated structural components across aircraft and engine spectrum. With Boeing's recent FAA approval to expand production rates, business is good and about to get better.

And with Boeing Boeing's recent.

Speaker #2: Clearly, this will be impactful to margins. Primary drivers here are submarine aircraft and engine customers. Proprietary components are quiet valves and actuators for submarines.

FAA approval to expand production rates busy.

Business is good and about to get better.

It's important to understand that building rates of submarines in commercial aircraft are at levels not seen in over a generation.

Speaker #2: That is the Virginia and Columbia boats, as well as MRO supplies for existing fleets, both Sergeant and VACO are the RBC contributors here. On airframe and engines, as Boeing and Airbus and Embraer continue increasing build rates, to unprecedented levels, production of our products of course must follow.

Since the early 19 $80 for submarines for reasons, both good and bad we are current.

We currently are booking some orders for deliveries into the 2030.

RBC is dead center in the middle of the separate today with considerable number of proprietary sole and single source products governed by multiyear contracts and the majority of cases.

Speaker #2: As most of you know, we have substantial content in these airframes and engines, where we supply precision and line bearings as well as integrated structural components across the aircraft and engine spectrum.

Let's let's turn it over to our industrial business now.

Overall, our industrial business was up 7% industrial distribution was up three 3%, while the OEM sector was up four 7%.

Speaker #2: And with Boeing's recent FAA approval to expand production rates, business is good and about to get better. It's important to understand that building rates of submarines and commercial aircraft are levels not seen in over a generation.

Continued weakness in the markets of oil semiconductor machinery and.

Joshua Carroll: It's important to understand that building rates of submarines and commercial aircraft are levels not seen in over a generation, since the early 1980s for submarines, for reasons both good and bad. We currently are booking some orders for deliveries into the 2030s. RBC is dead center in the middle of this effort today, with a considerable number of proprietary, sole, and single-source products governed by multi-year contracts in the majority of cases. Let's turn over to our industrial business now. Overall, our industrial business was up 0.7%. Industrial distribution was up 3.3%, while the OEM sector was off 4.7%. Continued weakness in the markets of oil, semiconductor machinery, and European machine tools continue. Our industrial OEM business is a 70/30 split, with 30% being the OEM component. We are encouraged to see the continued demand in the industrial aftermarket across many of the markets that we monitor.

And European machine tools continue.

Our industrial OEM business is a 70 30 split was 30% or 30% being the OEM content comp component.

Speaker #2: Since the early 1980s for submarines, for reasons both good and bad. We are current. We are booking some orders for deliveries into the 2030s.

We are encouraged to see continued demand in the industrial aftermarket across many of the markets that we monitor these.

Speaker #2: RBC is dead center in the middle of this effort today, with a considerable number of proprietary sole and single source products governed by multi-year contracts in the majority of cases.

These include.

Aggregates metals screens food and beverage forest products warehousing to name a few.

I'll now turn the call over to Rob Sullivan, who will give some color commentary on the financial treatments in the Q3 outlook.

Speaker #2: Let's turn over to our industrial business now. Overall, our industrial business was up 0.7%. Industrial distribution was up 3.3%, while the OEM sector was off 4.7%.

Thank you Mike as Dr. <unk> mentioned this was another strong quarter for RBC net sales grew 14, 4% driving a 15, 4% increase in gross margin gross margins were 44, 1% for the quarter or 44, 9% on an adjusted basis compared to 43, 7% in the same period last year.

Speaker #2: Continued weakness in the markets of oil, semiconductor machinery, and European machine tools persists. Our industrial OEM business is a 70/30 split, with 30% of 30% being the OEM component.

During the quarter, we delivered strong performance across our businesses business segments, specifically within A&D, which has been seeing strong growth start to harden had previously noted A&D gross margins during the quarter were 38, 7% or 42, 3% on an organic basis and industrial margins were 48, 2% <unk>.

Speaker #2: We are encouraged to see the continued demand in the industrial aftermarket across many of the markets that we monitor. These include aggregates, metals, grains, food and beverage, forest products, and warehousing, to name a few.

Joshua Carroll: These include aggregates, metals, grains, food and beverage, forest products, warehousing, to name a few. I'll now turn the call over to Rob Sullivan, who will give some color commentary on the financial treatments and the Q3 outlook. Thank you, Mike. As Dr. Hartnett mentioned, this was another strong quarter for RBC. Net sales grew 14.4%, driving a 15.4% increase in gross margin. Gross margins were 44.1% for the quarter, or 44.9% on an adjusted basis, compared to 43.7% in the same period last year. During the quarter, we delivered strong performance across our business segments, specifically within A&D, which has been seeing strong growth, as Dr. Hartnett previously noted. A&D gross margins during the quarter were 38.7%, or 42.3% on an organic basis, and industrial margins were 48.2%.

In the aerospace results were $24 7 million of net sales from vacco during the period, which was acquired on July 18th this quarter.

Speaker #2: I'll now turn the call over to Rob Sullivan, who will give some color commentary on the financial treatments and the Q3 outlook.

On the SG&A line, we had total cost of $77 4 million or 17% of net sales for the quarter.

Speaker #3: Thank you, Mike. As Dr. Hartnett mentioned, this was another strong quarter for RBC. Net sales grew 14.4%, driving a 15.4% increase in gross margin.

This ultimately resulted in an adjusted EBITDA of $145 3 million or 31, 9% for the quarter that.

Speaker #3: Gross margins were 44.1% for the quarter, or 44.9% on an adjusted basis, compared to 43.7% in the same period last year. During the quarter, we delivered strong performance across our business segments, specifically within A&D, which has been seeing strong growth, as Dr. Hartnett previously noted.

That represents an approximate 17, 7% increase in EBITDA compared to last year.

Interest expense for the quarter was $13 4 million. This was down 14, 1% year over year, reflecting the impact of debt payments made over the last 12 months and lower interest rates, partially offset by the impact of borrowing $200 million on our revolver in July to assist and paying for the acquisition of tobacco.

Speaker #3: A&D gross margins during the quarter were 38.7%, or 42.3% on an organic basis, and industrial margins were 48.2%. Included in the aerospace results were 24.7 million of net sales from VACO during the period, which was acquired on July 18th this quarter.

During the second quarter, we paid out $45 million on our term loan balance we made an additional $40 million payment on September 30, which will be reflected in next quarter's results.

Joshua Carroll: Included in the aerospace results were $24.7 million of net sales from Vacco during the period, which was acquired on July 18 this quarter. On the SG&A line, we had total costs of $77.4 million, or 17% of sales for the quarter. This ultimately resulted in an adjusted EBITDA of $145.3 million, or 31.9% for the quarter. That represents an approximate 17.7% increase in EBITDA dollars compared to last year. Interest expense for the quarter was $13.4 million. This was down 14.1% year-over-year, reflecting the impact of debt payments made over the last 12 months and lower interest rates, partially offset by the impact of borrowing $200 million on the revolver in July to assist in paying for the acquisition of Vacco. During the second quarter, we paid off $45 million on our term loan balance.

Diluted earnings per share were $1 90, compared to $1 65 for the same period last year.

Speaker #3: On the SG&A line, we had total costs of $77.4 million, or 17% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $145.3 million, or 31.9% for the quarter.

Adjusted diluted earnings per share were $2 88, representing a 25, 8% increase over $2 29 for the same period last year.

Tax rate and our adjusted EPS calculation was 22% compared to last year's 22, 1%.

Speaker #3: That represents an approximate 17.7% increase in EBITDA dollars compared to last year. Interest expense for the quarter was $13.4 million. This was down 14.1% year over year, reflecting the impact of debt payments made over the last 12 months and lower interest rates partially offset by the impact of borrowing $200 million on the revolver in July to assist in paying for the acquisition of VACO.

Free cash flow in the quarter came in at $71 $7 million with conversion of 119, 5% and compares to $26 8 million and 49, 4% last year.

Higher conversion rate was due to the increased earnings and working capital management during the quarter as.

As we've previously noted our capital allocation strategy going forward, we will remain focused on deleveraging are using the cash that we are generating to pay off the term loan and then the revolver balance.

Joshua Carroll: We made an additional $40 million payment on September 30, which will be reflected in next quarter's results. Diluted earnings per share were $1.90 compared to $1.65 for the same period last year. Adjusted diluted earnings per share were $2.88, representing a 25.8% increase over $2.29 for the same period last year. The tax rate in our adjusted EPS calculation was 22% compared to last year's 22.1%. Free cash flow in the quarter came in at $71.7 million, with conversion of 119.5%, and compares to $26.8 million and 49.4% last year. The higher conversion rate was due to the increased earnings and working capital management during the quarter. As we have previously noted, our capital allocation strategy going forward will remain focused on deleveraging by using the cash that we are generating to pay off the term loan and then the revolver balance.

This week, we finalized an amendment to our credit facility extending the revolver until 2030, we intend to pay the term loan off by November of 2026.

Looking into the third quarter.

Guiding revenues of $4 50, 454 million to $462 million representing year over year growth of 15, 1% to 17, 1%. This.

This guidance Embeds, an operating environment, that's been fairly similar to what we have been seeing over the past few quarters with the additional benefit of owning that go for a full quarter on an organic basis net sales are expected to increase seven 4% to nine 5%.

On the margin side, we are projecting adjusted gross margins of 44% to 44, 5% for the quarter.

G&A as a percentage of sales to be between 17% and 17, 5% for the period.

We continue to remain well positioned to achieve our objectives and drive sustainable growth leveraging our core strengths and engineering excellence operational efficiency and innovative product development.

Joshua Carroll: This week, we finalized an amendment to our credit facility, extending the revolver until 2030. We intend to pay the term loan off by November of 2026. Looking into the third quarter, we are guiding revenues of $454 million to $462 million, representing year-over-year growth of 15.1% to 17.1%. This guidance embeds an operating environment that's been fairly similar to what we have been seeing over the past few quarters, with the additional benefit of owning Vacco for a full quarter. On an organic basis, net sales are expected to increase 7.4% to 9.5%. On the margin side, we are projecting adjusted gross margins of 44% to 44.25% for the quarter, and SG&A as a percentage of sales to be between 17% and 17.25% for the period.

This week, we finalized an amendment to our credit facility extending the revolver until 2030, we intend to pay the term loan off by November of 2026.

Looking ahead, our focus will remain squarely on executing on our organic growth strategy for further integrating vacco driving operational efficiencies and delivering strong free cash flow conversion that will create long term value for all our stakeholders with that operator, please open the call for Q&A.

Looking into the third quarter.

Guiding revenues of $4 50, 454 million to $462 million representing year over year growth of 15, 1% 17, 1%.

This guidance Embeds, an operating environment, that's been fairly similar to what we have been seeing over the past few quarters with the additional benefit of owning that go for a full quarter on an organic basis net sales are expected to increase seven four to nine 5%.

Thank you.

At this time, we'll be conducting a question and answer session.

If you'd like to ask a question at this time you May press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

On the margin side, we are projecting adjusted gross margins of 44%, 44.25% for the quarter and SG&A as a percentage of sales to be between 17% and 17.25% for the period.

You May press star two if you'd like to withdraw your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Joshua Carroll: We continue to remain well-positioned to achieve our objectives and drive sustainable growth, leveraging our core strengths in engineering excellence, operational efficiency, and innovative product development. Looking ahead, our focus will remain squarely on executing on our organic growth strategy, further integrating Vacco, driving operational efficiencies, and delivering strong free cash flow conversion that will create long-term value for all our stakeholders. With that, Operator, please open the call for Q&A. Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question at this time, you may press Star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press Star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys.

One moment please poll for questions. Thank you.

We continue to remain well positioned to achieve our objectives and drive sustainable growth leveraging our core strengths and engineering excellence operational efficiency and innovative product development.

Thank you and our first question is coming from the line of Cristina <unk> with Morgan Stanley. Please proceed with your question.

Looking ahead, our focus will remain squarely on executing on our organic growth strategy for further integrating banco driving operational efficiencies and delivering strong free cash flow conversion that will create long term value for all our stakeholders with that operator, please open the call for Q&A.

Hey, good morning, guys good morning, Rob.

I'm wondering if you're seeing up on the bed.

Maybe following up on the backlog you had a very strong backlog growth of 60% in the quarter can you provide any color regarding how much of that was just from tobacco acquisition and also what were the key drivers of that.

Thank you.

At this time, we'll be conducting a question and answer session.

Increase and then also you alluded to I actually you actually said a $2 billion backlog by the end of your fiscal year. That's a significant step up from where we are today any sort of color on what youre seeing there would be helpful.

If you'd like to ask a question at this time you May press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press Star two if you like to withdraw your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Yeah, so approximately $500 million of that increase is due to the <unk> acquisition.

Joshua Carroll: One moment, please, while we poll for questions. Thank you. Thank you. Our first question is coming from the line of Kristine Liwag with Morgan Stanley. Please proceed with your questions. Good morning, Dr. Hartnett. Good morning, Rob. Morning, Kristine. Maybe following up on the backlog, you had a very strong backlog growth of 60% in the quarter. Can you provide any color regarding how much of that was just from the Vacco acquisition and also what were the key drivers of that increase? You alluded to, actually, you actually said a $2 billion backlog by the end of your fiscal year. That's a significant step up from where we are today. Any sort of color on what you're seeing there would be helpful. Approximately $500 million of that increase is due to the Vacco acquisition.

One moment, please when we poll for questions. Thank you.

And then the remainder of the business is up more than 20% from this time last year.

Thank you and our first question is coming from the line of Cristina <unk> with Morgan Stanley. Please proceed with your question.

We're seeing extraordinarily strong growth in the A&D side of the business approximately 90% plus of our backlog is really all A&D.

Good morning, Nick Good morning, Rob.

I'm wondering if you're seeing up on the pad.

Maybe following up on the backlog you had a very strong backlog growth of 60% in the quarter can you provide any color regarding how much of that was just from the <unk> acquisition and also what were the key drivers of that increase.

The industrial side is a much smaller component when you look at our backlog and we expect that to continue through the rest of the year.

Yes, Christine we're currently.

Currently negotiating contracts with.

Increased and then also you alluded to I actually you actually said at $2 billion backlog by the end of your fiscal year.

And we're very far along theyre very mature in the negotiations and we expect to conclude those.

Within within the months.

You can step up from where we are today any sort of color on what you're seeing there would be helpful.

Which should kind of around the whole thing up to that $2 billion level.

Yeah, so approximately $500 million of that increase is due to the <unk> acquisition.

At least that neighborhood, maybe it's $100 million less maybe it's a $100 million something like that but.

Joshua Carroll: The remainder of the business is up more than 20% from this time last year. We're seeing extraordinarily strong growth in the A&D side of the business. Approximately 90% plus of our backlog is really all A&D. The industrial side has a much smaller component when you look at our backlog, and we expect that to continue through the rest of the year. Kristine, we're currently negotiating contracts, and we're very far along. They're very mature in the negotiations, and we expect to conclude those within the month, which should kind of round the whole thing up to that $2 billion level, at least that neighborhood. Maybe it's $100 million less, maybe it's $100 million more, something like that.

And then the remainder of the business is up more than 20% from this time last year.

Okay.

To some extent.

Had rollover of.

You know, we're seeing extraordinarily strong growth in the A&D side of the business approximately 90% plus of our backlog is really all A&D.

Aircraft contracts, which which I'll begin.

Sort of next year, and there's still several marine contracts that we're working our way through and really for the most part have worked our way through it.

The industrial side is a much smaller component when you look at our backlog and we expect that to continue through the rest of the year.

And we're waiting for the conclude conclusion of the signatures.

Yeah, Christine we're currently you know where were.

Currently negotiating contracts with them and we're very far along they are very mature and the negotiations and we expect to conclude those you know within within the months, which which should kind of around the whole thing go up to that $2 billion level.

Great Super helpful. And then I think you don't suffer heightened last time, when we popped up it seems like Boeing production rates are starting to move up to the right and from Boeing's earnings. This quarter. It seems like Thats really truly materializing can you just remind us regarding your production rates.

At least that neighborhood, maybe it's $100 million last name, it's $100 million or something like that but it's.

What's the utilization of your aerospace all plants and when you when we think about this volume finally coming through how should we think about incremental operating margins, especially with the <unk>.

Joshua Carroll: To some extent, we've had rollover of aircraft contracts, which all begin sort of next year, and there's still several marine contracts that we're working our way through, and really, for the most part, have worked our way through, and we're waiting for the conclusion of the signatures. Great. Super helpful. I think, Dr. Hartnett, last time when we talked, it seems like Boeing production rates are starting to move up to the right, and from Boeing's earnings this quarter, it seems like that's really, truly materializing. Can you just remind us regarding your production rates? What's the utilization of your aerospace plants? When we think about this volume finally coming through, how should we think about incremental operating margins, especially with the changes in contract that you've had and, of course, the inflation that's gone through the business in the past few years?

Oh.

To some extent we've had rollover of.

Aircraft contracts, which which I'll begin.

With the changes in contract.

That you've had and of course, you did inflation that <unk> gone through the business in the past few years.

Sort of next year, and there's still several marine contracts that we're working our way through and really for the most part of work our way through it.

Well I mean, it's right now in terms of capacity utilization for the airframe business.

And we're waiting for the conclude inclusion of the signatures.

We're pretty much at a 100% everywhere.

<unk>.

Great Super helpful. And then you know I think you don't suffer happened last time, when we popped off it seems like Boeing production rates are starting to move up to the right and you know from Boeing's earnings this quarter. It seems like that's really truly materializing can you just remind us regarding your production rate you know what's the utilization.

So we're adding we're adding capacity, we're adding shifts.

We're adding manpower and we're adding some capital.

Two to continue and we're going to be stepping up capacity every quarter.

Going forward in several of the plants.

Demand is strong.

Some of your aerospace all plants and when you when we think about this volume finally coming through how should we think about incremental operating margins, especially with the did that changes in contract.

Sure.

There's there's.

So youre going to see.

Obviously when you add.

When you add plant when you add shifts you get better absorption.

But you've had and of course, you did the inflation that pumped down through the business in the past few years.

Of the overheads and so you get some margin expansion there so the outlook for margin expansion.

Well I mean, it's a right now in terms of capacity utilization for the airframe business.

Joshua Carroll: Right now, in terms of capacity utilization for the airframe business, we're pretty much at 100% everywhere. We're adding capacity, we're adding shifts, we're adding manpower, and we're adding some capital to continue. We're going to be stepping up capacity every quarter going forward in several of the plants. Demand is strong. You're going to see, obviously, when you add plant, when you add shifts, you get better absorption of the overheads, and you get some margin expansion there. The outlook for margin expansion overall is, it just couldn't be more positive. Yeah. That's very exciting to hear. I'll keep it to two questions today. Thank you. Okay. Thanks. The next question is from the line of Michael Ciarmoli with Truist Securities. Please proceed with your question. Hey. Morning, guys. Nice results. Thanks for taking the questions. Maybe just housekeeping. I think I may have missed it, Rob.

Overall is.

We just couldnt be more positive.

Yes, it is very exciting to hear so I'll keep it to two questions today. Thank you.

Yeah, we're we're pretty much at a 100 per cent everywhere.

And so we're adding we're adding capacity, we're adding shifts.

Okay. Thanks.

The next question is from the line of Michael <unk> with choice Securities. Please proceed with your question.

We're adding manpower and we're adding some capital.

Hey, good morning, guys nice results. Thanks for taking the question.

Two to continue and we're going to be stepping up capacity every quarter.

Maybe just just housekeeping I think I may have missed it Rob what was the <unk>.

Going forward and in several of the plants.

Aro OEM growth in the quarter and the arrow distribution growth in the quarter.

Demand is strong.

<unk>.

There's there's so youre going to see.

Sure.

Obviously when you add.

Aero OEM with.

When you add plant when you add shifts you get better absorption.

<unk> commercial or are you talking about the whole segment.

The overheads and so you get some margin expansion there so the outlook for margin expansion.

Alright, just commercial sorry, so commercial OEM grew 27, 9% this quarter and commercial distribution was basically flat is actually down, 2%, but more or less flat okay.

Overall is.

We just couldn't be more positive.

Yeah, that's very exciting to hear so I'll keep it to two questions today. Thank you.

Okay got it.

And then just looking at it.

Okay.

Industrial distribution looks like it was.

The next question is from the line of Michael Similarly, with Troy Securities. Please proceed with your question.

<unk> had it up three 3%, but down 8% sequentially and any anything happening there or was that any sort of seasonality lumpy orders I know, it's usually down a little bit sequentially.

Hey morning, guys nice results. Thanks for taking the question maybe.

Maybe just just housekeeping I think I may have missed it Rob what was the Aero OEM growth in the quarter and the arrow distribution growth in the quarter.

Joshua Carroll: What was the aero OEM growth in the quarter and the aero distribution growth in the quarter? The aero OEM, you're doing commercial, or are you talking about the whole segment? Just commercial. Sorry. Commercial OEM grew 27.9% this quarter, and commercial distribution was basically flat. It was actually down 2%, but more or less flat. Okay. Got it. Just looking at industrial distribution, it looked like it was up 3.3%, but down 8% sequentially. Anything happening there? Was that any sort of seasonality, lumpy orders? I know it's usually down a little bit sequentially on a seasonal basis, but anything jump out with that industrial distribution side? We had some relatively strong performance in the industrial distribution business in the first quarter, some really strong orders on that end. The fact is it's still growing. It's just probably quarter over quarter, that's what you're seeing there. Okay. Got it.

On a seasonal basis, but any anything jump out with that.

Industrial distribution side.

So the Aero OEM.

We had some really relatively strong performance in the industrial distribution business in the first quarter. Some really strong orders on that and so that is the fact that it is still growing its just probably quarter over quarter Thats, what youre seeing there.

Oh, you don't commercial are you talking about the whole segment.

Alright, just commercial sorry, the commercial OEM grew 27, 9% this quarter and commercial distribution was basically flat is actually down 2%.

Okay. Okay got it and then I think you guys called out the dilution from vacco, roughly 360 basis points or so can you give us any sense as to how we should think about the vacco margins expanding I know you kind of just answered christine's question.

More or less flat okay.

Got it.

And then just looking at.

Industrial distribution looks like it was you know I think you had it up three 3%, but down 8% sequentially and any anything happening there was that any sort of seasonality lumpy orders you know I know, it's usually down a little bit sequentially on a.

Couldn't be more positive on the outlook for margin expansion, but how do we how do we think about that maybe vacco drag dissipating and getting those margins up to an in line of historic RBC margins.

On a seasonal basis, but any anything jump out with that industrial distribution side.

Yes, so look theyre running in the mid twenties at this point.

We had some really relatively strong performance in the industrial distribution business in the first quarter. Some really strong orders on that and so the fact is it's still growing it's just probably quarter over quarter, that's what you're seeing there.

On an adjusted basis at their normal run rate.

Going to take some time, but we think there is tremendous capacity for some operational synergy there over time to get those margins looking like the rest of the RPC business. That's what we picked up on when we were doing diligence and thats kind of the internal.

Okay. Okay got it and then I think you guys called out the dilution from vacco, roughly 360 basis points or so can you give us any sense as to how we should think about you know the vacco margins expanding I know you kind of just answered christine's question with with couldn't be more part.

Joshua Carroll: I think you guys called out the dilution from Vacco, roughly 360 basis points or so. Can you give us any sense as to how we should think about the Vacco margins expanding? I know you kind of just answered Kristine's question with, "Couldn't be more positive on the outlook for margin expansion." How do we think about that, maybe Vacco drag dissipating and getting those margins up to and in line with historic RBC margins? They're running in the mid-20s at this point. On an adjusted basis, that's their normal run rate. It's going to take some time, but we think there's tremendous capacity for some operational synergy there over time to get those margins looking like the rest of the RBC business. That's what we picked up on when we were doing diligence, and that's kind of the internal objectives. These projects do take time.

<unk>, but these projects do take time.

Okay.

Okay.

Yes, Michael I would say on that to that.

We.

Positive on the outlook for margin expansion, but how do we how do we think about that that may be vacco drag dissipating and getting those margins up to an in line of historic RBC margins.

As far as tobacco is concerned.

Still in there getting to know you phase.

And.

Very encouraged by what we see in lots of manufacturing synergy was southern California plants.

Which which is needed because vacco needs to substantially kick up production rates.

Yeah. So you know look there theyre running in the mid twenties at this point you know.

And those those rates will.

Adjusted basis.

Normal run rate.

That manufacturing production will be done in the west coast plants that.

It's going to take some time, but we think there's tremendous capacity for some operational synergy there over time to get those margins looking like the rest of the RBC business. That's what we picked up on when we were doing diligence and that's kind of the internal objectives, but you know these projects do take time.

Have the.

You have the floor space and.

They'll need some added capacity. So we're working on that right now so that's going to be very positive to margin absorption on the on the west coast.

Joshua Carroll: Does it get time? Yeah. Michael, I would say on that too that as far as Vacco is concerned, we're still in the getting-to-know-you phase. Very encouraged by what we see, and lots of manufacturing synergy with Southern California plants, which is needed because Vacco needs to substantially kick up production rates. Those rates, that manufacturing production, will be done in the West Coast plants that have the floor space, and they'll need some added capacity. We're working on that right now. That's going to be very positive to margin absorption on the West Coast. I think. Right now, we're looking at some of the existing space contracts and renegotiating terms and conditions that are more aligned with RBC policies. We're just working through that one at a time, and that's part of the process. We expect next year for Vacco to be a star player in our lineup.

Okay.

So.

Okay.

<unk>.

Right now we're looking at.

Yes, Michael I would say on that to that.

Some of the existing space contracts, and renegotiating terms and conditions that.

Yeah, we are.

As far as tobacco is concerned we are still in there getting to know you face.

Are more aligned with RBC policies and so we're just.

And.

Very encouraged by what we see and a lots of manufacturing synergy with southern California plants.

Working working through that one at a time and that's part of the.

That's part of the process. So we.

Which which is needed because vacco needs to substantially kick up production rates.

We expect next year to <unk> to be a.

Those rates will.

Istar a star player in our lineup.

Does that that manufacturing production will be done in the west coast plants that they.

Got it helpful I'll jump back in the queue. Thanks, guys.

Have the.

Had the floor space and.

Yes.

They'll need some added capacity. So we're we're working on that right now so that's that's going to be very positive to margin absorption on the on the west coast.

The next question is from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.

Thanks, Good morning.

Good morning, Mike.

So and.

And I think the.

Your you talked about adding capacity to support all of these aerospace and defense programs and I'm sure planning for that growth is a moving target, but what revenue level did you direct the team to plan for.

You know right now we're looking at.

Some of the existing space contracts and renegotiating terms and conditions.

Are more aligned with RBC policies and so we're just.

Working working through that one at a time and that's that's part of the.

For that group.

That's part of the process. So we.

For let's start with A&D and then maybe talk about the whole company.

We expect next year to <unk> to be a.

Istar a star player in our lineup.

Why don't we just E mail you our five year business plans.

Joshua Carroll: Got it. Helpful. I'll jump back in the queue. Thanks, guys. The next question is from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your questions. Thanks. Good morning. Good morning, Steve. Mike, you talked about adding capacity to support all these aerospace and defense programs. I'm sure planning for that growth is a moving target, but what revenue level did you direct the team to plan for, for that group? Yeah. Let's start with A&D and then maybe talk about the whole company. Why don't we just email you our five-year business plan, Steve? You're talking about needing to substantially ramp production across multiple programs. I'm just wondering, do you think that you need to be able to support $1.2 billion, $1.5 billion? I'm just talking A&D now. Is this going to be a $3 billion capacity plan?

Got it helpful I'll jump back in the queue. Thanks, guys.

Yeah.

Well youre talking about needing to substantially ramp production across multiple programs I'm. Just wondering do you think that you need to be able to support.

Okay.

The next question is from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.

Thanks, Good morning.

The $1 2 billion and $1 5 billion.

Good morning, Mike.

I'm just talking A&D now or is this going to be a $3 billion of capacity plan or is this going to be a situation, where you're just continually kind of tacking it on an <unk>.

Your you talked about adding capacity to support all these aerospace and defense programs and I'm sure planning for that growth is a moving target, but what revenue level did you direct the team to plan for.

Casing that capacity as those programs evolve.

Well I think I think that's a good question.

For that group.

We're doing it sort of business by business and I Havent havent rolled it all up into what the what the final number is going to be a lot of that depends upon how quickly we can we can.

Yeah, well, let's start with A&D and then maybe talk about the whole company.

Why don't we just email you our five year business plans.

The capacity and get the throughput.

Well, you're talking about you know needing to substantially ramp production across multiple programs I'm. Just wondering do you think that you need to be able to support.

But yes.

If you look at one of our businesses.

On the marine side of Sargent.

1.2 billion $1 5 billion.

I think two years ago.

I'm just talking in A&D now or is this going to be a 3 billion dollar of capacity plan or is this going to be a situation, where you're just continually kind of attacking it on and.

We're in the mid <unk> in terms of annual revenue out of that Marine program.

Joshua Carroll: Is this going to be a situation where you're just continually kind of tacking it on and chasing that capacity as those programs evolve? I think that's a good question. We're doing it sort of business by business, and I haven't rolled it all up into what the final number is going to be. A lot of that depends upon how quickly we can add the capacity and get the throughput. If you look at one of our businesses on the marine side of Sargent, I think two years ago we were in the mid-30s in terms of annual revenue out of that marine program, and we need to be well over $100 million as quickly as we can get there. It's a matter of how quickly can we get there. That's kind of what's going on in Tucson.

And.

We need to be well over 100.

Casey that capacity as those programs evolve.

As quickly as we can get there.

And so it's a matter of how quickly can we get there.

Well I think I think that's a good question.

So that's that's kind of that's kind of what's going on in.

We're doing it sort of business by business and I Havent havent rolled it all up into what the what the final number is going to be in a lot of that depends upon how quickly. We can we can add the.

In Tucson, and when we look at Vacco, we're still trying to figure out.

With the mature steady state production rate needs to be in order in order to keep.

Today and get the throughput.

Keep the.

But if you.

The MRO business and the shipbuilders.

If you look at one of our businesses.

Yeah.

Hum on the marine side of Sargent.

Happy with the <unk>.

Hardware output. So we haven't we haven't.

I think two years ago.

We have differences of opinion on what that number is right now so I can't really.

We're in the mid thirties in terms of annual revenue out of that Marine program.

Be more specific about it but it's it's much bigger than where they are so yes.

And we we need to be well over 100.

We're going to see substantial improvement in both.

As quickly as we can get there.

Airframe.

And so it's a matter of how quickly can we get there.

Air engine and marine over the next couple of years.

So that's that's kind of that's kind of what's going on in.

Yes.

There is almost no way to avoid it if they keep building airplanes and they keep building submarines. So it's just there's no way to avoid it.

In Tucson, and when we look at Vacco, we're still trying to figure out.

Joshua Carroll: When we look at Vacco, we're still trying to figure out what the mature, steady-state production rate needs to be in order to keep the MRO business and the shipbuilders happy with the hardware output. We have differences of opinion on what that number is right now, so I can't really be more specific about it, but it's much bigger than where they are. We're going to see substantial improvement in both airframe, air engine, and marine over the next couple of years. There's almost no way to avoid it if they keep building airplanes and they keep building submarines. There's no way to avoid it. Right. No, I guess that's the key takeaway here is that RBC Bearings has the potential to have a pretty significantly bigger top plan based on the slate of opportunities you see in front of you. Correct. That's how we see it.

With the mature steady state production rate needs to be in order in order to keep them.

Right No I guess, that's the key takeaway here is that RBC has the potential to have.

Pretty swiftly.

Keep the MRO business and the shipbuilders.

Based on the slate of opportunities you see in front of me.

Correct, that's how we see it.

Yeah.

Happy with the <unk>.

And when you look at those programs and opportunities out there do you have enough engineering staff to support underwater ground based aircraft space.

Hardware output. So we haven't we haven't.

We have differences of opinion on what that number is right now so I can't really be more specific about it but it's it's much bigger than where they are so.

Is that a capacity constraint as well on the engineering side.

Yeah, we're going to see substantial improvement in both.

Well you never have enough engineers.

Airframe.

Air engine and marine over the next couple of years.

And you certainly never have enough good engineers.

Yes.

I don't think it's a capacity constraint I think I think the.

There's almost no way to avoid it if they keep building airplanes and they keep building submarines. So it's just there's no way to avoid it.

Design engineering work.

And the testing engineering work for the most part.

Right No I guess, that's the key takeaway here is that RBC has the potential to have a pretty topical.

Is done and so there's probably incremental staff.

Increases needed, although when we did when we acquired <unk>, we got a.

Based on the suite of opportunities you see in front of you.

Correct, that's how we see it.

Quite a few very.

Very capable.

Joshua Carroll: When you look at those programs and opportunities out there, do you have enough engineering staff to support underwater, ground-based aircraft, space? Is that a capacity constraint as well on the engineering side? You never have enough engineers, and you certainly never have enough good engineers. I don't think it's a capacity constraint. The design engineering work and the testing engineering work, for the most part, is done, and there's probably incremental staff increases needed. Although when we acquired Vacco, we got quite a few very capable engineering teams, so that's going to be helpful. I think on the production side, we have our MET program where we hire college engineering graduates every year and put them into our plants into a two-year training program.

And when you look at those programs and opportunities out there do you have enough engineering staff to support underwater ground based aircraft space like.

Engineering engineering team. So that's going to that's going to be helpful. I think on the.

On the production side.

We have.

We have our <unk> program, where we hire.

Is that a capacity constraint as well on the engineering side.

College engineering graduates every year and put them into our plants.

Well you never have enough engineers.

Into a two year training program.

And you certainly never have enough good engineers.

And we've been doing this for years and I think the last time I looked at the numbers.

I don't think it's a capacity constraint I think I think the design engineering work.

The number of people that were in the two year training program, who is probably 100 folks.

And the testing engineering work for the most part.

So I mean, we've been we've been salting engineering talent into the company for years. So we have a very.

Is done and so there's probably incremental staff.

Increases needed, although when we did when we acquired <unk>, we got a.

Deep bench.

Of expertise and we're actually looking at that yesterday.

Quite a few Barry.

Who is in the 10 to 15 year year group with Us and <unk>.

Very capable.

Engineering engineering team. So that's going to that's going to be helpful. I think on the.

Because thats.

The emerging management of the company and it's it's it's quite salty.

On the production side.

We have we have our M E T program, where we hire.

Okay.

That's good to hear.

College engineering graduates every year and put them into our plants.

I don't remember ever hearing in AI related question on one of your earnings call. So I am happy to be first.

Into a two year training program.

Joshua Carroll: We've been doing this for years, and I think the last time I looked at the numbers, the number of people that were in the two-year training program, it was probably 100 folks. We've been salting engineering talent into the company for years, so we have a very deep bench of expertise. We were actually looking at that yesterday, at who's in the 10 to 15-year group with us, because that's the emerging management of the company, and it's quite salty. That's good to hear. I don't remember ever hearing an AI-related question on one of your earnings calls, so I'm happy to be first. Are you leaning into AI from the engineering side or anywhere else in the organization to try and help optimize manufacturing or engineering or anything else? I think AI is something you almost can't avoid using, right?

And we've been doing this for years and I think the last time I looked at the numbers.

Are you leaning into AI from the engineering side or anywhere else in the in the organization to try and help optimize manufacturing or engineering or anything else.

The number of people that were in the two year training program. It was probably 100 folks.

So I mean, we've been we've been salting engineering talent into the company for years. So we have a very.

I think AI is something you almost can't avoid using right. It's just you.

Deep bench.

You get too many good answers quickly.

Of expertise and we're actually looking at that yesterday.

When you when you go to chat or you go to.

Who is in the 10 to 15 years.

<unk>.

One of the one of the suppliers.

<unk> group with Us and.

And.

Because that's you know that's the emerging management of the company and it's it's it's quite salty.

I personally.

I asked my five questions every day.

Okay.

Yeah.

I never subscribed at GPT, but they do give me five questions every day and I use them up every day.

So that's that's good to hear.

I don't remember ever hearing in AI related question on one of your earnings calls so I'm happy to be first are you leaning into AI from the engineering side or anywhere else in the in the organization to try and help optimize manufacturing or engineering or anything else.

And I think there's many many of us.

Subscribe and use and use it.

Productively.

Yes, yes, it's having its having.

It is having an impact to measure how to measure exactly what that impact is right now.

We don't have that we don't have a good grip on that but.

You know I think AI is something you almost can't avoid using right. It's just.

The other day, we were talking about.

Joshua Carroll: You get too many good answers quickly when you go to chat or you go to Gronk or one of the suppliers. I personally, I mean, I ask my five questions every day. I never subscribe to ChatGPT, but they do give me five questions every day, and I use them up every day. I think there's many, many of us that subscribe and use it productively. Yeah, it's having an impact. How to measure exactly what that impact is right now, we don't have that. We don't have a good grip on that. The other day, we were talking about designing a component that was failing in our tests. I personally asked AI, "What kind of tribological coupling did beryllium copper make on steel?

You get too many good answers quickly.

Designing a component.

That was failing in our tests.

When you when you go to chat or you go to.

Cronk or one of the one of the suppliers and.

And so I.

I personally asked AI.

What kind of trouble logical coupling.

I I personally.

I asked my five questions every day.

Did beryllium copper make on steel and.

[laughter].

And how would improve that coupling through design.

I never subscribed chat GP to EBIT, but they do give me five questions every day and I use them up every day.

In 30 seconds.

You've got a report that would have taken me a week to get from one of my engineering teams. It was excellent.

And I think there's many many of us did.

Subscribe and use and use it.

And we actually debated using some of those recommendations.

Productively.

Yeah, Yeah, it's having its having.

Within the hour. So that's that's how it works the impact it's having here.

It's having an impact to measure how to measure exactly what that impact is right now.

That is.

We don't have that we don't have a good grip on that but you know the other the other day, we were talking about <unk>.

That's interesting detail, thanks, I'll get back in line.

Okay.

Designing a component.

Our next question is from the line of Scott to say with Deutsche Bank. Please proceed with your question.

That was failing in our tests.

Hey, good morning, Rob when you restrict the Boeing and Airbus contracts do we see the full benefit of that hit in the calendar first quarter or do you have to honor some preexisting backlog.

And so I personally asked AI.

You know what kind of tribal logical coupling.

Did beryllium copper make on steel.

At lower prices such that it takes a few quarters for that benefit to show up in gross margins.

Joshua Carroll: And how would I improve that coupling through design?" In 30 seconds, I got a report that would have taken me a week to get from one of my engineering teams that was excellent. We actually debated using some of those recommendations within the hour. That's the impact it's having here. That's interesting detail. Thanks. I'll get back in line. Our next question is from the line of Scott Doucet with Deutsche Bank. Please proceed with your questions. Hey, good morning. Rob, when you restrike the Boeing and Airbus contracts, do we see the full benefit of that hit in the calendar first quarter, or do you have to honor some pre-existing backlog ordered at lower prices such that it takes a few quarters for that benefit to show up in gross margins?

And how would I improve that coupling through design.

So we should see most if not all of that right away.

And 30 seconds I got a report that would have taken me a week to get from one of my engineering teams. It was excellent.

Shipments that start after January one.

Okay and in terms of what you all have been targeting to get out of those renegotiations.

And we actually debated using some of those recommendations.

Are you generally tracking to what you hoped for in terms of your ask are there any just general update as it relates to the status of those negotiations you can offer.

Within the hour. So that's that's how that's the impact it's having here.

That is a that's interesting detail thanks I'll get back in line.

Well you never get what you ask.

Okay.

Yes.

Our next question is from the line of Scott to say with Deutsche Bank. Please proceed with your question.

The airframe people are very tough negotiators, so, let's just put it this way.

Hey, good morning, Rob when you restrike, the Boeing and Airbus contracts do we see the full benefit of that hit in the calendar first quarter or do you have to honor some preexisting backlog ordered at lower prices such that it takes a few quarters for that benefit to show up in gross margins.

We negotiated with them for two solid years.

And.

And that negotiation was scheduled.

Pretty weak for two solid years.

Joshua Carroll: We should see most, if not all, of that right away on the shipments that start after January 1. In terms of what you all have been targeting to get out of those renegotiations, are you generally tracking to what you hoped for in terms of your ask, or is there any just general update as it relates to the status of those negotiations you can offer? You never get what you ask. The airframe people are very tough negotiators. Let's just put it this way. We negotiated with them for two solid years. That negotiation was scheduled every week for two solid years. Got it. Go ahead. We were reasonably—I think neither side was completely happy with the results, but we weren't disappointed. Just following up on the prior question on AI, Caterpillar reported results earlier this week. They have an investor day next week.

We should see most if not all of that right away on the shipments that start after January one.

Got it okay.

And.

Go ahead.

Okay and in terms of what you all have been targeting to get out of those renegotiations.

And we were reasonably.

I think I think neither side was completely happy with the results.

Are you generally tracking to what you hoped for in terms of your ask or is there any just general update as it relates to the status of those negotiations you can offer.

But we weren't disappointed.

Okay.

And then just following up on the prior question on AI.

Well you never get what you ask.

Caterpillar reported results earlier this week they have an investor day next week, a big topic of conversation is the demand on the smaller and mid sized power generators.

Yeah.

The the airframe people are very tough negotiators.

I don't think on a large combined cycle generators you have much content correct me, if I'm wrong, but on the smaller and mid sized reciprocating engines is that an all in areas that RPC placement.

So let's.

Let's just put it this way.

We negotiated with them for two solid years.

And and that negotiation was scheduled every week for two solid years.

No.

We're not we're not in that area at all.

Okay, and then last question for you Dr Hartnett.

There is now a publicly traded company out there that's generating 30% EBITDA margins in our fasteners business.

Got it okay.

And we are.

And we'll go ahead and we were reasonably.

And the industry appears to have some supply constraints and I believe youll have some capabilities here, you've got the Sargent and sharpens.

You know I think I think neither side was completely happy with the results.

But we werent disappointed.

So I'm just curious like is that an area of strategic interest for you as you think about organic investment in the business just given the margin potential others in the industry or are demonstrating.

Okay.

And then just following up on the prior question on AI.

Caterpillar reported results earlier this week they have an investor day next week, a big topic of conversation is the demand on the smaller and mid sized power generators.

Yeah.

Joshua Carroll: A big topic of conversation is the demand on these smaller and mid-sized power generators. I don't think on the large combined cycle generators you have much content. Correct me if I'm wrong. On these smaller and mid-sized reciprocating engines, is that an all-out area that RBC Bearings plays in? No. No, we're not in that area at all. Last question for you, Dr. Hartnett. There's now a publicly traded company out there that's generating 30% EBITDA margins in their fasteners business. The industry appears to have some supply constraints. I believe you have some capabilities here. You got through Sargent and ShearPens. Just curious, is that an area of strategic interest for you as you think about organic investment in the business, given the margin potential others in the industry are demonstrating? We've looked at fasteners many times. Yes, we have a business that sort of overlaps that market.

We've looked at we've looked at fasteners.

Many times.

I don't think on a large combined cycle generators you have much content correct me, if I'm wrong, but on the smaller and midsize reciprocating engines is that an all in area that RPC place them.

Yes, we have a business that's sort of.

Overlaps that that market.

And.

And it's.

We don't see it as productive a market.

No.

We're not we're not in that area at all.

In terms of.

Okay, and then last question for you Dr Hartnett.

Proprietary protection.

There is now a publicly traded company out there that's generating 30% EBITDA margins in our fasteners business.

And.

And what are what our current capitalization.

And the industry appears to have some supply constraints and I believe youll have some capabilities here and you've got through Sargent and sheer pins.

As tool to produce is.

So I'm just curious like is that an area of strategic interest for you as you think about organic investment in the business just given the margin potential others in the industry or are demonstrating.

Let's put it this way there's more interesting markets.

We pursued.

Okay. Thank you I'll pass it along.

Okay.

The next questions are from the line of Pizza Kubicki with Alembic Global. Please proceed with your question.

Yeah.

We've looked at we've looked at fasteners.

Hey, good morning, guys nice quarter.

Many times.

Yes, we have a business that's sort of overlaps that that market.

Thanks, Mike.

In defence just when will this government shutdown, we're about a month in your third quarter I'm. Just wondering if you guys are seeing any any headwinds on order flow from from the shutdown.

Joshua Carroll: We don't see it as a productive market in terms of proprietary protection and what our current capitalization is tooled to produce. Let's put it this way: there are more interesting markets that we pursued. Thank you. I'll pass it along. The next questions are from the line of Pete Skibitski with Alembic Global. Please proceed with your questions. Good morning, guys. Nice quarter. Thanks, Steve. In defense, with this government shutdown, we're about a month into your third quarter. Are you seeing any headwinds on order flow from the shutdown? None. None. None. Subs are pretty protected. On the 777X delay, shift to the right, Mike, I know you have a lot of content there. Is there any meaningful impact to your prior plan over the next few quarters from that delay?

And.

Yes.

We don't see it as productive a market.

In terms of.

None none.

Proprietary protection.

Subs are pretty protected okay.

And.

And then just on the Triple seven X delay.

And what are what our current capitalization.

Shift to the right Mike I know you guys have a lot of content there any meaningful impact to your prior plan over the next few quarters from that delay.

As his tool to produce is.

Yeah.

But let's put it this way there's more interesting markets.

No it hasn't it hasn't been part of our plan at all.

We pursued.

Just because.

Okay. Thank you I'll pass it along.

The uncertainty of the.

When that shift is going to be produced.

The next questions are from the line of Pizza Kubicki with Alembic Global. Please proceed with your question.

So just.

If it's if it's produced sooner as we can.

Hey, good morning, guys nice quarter.

Call that plan insurance.

Thanks Pete.

In defence just with this government shutdown, we're about a month into your third quarter. Just wondering if you guys are seeing any any headwinds on order flow from our from the shutdown.

Okay.

Last one for me just on <unk>.

Mike Your bullish comments earlier about gross margin expansion.

Or are you still within the framework of the kind of your typical 50 to 100 basis point annual goal.

None none.

Subs are pretty protected okay.

Are you moving kind of beyond that organically and are with the Mako opportunity there whats the right way to think about that.

And then just on the Triple seven X delay.

Shift to the right Mike I know you guys have a lot of content there if any.

Well, we ended last year at about.

Any meaningful impact to your prior plan over the next few quarters from that delay.

About 44 four for the full year, our first two quarters this year of $45 444 nine.

Joshua Carroll: No, it hasn't been part of our plan at all, just because of the uncertainty of when that ship is going to be produced. If it's produced sooner, we'd call that plan insurance. Last one for me, on your bonus comments earlier about gross margin expansion. Are you still within the framework of your typical 50 to 100 basis point annual goal, or are you moving beyond that organically and/or with the Vacco opportunity there? What's the right way to think about that? We ended last year at about 44.4% for the full year. Our first two quarters this year, 45.4%, 44.9%. Obviously, Vacco is a little bit lower than the rest, so that will impact the second half of the year to a certain degree. Organically, we're right in line with that level of expansion.

No it hasn't hasn't been part of our plan at all.

Just because.

Obviously vacco.

Oh no.

A little bit lower than the rest so that will impact the second half of the year and to a certain degree.

The uncertainty of when that shift is is going to be produced.

Bye.

So just you know if it's if it's produced sooner we'd call that plan insurance.

<unk>, we're right in line with that level of expansion and even with Vacco I think we're still going to be able to expand our margins year over year. So I think we're really pleased with where we are.

Yeah Okay.

Last one for me just on you know you Mike your bullish comments earlier about gross margin expansion.

Okay. Thanks, guys. Thanks, Rob.

Or are you still within the framework of the kind of your typical 50 to 100 basis point annual goal or are you moving kind of beyond that organically and or with the Mako opportunity there, what's the right way to think about that.

Our next question comes from the line of Ron Epstein with Bank of America. Please proceed with your question.

Hey, good morning, guys.

Has there been any impact from critical minerals first on what you guys do.

Well, we ended last year.

About 44 four for the full year, our first two quarters. This year 45 or 44 nine am.

If there is how are you.

Isn't it.

No.

Obviously vacco is as you know a little bit lower than the rest so that will impact the second half of the year and to a certain degree but organically.

We see no impact at all.

I think we are.

Our products don't use it.

Organically, we're right in line with that level of expansion and even with tobacco I think we're still going to be able to expand our margins year over year. So I think we're really pleased with where we are.

We saw more of an impact from the from the availability of the <unk>.

Joshua Carroll: Even with Vacco, I think we're still going to be able to expand our margins year over year. I think we're very pleased with where we are. Thanks, guys. Thanks, Rob. Our next questions come from the line of Ron Epstein with Bank of America. Please proceed with your questions. Good morning, guys. Has there been any impact from critical minerals, rare earths, on what you do? If there is, how are you mitigating it? No. We see no impact at all. Our products don't use it. We saw more of an impact from the availability of the more exotic stainless steels, which, that problem seems to have corrected itself. That was a problem 12 months ago, that was a bigger problem. Gotcha. All right. Good to know. If I could follow up on that AI question, I found your answer fascinating.

The.

More exotic stainless steels, which.

That that problem seems to have corrected itself, but that was a problem.

Okay. Thanks, guys. Thanks, Rob.

12 months ago that was a bigger problem.

Our next questions come from the line of Ron Epstein with Bank of America. Please proceed with your question.

Gotcha, Alright, good dinner and then.

Yeah, Hey, good morning, guys.

If I could follow up on that AI question I found your answered fascinating.

And has there been any impact from critical minerals rare Earths on what you guys do.

Being an engineer myself.

Can you get that answer from rock or whatever.

If there is how are you.

Or do you have to do to review it to extra trust Jeremy.

Mitigating it.

No.

And then when you get to a point, where you can trust.

We see no impact at all.

I think we are.

Does this have an implication on the number of engineers that youre going to need.

Our products don't use it.

Just how do you get confident that.

We saw more of an impact from the from the availability of the.

AI is giving you something that's useful.

The more exotic stainless steels, which.

Well.

Thank you.

That that that problem seems to have corrected itself, but that was a problem.

I think when we if we use that the answer that I got for that private logical coupling.

12 months ago that was a bigger problem.

It came out with it came out with suggestions that.

Gotcha Alright, good to know and then if I could follow up on that question that I found your answer fascinating.

That.

If we're thinking about it.

We would we would come up with those answers.

But it really.

Joshua Carroll: Being an engineer myself, you get that answer from GROC or whatever. What do you have to do to review it to actually trust it? You know what I mean? When you get to a point where you can trust it, does this have an implication on the number of engineers that you're going to need? You know what I mean? It's just, how do you get confident that the AI is giving you something that's useful? I think when we use the answer that I got for that tribological coupling, it came out with suggestions that, if we were thinking about it, we would come up with those answers. It really sort of gave us a reminder that said, "Hey, you could do it this way. You could do it that way. There's three or four different ways to improve it.

Being an engineer myself.

It's sort of.

Can you get that answer from rock or whatever.

It's sort of gave us a a reminder, that said hey, you can do it. This way you could do it that way there is three or four different ways to improve it and did you think of these and those were all sort of knowns known uncomfortable solutions for us so.

Or do you have to do to review it actually trust Oh, you mean like.

And when you get to a point, where you can trust. It does this have an implication on the number of engineers, if you're going to need or you want me.

So it's sort of interesting.

It's just.

It's centered us a little bit and.

How do you get confident that.

Hey, I am giving you something that's useful.

<unk> stimulated are similar stimulated our thinking on the subject.

Well you know I think.

So that was.

I think when we if we use that the answer that I got for that private logical coupling.

I think it's a place you start.

Sort of like when you're researching a company.

You pull out a value line.

It came up with it came out with suggestions that.

And Thats always the place you start.

And then from that you say.

That.

If we were thinking about it.

Well, that's an interesting company, maybe I should dig a little further.

We would we would come up with those answers.

So that's that's how we're using AI right now.

It really.

It's sort of.

Yeah interesting interesting I mean can you imagine.

It's sort of gave us a a reminder, that said hey, you can do it. This way you could do it that way, there's three or four different ways to improve it and did you think of these and those were all sort of knowns known uncomfortable solutions for us so.

In a world, where it's doing more than that for you or is it just kind of how it grows.

Joshua Carroll: Did you think of these?" Those were all sort of known and comfortable solutions for us. It sort of centered us a little bit and stimulated our thinking on the subject. That was, I think, it's a place you start. It's sort of like when you're researching a company, you pull out a value line, and that's always the place you start. From that, you say, "That's an interesting company. Maybe I should dig a little further." That's how we're using AI right now. Yeah. Interesting. Interesting. I mean, can you imagine a world where it's doing more than that for you, or is it just kind of how it goes? Yeah. It's funny because when we have our operations meetings, we'll have 30 people in the room, and we'll be asked, sometimes they get into, "How do we solve this problem?

Yes.

It's funny because when we have our operations meetings, we will have.

30 people in the room.

So it's sort of interesting.

It's centered us a little bit and and you know.

And we will be asked sometimes they get into how do we solve this problem solve that problem.

Stimulated are similar stimulated our thinking on the subject.

And everybody's everybody's go into AI and coming up with suggestions.

So that was you know I think it's a place you start it.

Suggestions.

Sort of like when you're researching a company if.

And so it sort of feeds on its done itself. So.

You pull out a value line.

You have three or four engineers that are using their phone to figure out how to solve a problem all of a sudden you've got you've got suggestions on the table that.

And that's always the place you start.

And then from that you.

You'll say well that's an interesting company, maybe I should dig a little further.

You wouldn't have had you wouldn't have thought about it that quickly and.

So that's that's how we're using AI right now.

Yeah interesting interesting I mean.

So.

Can you imagine a world, where it's doing more than that for you or is it just you just got.

The old days of driving up to the University to go through the library.

How it goes.

That's over.

Okay.

Yeah I.

Interesting well, thank you very much.

Well you know, it's it's funny because when we have our operations meetings, we will have.

Okay.

Thank you. The next question is follow up from the line of Cristina <unk> with Morgan Stanley. Please proceed with your question.

30 people in the room.

And we will be asked sometimes they get into how do we solve this problem solve that problem.

I mean, I guess with that comment Dr. Harden. It sounds like you should pay for GTT and you stopped doing a free suffer now.

Joshua Carroll: How do we solve that problem?" Everybody's going to AI and coming up with suggestions, and it sort of feeds on itself. You have three or four engineers that are using their phone to figure out how to solve a problem. All of a sudden, you've got suggestions on the table that you wouldn't have had, you wouldn't have thought about it that quickly. The old days of driving up to the university to go through the library, that's over. Yeah. Yeah. Yeah. Interesting. Cool. Thank you very much. Okay, Ron. Thanks. Thank you. The next question is a follow-up from the line of Kristine Liwag with Morgan Stanley. Please proceed with your questions. I mean, I guess with that comment, Dr. Hartnett, it sounds like you should pay for ChatGPT and just stop doing the free stuff for now.

And you know everybody's everybody's going to AI and coming up with.

[laughter] well.

Suggestions and and so it sort of feeds on its done itself. So.

Well you know I.

I guess I guess the tipped you off on.

You have three or four engineers that are using their phone to figure out how to solve a problem all of a sudden you've got you've got suggestions on the table that <unk>.

And how we manage expenses at RBC.

[laughter].

Well great.

Is that any luck.

You you wouldn't have had.

I think there is some pretty interesting themes going around and and this with AI and then you've got this fall theme of embodied AI and so on.

Wouldn't have thought about it that quickly and.

So you know.

In the old days of driving up to the University to go through the library.

Wanted to ask you a more I don't know just second question, we haven't really discussed before like have you guys. How do you think about humanoids.

That's over.

Yeah Yeah.

Yeah interesting well, thank you very much.

Youre starting to see some pretty interesting machines out there, but right bearings are two machines as elbows and joined part to humans. How do you think of that World do you think that's a commoditized dairy or do you think that you have a role.

Okay.

Thank you. The next question is follow up from the line of Kristine <unk> with Morgan Stanley. Please proceed with your question.

I mean, I guess with that comment Doctor hard that sounds like you should pay for Chachi teach me just stopped doing a free suffer now.

And something like that.

[laughter] well you know I guess I guess.

Joshua Carroll: I guess I tipped you off on how we manage expenses at RBC Bearings. Great. With that, I mean, look, I think there's some pretty interesting themes going around in this with AI. Then you've got this whole theme of embodied AI. I wanted to ask you a more, I don't know, a different question we haven't really discussed before. How do you think about humanoids? You're starting to see some pretty interesting machines out there, but right, bearings are to machines as elbows and joints are to humans. How do you think of that world? Do you think that's a commoditized bearing, or do you think that you have a role in something like that? If you've been through some of our plants, there's a healthy amount of robotics that are sort of co-robots working beside a person who's doing work, right?

Well I think.

Tipped you off on.

If you have been through some of our plants and there is there is a.

And how we manage expenses at RBC.

Healthy amount of robotics.

[laughter].

What are sort of co robots with working decided beside a person who's doing doing work right.

Well great.

Is that any lucky now I think there is some pretty interesting themes going around.

This with AI and then you've got this fall theme of embodied AI and so I wanted to ask you a more I don't know I. The second question, we haven't really discussed before like have you guys. How do you think about humanoids.

So as as that technology proves itself, we will adopt it.

There is no there's no question about it.

And so.

I think ultimately.

You're starting to see some pretty interesting machines out there, but right bearings are two machines as Albert was enjoying part to humans.

There'll be humanoids in the RBC plants doing doing what I'm not sure but.

But it'll be it'll it'll show up as a capital requisition at one of our one of our.

How do you think of that World do you think that's a commoditized dairy or do you think that you have a role.

Ops meetings in the not too distant future and.

And something like that.

That's how it'll begin.

Well you know I think.

Right now we use.

Sure.

If you've been through some of our plants and Theres a theres a.

Making use of liberally of.

Robotic and.

Healthy amount of robotics is that sort of co robots with.

Non contact measurement technologies.

Working decided beside a person who's doing doing work right.

I think super helpful. So you see yourself more as a user and I guess my question is more as a supplier to that industry similar to ask you a supplier for a lot of those robotic systems is this a potential business opportunity for you all the supplier is that industry matures because I could imagine if you are you in.

Joshua Carroll: As that technology proves itself, we will adopt it. There's no question about it. I think ultimately there'll be humanoids in the RBC Bearings plants doing what, I'm not sure, but it'll show up as a capital requisition at one of our ops meetings in the not-too-distant future. That's how it'll begin. Right now, we're making use of, liberally, robotic and non-contact measurement technologies. I see. Super helpful. You see yourself more as a user. My question is more as a supplier to that industry, similar to as you're a supplier for a lot of those robotic systems. Is this a potential business opportunity for you as a supplier if that industry matures?

So is is that technology proves itself, we will adopt it.

There's no there's no question about it and and so.

I think ultimately.

There'll be humanoids in the RBC plants doing doing what I I'm not sure but.

We look for those kinds of vol.

Industrial use cases, one quality and making sure.

But it'll be it'll it'll show up as a capital requisition at one of our one of our.

The the hemo a different breakdown is going to be similar to evaluate your asps are for other industrial applications, where you have small dollar amount that you bought a critical portion for our functionality.

<unk> meetings in the not too distant future and.

That's how it'll begin.

Right now we use.

Yes.

Were you, making use of liberally of.

I think.

Today, we supply.

Robotic and.

Bearings for robotics.

Non contact measurement technologies.

Some pretty sophisticated applications, where there is either high temperature or vacuum or a little bit of both.

I think super helpful. So you see yourself more as a user.

My question is more as a supplier to that industry seem to like to ask you a supplier for a lot of those robotic systems is this a potential business opportunity for you also.

Producing computer chips.

And.

And the way. This always starts is as somebody that is designing a robot.

Supply is that industry matures, because I can imagine if you are using it for those kinds of.

It doesn't have any production volume and we will go to one of our distributors and by one of our bearings and use it in their prototype.

Joshua Carroll: I can imagine if you are using it for those kinds of industrial use cases, then quality and making sure the humanoid doesn't break down is going to be similar to the value that you add for other industrial applications where you're a small dollar amount, but a critical portion for functionality. Yeah. I think today, we supply bearings for robotics that are in some pretty sophisticated applications where there's either high temperature or vacuum or a little bit of both, producing computer chips. The way this always starts is somebody that's designing a robot doesn't have any production volume and will go to one of our distributors and buy one of our bearings and use it in their prototype. Once it proves out and they start getting into production, they'll continue to use that distributor until production gets to a certain rate.

Industrial use cases, one quality and making sure they.

And once it proves out.

The heme, though he doesn't break out he's going to be similar to the value that you add four for all.

And they start getting into production, we will continue to use that distributor until production gets to a certain rate and then they will.

Other industrial applications, where you're a small dollar amount that you have critical off portion for functionality.

Trace back to the manufacturer or we'll find out about it from our distributor that this is this is an OEM that's using considerable amount of volume and that's that's how all of these every one of these markets has developed.

Yeah.

I think.

Today, we supply.

Bearings for robotics.

But are in some pretty sophisticated applications, where there's either a high temperature or vacuum or a little bit of both.

And do you see this is an exciting market.

Producing computer chips.

I really haven't thought that much about it.

And and.

And the way. This always starts is as somebody that's designing a robot.

I think I think Elon musk thinks it's an exciting market because.

He thinks cars or less of an exciting market right. So he's going to turned tesla into humanoid robot machine.

It doesn't have any production volume and we will go to one of our distributors and by one of our bearings and use it in their prototype.

I guess I guess that works.

And once it proves out.

Yeah.

<unk>.

And they start getting into production, we will continue to use that distributor until production gets to a certain rate and then though.

Great. Thank you maybe what was that.

Although time talking more about that but thank you for all your thoughts today.

Joshua Carroll: Then they'll trace back to the manufacturer or will find out about it from our distributor that this is an OEM that's using a considerable amount of volume. That's how every one of these markets is developed. Do you see this as an exciting market? I really haven't thought that much about it. I think Elon Musk thinks it's an exciting market because he thinks cars are less of an exciting market, right? He's going to turn Tesla into a humanoid robot machine. I guess that works. Great. Thank you. Maybe we'll spend another time talking more about that, but thank you for your thoughts today. Okay. Thanks, Kristine. Thank you. At this time, we've reached the end of our question-and-answer session. I'll turn the floor back to management for closing remarks. I think that ends our conference call for today. I'd like to thank everybody for their participation.

No trace back to the manufacturer or we'll find out about it from our distributor that this is this is an OEM that's using considerable amount of volume and that's that's how all of these every one of these markets has developed.

Okay. Thanks Christine.

Thank you at this time, we've reached the end of our question and answer session I'll turn the floor back to management for closing remarks.

Okay well.

And do you see this is an exciting market.

I think that ends our conference call for today.

Thank you.

Like to thank everybody for their participation in.

You know I really haven't thought that much about it.

I guess I guess, our job now is to go back to work and make the third quarter happened. So thanks again.

I think Elon musk thinks it's an exciting market because.

Cars are less of an exciting market right. So he's gonna turned tesla into a humanoid robot machine.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time, we thank you for your participation and have a wonderful day.

<unk>.

I guess I guess that works.

Yeah.

Great. Thank you maybe what was that.

A lot of time talking more about that but thank you for all your thoughts today.

Okay. Thanks Christine.

Okay.

Thank you at this time, we've reached the end of our question and answer session I'll turn the floor back to management for closing remarks.

Okay, well I.

I think that ends our conference call for today.

I think I'd like to thank everybody for their participation and.

Joshua Carroll: I guess our job now is to go back to work and make the third quarter happen. Thanks again. Thank you. This will conclude today's conference. We may disconnect your lines at this time. We thank you for your participation and have a wonderful day.

I guess I guess, our job now is to go back to work and make the third quarter happened. So thanks again.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time, we thank you for your participation and have a wonderful day.