Q1 2027 RBC Bearings Inc Earnings Call

July 31, 2026

Speaker #1: Good morning, and thank you for joining us for RBC Bearings' fiscal first quarter 2027 earnings call. I'm Josh Carroll with the Investor Relations team.

Josh Carroll: Good morning, thank you for joining us for RBC Bearings' Fiscal Q1 2027 earnings call. I'm Josh Carroll with the investor relations team. With me on today's call are Dr. Hartnett, Chairman, President, and Chief Executive Officer; Daniel Bergeron, Director, Vice President, and Chief Operating Officer; and Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today may be 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 SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. These factors are also listed in the press release, along with the reconciliation between GAAP and non-GAAP financial information.

Speaker #1: With me on today's call are Dr. Hartnett, Chairman, President, and Chief Executive Officer; Daniel Bergeron, Director, Vice President, and Chief Operating Officer; and Rob Sullivan, Vice President and Chief Financial Officer.

Speaker #1: As a reminder, some of the statements made today may be forward-looking and under the Private Securities Litigation Reform Act of 1995. Actually results may differ materially from those projected or implied due to a variety of factors.

Speaker #1: We refer you to RBC's 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.

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

Josh Carroll: With all that said, I'll now turn the call over to Dr. Hartnett.

Speaker #2: Thank you, Josh. Good morning, and thank you for joining us. I'll begin today's call with a brief review of our first quarter results and then discuss the trends we are seeing across the end markets.

Michael J. Hartnett: Thank you, Josh. Good morning, and thank you for joining us. I will begin today's call with a brief review of our Q1 results and discuss the trends we are seeing across the end markets before turning the call over to Rob, who will provide additional details on our financial performance. We delivered a strong start to fiscal 2027, with Q1 net sales increasing 19.2% year over year to $519.5 million. This was driven by exceptional demand in our Aerospace and Defense business, followed by strong growth across our Industrial segment. Consolidated and adjusted gross margins for the quarter were 47.7%. Adjusted EPS increased 36.6% year over year to $3.88 compared to $2.84 in the prior year's period.

Mike Hartnett: Thank you, Josh. Good morning, and thank you for joining us. I will begin today's call with a brief review of our Q1 results and discuss the trends we are seeing across the end markets before turning the call over to Rob, who will provide additional details on our financial performance. We delivered a strong start to fiscal 2027, with Q1 net sales increasing 19.2% year over year to $519.5 million. This was driven by exceptional demand in our Aerospace and Defense business, followed by strong growth across our Industrial segment. Consolidated and adjusted gross margins for the quarter were 47.7%. Adjusted EPS increased 36.6% year over year to $3.88 compared to $2.84 in the prior year's period.

Speaker #2: Before turning the call over to Rob, who will provide additional details, on our financial performance. We delivered a strong start to fiscal 2027, with first quarter net sales increasing 19.2% year over year to $519.5 million.

Speaker #2: This was driven by exceptional demand in our aerospace and defense business, followed by strong growth across our industrial segment. Consolidated and adjusted gross margins for the quarter were 47.7%.

Speaker #2: Adjusted EPS increased 36.6% year over year to $3.88, compared to $2.84 in the prior year's period. Adjusted EBITDA rose 28.1% to $181.2 million, up from $141.5 million last year.

Michael J. Hartnett: Adjusted EBITDA rose 28.1% to $181.2 million, up from $141.5 million last year. Free cash flow remained a strong $146.9 million, and we eliminated $77 million of debt during the Q1. Turning now to our two business segments. Approximately 57% of our revenue during the quarter came from the Industrial segment. The remaining 43% came from our A&D business. A&D has continued to perform exceptionally well with segment revenue increasing 36.9% compared to the prior year period, 16.6% of which was organic. I will dive now a little bit into our two business segments, starting with Aerospace and Defense. Commercial aerospace growth was 21.8%, 20.3% on an organic basis. Defense was up 64.6% and 10% organically. Across the A&D business, we are observing healthy order activity, increasing RFQ volumes, contract inkings, and daily customer requests for additional capacity.

Mike Hartnett: Adjusted EBITDA rose 28.1% to $181.2 million, up from $141.5 million last year. Free cash flow remained a strong $146.9 million, and we eliminated $77 million of debt during the Q1. Turning now to our two business segments. Approximately 57% of our revenue during the quarter came from the Industrial segment. The remaining 43% came from our A&D business. A&D has continued to perform exceptionally well with segment revenue increasing 36.9% compared to the prior year period, 16.6% of which was organic. I will dive now a little bit into our two business segments, starting with Aerospace and Defense. Commercial aerospace growth was 21.8%, 20.3% on an organic basis. Defense was up 64.6% and 10% organically. Across the A&D business, we are observing healthy order activity, increasing RFQ volumes, contract inkings, and daily customer requests for additional capacity.

Speaker #2: Free cash flow remained a strong $146.9 million and we eliminated $77 million of debt during the first quarter. Turning now to our two business segments, approximately 57% of our revenue during the quarter came from the industrial segment.

Speaker #2: The remaining 43% came from our A and D business. A and D has continued to perform exceptionally well, with segment revenue increasing 36.9%, compared to the prior year period.

Speaker #2: 16.6% of which was organic. I'll dive now a little bit into our two business segments, starting with aerospace and defense. Commercial aerospace growth was 21.8%, 20.3% on an organic basis.

Speaker #2: Defense was up 64.6%, and 10% organically. Across the A&D business, we are observing healthy order activity, increasing our Q volumes, contract inkings, and daily customer requests for additional capacity.

Speaker #2: We continue to expand production rates for commercial aircraft and engines at several production sites in North America and Europe. As you know, our products are deeply embedded across the A and D markets, and we see a very healthy demand outlook.

Michael J. Hartnett: We continue to expand production rates for commercial aircraft and engines at several production sites in North America and Europe. As you know, our products are deeply embedded across the A&D markets, and we see a very healthy demand outlook. On our space sector, we see an impressive and building momentum. As you may recall from our last earnings call, our space business generated approximately $70 million of revenue during fiscal 2026. In the Q1 alone, our space business contributed $25 million to revenue, putting it on a strong run rate for fiscal 2027. We now serve more than a dozen space customers. Robust investments by our major customers across both commercial and government space markets abound. We believe this business is still in the early stages of becoming a significant and long-term growth opportunity for RBC. Shifting gears now to Marine.

Mike Hartnett: We continue to expand production rates for commercial aircraft and engines at several production sites in North America and Europe. As you know, our products are deeply embedded across the A&D markets, and we see a very healthy demand outlook. On our space sector, we see an impressive and building momentum. As you may recall from our last earnings call, our space business generated approximately $70 million of revenue during fiscal 2026. In the Q1 alone, our space business contributed $25 million to revenue, putting it on a strong run rate for fiscal 2027. We now serve more than a dozen space customers. Robust investments by our major customers across both commercial and government space markets abound. We believe this business is still in the early stages of becoming a significant and long-term growth opportunity for RBC. Shifting gears now to Marine.

Speaker #2: On our space sector, we see an impressive and building momentum. As you may recall from our last earnings call, our space business generated approximately $70 million of revenue during fiscal 2026.

Speaker #2: In the first quarter alone, our space business contributed $25 million to revenue, putting it on a strong run rate for fiscal 2027. And we now serve more than a dozen space customers.

Speaker #2: Robust investments by our major customers across both commercial and government space markets abound. We believe this business is still in the early stages of becoming a significant and long-term growth opportunity for RBC.

Speaker #2: Shifting gears now to marine, our marine business demands production growth in a lot of it. Our backlogs now stands at 2.3 billion much of which is marine.

Michael J. Hartnett: Our Marine business demands production growth and a lot of it. Our backlogs now stands at $2.3 billion, much of which is Marine. Given the complexity of these designs, production can be challenging at times with knots in the supply chain that can appear. We have untied most of those knots and expect and are planning to expand shipments from this sector significantly in the H2 of our year. We think most of those problems are now behind us. Turning now to our Industrial business. Performance remained strong during the period, with OEM revenue increasing 21.5% and distribution revenue growing 3.1%. During the quarter, we saw growth across sectors of aggregate and cement, food and beverage, warehousing, semiconductors, and grain industries.

Mike Hartnett: Our Marine business demands production growth and a lot of it. Our backlogs now stands at $2.3 billion, much of which is Marine. Given the complexity of these designs, production can be challenging at times with knots in the supply chain that can appear. We have untied most of those knots and expect and are planning to expand shipments from this sector significantly in the H2 of our year. We think most of those problems are now behind us. Turning now to our Industrial business. Performance remained strong during the period, with OEM revenue increasing 21.5% and distribution revenue growing 3.1%. During the quarter, we saw growth across sectors of aggregate and cement, food and beverage, warehousing, semiconductors, and grain industries.

Speaker #2: Given the complexity of these designs, production can be challenging at times with knots in the supply chain that can appear. We have untied most of those knots and, in fact, expect in our planning to expand shipments from this sector significantly in the second half of our year, and we think most of those problems are now behind us.

Speaker #2: Turning now to our Industrial business, performance remains strong during the period, with OEM revenue increasing 21.5% and Distribution revenue growing 3.1%. During the quarter, we saw growth across the sectors of aggregate and cement, food and beverage, warehousing, semiconductors, and grain industries.

Speaker #2: Only a small number of our end markets in industrial showed up, so we saw a very modest decline during the period, reinforcing our view that the industrial environment remains healthy and poised for continued growth.

Michael J. Hartnett: Only a small number of our end markets in industrial saw a very modest decline during the period, reinforcing our view that industrial environment remains healthy and poised for continued growth. Overall, we are excited and energized by the strength and outlook of our core business sectors. Our priorities remain focused, execute efficiently, support our customers, and invest in the capacity and capabilities needed to meet the growing multi-industry demands for RBC products. We believe our differentiators make the difference. These are outstanding service levels, strong brands, leading market positions, technical expertise, and most of all, our employees. People who work every day to make RBC the very best we can be and provide the foundation needed to serve well all stakeholders. With that, I will turn the call over to Rob.

Mike Hartnett: Only a small number of our end markets in industrial saw a very modest decline during the period, reinforcing our view that industrial environment remains healthy and poised for continued growth. Overall, we are excited and energized by the strength and outlook of our core business sectors. Our priorities remain focused, execute efficiently, support our customers, and invest in the capacity and capabilities needed to meet the growing multi-industry demands for RBC products. We believe our differentiators make the difference. These are outstanding service levels, strong brands, leading market positions, technical expertise, and most of all, our employees. People who work every day to make RBC the very best we can be and provide the foundation needed to serve well all stakeholders. With that, I will turn the call over to Rob.

Speaker #2: Overall, we are excited and energized by the strength and outlook of our core business sectors. Our priorities remain focused: execute efficiently, support our customers, and invest in the capacity and capabilities needed to meet the growing multi-industry demands for RBC products.

Speaker #2: We believe our differentiators make the difference. These are outstanding service levels, strong brands, leading market positions, technical expertise, and most of all, our employees.

Speaker #2: People who work every day to make RBC the very best we can be and provide the foundation needed to serve well all our stakeholders. With that, I'll turn the call over to Rob.

Rob M. Sullivan: Thank you, Mike. We started off fiscal 2027 with a strong Q1 that exceeded our expectations, with net sales growing 19.2%, which led to a 26.9% increase in our reported gross margin. Gross margins were 47.7% for the quarter, compared to 45.4% on an adjusted basis for the same period last year. The gross margins this quarter reflect the benefits of increased volumes running through our production facilities, driving operating efficiencies, favorable mix, and the benefit of contract resolutions realized during the quarter. Further, the timing of tariff refunds, which temporarily alleviated the impact of ongoing global tariff costs, provided almost 100 basis points of benefit to gross margins this quarter. Q1 A&D sales increased 36.9% year over year. With the Vaco acquisition excluded, our A&D business saw an increase in sales of 16.6%, which highlights the continued strong growth of both our legacy commercial and defense markets.

Rob Sullivan: Thank you, Mike. We started off fiscal 2027 with a strong Q1 that exceeded our expectations, with net sales growing 19.2%, which led to a 26.9% increase in our reported gross margin. Gross margins were 47.7% for the quarter, compared to 45.4% on an adjusted basis for the same period last year. The gross margins this quarter reflect the benefits of increased volumes running through our production facilities, driving operating efficiencies, favorable mix, and the benefit of contract resolutions realized during the quarter. Further, the timing of tariff refunds, which temporarily alleviated the impact of ongoing global tariff costs, provided almost 100 basis points of benefit to gross margins this quarter. Q1 A&D sales increased 36.9% year over year. With the Vaco acquisition excluded, our A&D business saw an increase in sales of 16.6%, which highlights the continued strong growth of both our legacy commercial and defense markets.

Speaker #2: We started off fiscal 2027 with a strong first quarter that exceeded our expectations. With net sales growing 19.2%, which led to a 26.9% increase in our reported gross margin.

Speaker #2: Gross margins were 47.7% for the quarter, compared to 45.4% on an adjusted basis for the same period last year. The gross margins this quarter reflect the benefits of increased volumes running through our production facilities, driving operating efficiencies, favorable mix, and the benefit of contract resolutions realized during the quarter.

Speaker #2: Further, the timing of tariff refunds, which temporarily alleviated the impact of ongoing global tariff costs, provided almost 100 basis points of benefit to gross margins this quarter.

Speaker #2: First quarter A&D sales increased 36.9% year over year. With the VACO acquisition excluded, our A&D business saw an increase in sales of 16.6%, which highlights the continued strong growth of both our legacy commercial and defense markets.

Speaker #2: Net sales from our industrial business increased 8.4% during the period. A&D gross margins during the quarter were 44.5%, and industrial margins were 50.2%.

Rob M. Sullivan: Net sales from our industrial business increased 8.4% during the period. A&D gross margins during the quarter were 44.5%, and industrial margins were 50.2%. We are pleased with the expanded gross margin in both segments, with A&D margins expanding more than 180 basis points year over year, and industrial adjusted gross margins expanding more than 300 basis points year over year. On the SG&A line, we had total costs of $85.8 million, or 16.5% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $181.2 million, or 34.9% of sales for the quarter. That represents an approximate 28% increase in adjusted EBITDA dollars during the quarter compared to the same period last year. Interest expense for the quarter was $10.1 million.

Rob Sullivan: Net sales from our industrial business increased 8.4% during the period. A&D gross margins during the quarter were 44.5%, and industrial margins were 50.2%. We are pleased with the expanded gross margin in both segments, with A&D margins expanding more than 180 basis points year over year, and industrial adjusted gross margins expanding more than 300 basis points year over year. On the SG&A line, we had total costs of $85.8 million, or 16.5% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $181.2 million, or 34.9% of sales for the quarter. That represents an approximate 28% increase in adjusted EBITDA dollars during the quarter compared to the same period last year. Interest expense for the quarter was $10.1 million.

Speaker #2: We are pleased with the expanded gross margin in both segments, with A&D margins expanding more than 180 basis points year over year, and industrial adjusted gross margins expanding more than 300 basis points year over year.

Speaker #2: On the SG&A line, we had total costs of $85.8 million, or 16.5% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $181.2 million, or 34.9% of sales for the quarter.

Speaker #2: That represents an approximate 28% increase in adjusted EBITDA dollars during the quarter, compared to the same period last year. Interest expense for the quarter was $10.1 million.

Speaker #2: This was down 17.2% year over year, reflecting the improved leverage position achieved over the last 12 months, coupled with lower interest rates compared to this time last year.

Rob M. Sullivan: This was down 17.2% year over year, reflecting the improved leverage position achieved over the last 12 months, coupled with lower interest rates compared to this time last year. We paid off $77 million of debt during the quarter, and another $50 million on the term loan since the end of the quarter. The tax rate in our adjusted EPS calculation was 22% compared to last year's 22.5%. This led to an adjusted diluted earnings per share of $3.88, representing growth of 36.6% year over year. Free cash flow in the quarter came in at $146.9 million, with conversion of 144.7% of net income, compared to $104.3 million and 152.3% last year.

Rob Sullivan: This was down 17.2% year over year, reflecting the improved leverage position achieved over the last 12 months, coupled with lower interest rates compared to this time last year. We paid off $77 million of debt during the quarter, and another $50 million on the term loan since the end of the quarter. The tax rate in our adjusted EPS calculation was 22% compared to last year's 22.5%. This led to an adjusted diluted earnings per share of $3.88, representing growth of 36.6% year over year. Free cash flow in the quarter came in at $146.9 million, with conversion of 144.7% of net income, compared to $104.3 million and 152.3% last year.

Speaker #2: We paid off $77 million of debt during the quarter, and another $50 million on the term loan since the end of the quarter. The tax rate in our adjusted EPS calculation was 22%, compared to last year's 22.5%.

Speaker #2: This led to an adjusted diluted earnings per share of $3.88, representing growth of 36.6% year over year. Free cash flow in the quarter came in at $146.9 million, with conversion of 144.7% of net income, compared to $104.3 million and 152.3% last year.

Speaker #2: Our capital allocation strategy continues to remain focused on deleveraging by using the cash that we generate to pay off our outstanding debt, and we remain on track to pay off the remainder of the term loan by November 2026.

Rob M. Sullivan: Our capital allocation strategy continues to remain focused on deleveraging by using the cash that we generate to pay off our outstanding debt, we continue to remain on track to pay off the remainder of the term loan by November 2026. Looking into the Q2 of fiscal 2027, we are guiding revenues of $505 million to $515 million, representing year-over-year growth of 10.9% to 13.1%. On a 6-month basis, that would mean sales are expected to be $1.024 billion to $1.035 billion, representing growth of 14.9% to 16.1% year-over-year. Adjusted gross margins in the next quarter are expected to be in the range of 45.5% to 45.75%, and SG&A as a percentage of net sales is expected to be in the range of 16.5% to 16.75%. With that, operator, please open the call for Q&A. Thank you.

Rob Sullivan: Our capital allocation strategy continues to remain focused on deleveraging by using the cash that we generate to pay off our outstanding debt, we continue to remain on track to pay off the remainder of the term loan by November 2026. Looking into the Q2 of fiscal 2027, we are guiding revenues of $505 million to $515 million, representing year-over-year growth of 10.9% to 13.1%. On a 6-month basis, that would mean sales are expected to be $1.024 billion to $1.035 billion, representing growth of 14.9% to 16.1% year-over-year. Adjusted gross margins in the next quarter are expected to be in the range of 45.5% to 45.75%, and SG&A as a percentage of net sales is expected to be in the range of 16.5% to 16.75%. With that, operator, please open the call for Q&A. Thank you.

Speaker #2: Looking into the second quarter of fiscal 2027, we are guiding revenues of $505 million to $515 million, representing year-over-year growth of 10.9% to 13.1%.

Speaker #2: And on a six-month basis, that would mean sales are expected to be $1.024 billion to $1.035 billion, representing growth of 14.9% to 16.1% year over year.

Speaker #2: Adjusted gross margins in the next quarter are expected to be in the range of 45.5% to 45.75%, and SG&A as a percentage of net sales is expected to be in the range of 16.5% to 16.75%.

Speaker #2: With that, Operator, please open the call for Q&A.

Speaker #1: Thank you. We'll now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad.

Operator: We'll now be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove 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 while we pull up our questions. Thank you. Our first question is from Kristine Liwag with Morgan Stanley.

Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull up our questions.

Speaker #1: Thank you. Our first question is from Christine Luag with Morgan Stanley.

Speaker #4: Hello. Good morning, everyone.

Kristine Liwag: Hello. Good morning, everyone.

Speaker #2: Morning, Christine.

Rob M. Sullivan: Morning, Kristine. Morning.

Rob Sullivan: Morning, Kristine. Morning.

Speaker #4: You know, Mike, it’s historically been said that gross margin is just math, and you’re really good at math. So you’re never surprised by gross margins in any given quarter.

Kristine Liwag: Mike, you've historically said that gross margin is just math and you're really good at math, you're never surprised by gross margins in any given quarter. I just want to check a little bit. Q1 2020 fiscal year 2027 was robust, 47.7% out of the gate. When we look at your Q2 outlook, you're at 45.5% to 45.75% for the quarter. I was wondering, were there any one-time items in Q1 that had the higher margin? Is there mix or any one-time items? When we look at Q2, how conservative is that outlook, and how do we think about this through the rest of the year?

Speaker #4: So I just want to check a little bit. So one Q20 fiscal year '27 was robust, 47.7% out of the gate. But when we look at your two Q outlook, you're at 45.5 to 45.75 for the quarter.

Speaker #4: I was wondering, were there any one-time items in Q1 that had the higher margin? Is there mix, or any one-time items? And then, when we look at Q2, how conservative is that outlook, and how do we think about this through the rest of the year?

Speaker #2: Okay, I'm just making some notes on your questions. I think, in terms of the gross margin one-time items, I think Rob is probably the best prepared to talk about that.

Rob M. Sullivan: Okay, I'm just making some notes on your questions. I think in terms of the gross margin one-time items, I think Rob is probably the best prepared to talk about that. Yeah. Kristine, there was really just a couple of things. There was the tariff relief, the refunds, which are really one time in nature, which offered about 100 basis points of expansion. That would take the gross margins from 47.7% down to the upper 46s. We did have some specific contract resolutions during the quarter, which offered some incremental margin benefit this quarter, which also probably added 50 or 60 basis points. From there, it's just important to remember that Q4 and Q1 tend to be our strongest margin quarters historically.

Rob Sullivan: Okay, I'm just making some notes on your questions. I think in terms of the gross margin one-time items, I think Rob is probably the best prepared to talk about that. Yeah. Kristine, there was really just a couple of things. There was the tariff relief, the refunds, which are really one time in nature, which offered about 100 basis points of expansion. That would take the gross margins from 47.7% down to the upper 46s. We did have some specific contract resolutions during the quarter, which offered some incremental margin benefit this quarter, which also probably added 50 or 60 basis points. From there, it's just important to remember that Q4 and Q1 tend to be our strongest margin quarters historically.

Speaker #3: Yeah. Christine, you know, there was really just a couple of things. There was the tariff relief, you know, the refunds, which are really one-time in nature, which offered about 100 basis points of expansion.

Speaker #3: So that would take the gross margins from 47.7% down to, you know, the upper 46%s. And then we did have some specific contract resolutions during the quarter, which offered some incremental margin benefit this quarter.

Speaker #3: Which also probably added 50 or 60 basis points. And then from there, you know, it's just important to remember that Q4 and Q1 tend to be our strongest margin quarters historically.

Speaker #3: So, you know, with the seasonality and the fewer production days, there's just that other detriment that we were looking at when we were building out our forecast for the second quarter.

Rob M. Sullivan: With the seasonality and the fewer production days, there's just that other decrement that we were looking at when we were building out our forecast for Q2.

Rob Sullivan: With the seasonality and the fewer production days, there's just that other decrement that we were looking at when we were building out our forecast for Q2.

Speaker #4: Great. Super helpful. Maybe pivoting to, you know, more of the margin profile. I guess, you know, it's been several quarters now. I mean, almost two years where industrial has margins have been higher than aerospace and defense.

Kristine Liwag: Great. Super helpful. Maybe pivoting to more of the margin profile. I guess it's been several quarters now, almost 2 years, where industrial margins have been higher than aerospace and defense. I was wondering, as I think this year you've got a lot of initial long-term contracts that expired that were signed post-COVID world, and you're getting some pricing in aerospace. As we look at the next few years, how do we think about the dynamic between margins in industrial versus aerospace defense? Will aerospace defense catch up? Do you anticipate other things that could potentially get industrial margins to come down? Any dynamics between the two, or should we think about this in the long run, where both end markets could see margins north of 50%?

Speaker #4: I was wondering, you know, as, you know, I think this year you've got a lot of initial long-term contracts that expire, you know, that were signed, you know, post-COVID world, and you're getting some pricing in aerospace.

Speaker #4: As we look at the next few years, how should we think about the dynamic between margin in Industrial versus Aerospace & Defense? Will Aerospace & Defense margins catch up?

Speaker #4: Do you anticipate other things that could potentially get industrial margins to come down? Like any dynamics between the two or should we think about this in the long run where both end markets could see margins north of 50%?

Speaker #3: Well, there's a lot of questions in there, Christine.

Rob M. Sullivan: Well, there's a lot of question in there, Kristine.

Rob Sullivan: Well, there's a lot of question in there, Kristine.

Speaker #4: I hope you'll answer some of them.

Kristine Liwag: I was hoping you'll answer some of them.

Speaker #3: Well, I, you know, I think overall, yes. Margins will continue to expand in the A and D sector. And whether they completely converge on the industrial margins, it remains to be seen, but they are definitely catching up.

Michael J. Hartnett: Well, I think overall, yes. Margins will continue to expand in the A&D sector, and whether they completely converge on the industrial margins remains to be seen. They are definitely catching up. Sort of the things that are driving the margin expansion is obviously new contracts that reflect the adjustments made for inflation that occurred in the last 5 years that sort of depressed the value of the old contracts. Those adjustments have been made, but there's other contracts that are flowing in after the turn of the year that can sort of continue that momentum. I think the other thing is over the past several years, we've done a number of insourcing operations for bottleneck processes that created difficulty for us to finish our product.

Mike Hartnett: Well, I think overall, yes. Margins will continue to expand in the A&D sector, and whether they completely converge on the industrial margins remains to be seen. They are definitely catching up. Sort of the things that are driving the margin expansion is obviously new contracts that reflect the adjustments made for inflation that occurred in the last 5 years that sort of depressed the value of the old contracts. Those adjustments have been made, but there's other contracts that are flowing in after the turn of the year that can sort of continue that momentum. I think the other thing is over the past several years, we've done a number of insourcing operations for bottleneck processes that created difficulty for us to finish our product.

Speaker #3: You know, the, you know, sort of the things that are driving the margin expansion is obviously new contracts that are reflect the adjustments made for inflation that occurred in the last five years that sort of depressed the value of the old contracts.

Speaker #3: So those adjustments have been made, but there are other contracts that are flowing in after the turn of the year that sort of continue that momentum.

Speaker #3: I think the other thing is that, over the past several years, we've done a number of insourcing operations for bottleneck processes that created difficulty for us to finish our product.

Speaker #3: And so a lot of those bottleneck processes have been insourced. And so we're seeing greater absorption through our plants and, obviously, a material savings also, as we insource those processes.

Michael J. Hartnett: A lot of those bottleneck processes have been insourced, and so we're seeing greater absorption through our plants and obviously, material savings also as we insource those processes. That also accrues to the margin. I think from where we finished FY26 to where we'll finish FY27, there's a good consolidated point and a half there.

Mike Hartnett: A lot of those bottleneck processes have been insourced, and so we're seeing greater absorption through our plants and obviously, material savings also as we insource those processes. That also accrues to the margin. I think from where we finished FY26 to where we'll finish FY27, there's a good consolidated point and a half there.

Speaker #3: So that also accrues to the margin. And so I think, you know, I think from where we finished FY '26 to where we'll finish FY '27, there's a good consolidated point and a half there.

Speaker #4: Great, super helpful. And on your prepared remarks, Mike, you called out space, and it seems like you've got a strong run rate for revenue in space, and you're now at 12 different customers.

Kristine Liwag: Great. Super helpful. On your prepared remarks, Mike, you called out space. It seems like you've got a strong run rate for revenue in space, and you're now with 12 different customers. Can you provide more color about your exposure? Are you more exposed to the traditional space guys, like the government space exquisite capabilities? Are you more present now with more of the commercial space companies? Would you call anything out about either their growth trajectory or where you live in that ecosystem?

Speaker #4: Can you provide more color about your exposure? Are you more exposed to the traditional space guys, like, you know, the government space—exquisite capabilities?

Speaker #4: Are you more present now with more of the commercial space companies? And would you call anything out about either their growth trajectory or where you live in that ecosystem?

Speaker #3: Yeah. Well, there's really a lot going on in space right now. I mean, as you know, as certainly we have a good customer in SpaceX, as their volumes increase, our volumes increase.

Michael J. Hartnett: Yeah. Well, there's really a lot going on in space right now. Certainly, we have a good customer in SpaceX. As their volumes increase, our volumes increase. That's almost dialed in. We have long-term agreements with those companies. As Blue Origin solves their problems and starts to move into the commercial world in a planned way, we're very involved with the Blue Origin side of the business. We see a lot of benefit in working with Amazon right now on various projects. Those sort of are top of the list for us. On the other hand, on the government side, there's just a lot going through in terms of new space programs for the government that are keeping us busy in terms of proposals, bids, and planning to support those programs, which are large programs.

Mike Hartnett: Yeah. Well, there's really a lot going on in space right now. Certainly, we have a good customer in SpaceX. As their volumes increase, our volumes increase. That's almost dialed in. We have long-term agreements with those companies. As Blue Origin solves their problems and starts to move into the commercial world in a planned way, we're very involved with the Blue Origin side of the business. We see a lot of benefit in working with Amazon right now on various projects. Those sort of are top of the list for us. On the other hand, on the government side, there's just a lot going through in terms of new space programs for the government that are keeping us busy in terms of proposals, bids, and planning to support those programs, which are large programs.

Speaker #3: So that's almost dialed in. We have long-term agreements with those companies. As Blue Origin solves their problems and starts to move into the commercial world in a planned way, we're very involved with the Blue Origin side of the business.

Speaker #3: We see a lot of benefit in working with Amazon right now on various projects. So those are at the top of the list for us.

Speaker #3: But on the other hand, on the government side, there's just a lot going through in terms of new space programs.

Speaker #3: For the government that are keeping us busy in terms of proposals and bids and planning to support those programs, which are large programs. And so we don't see any we don't see any deficiency in demand coming from that whole space sector is a matter of fact.

Michael J. Hartnett: We don't see any deficiency in demand coming from that whole space sector. As a matter of fact, I think it's going to be capacity demanding on us to support it.

Mike Hartnett: We don't see any deficiency in demand coming from that whole space sector. As a matter of fact, I think it's going to be capacity demanding on us to support it.

Speaker #3: I think it's, I think it's going to be capacity-demanding on us to support it.

Speaker #4: Great. Thank you, Mike. Thanks, Rob.

Kristine Liwag: Great. Thank you, Mike. Thanks, Rob.

Speaker #3: Sure.

Rob M. Sullivan: Sure.

Rob Sullivan: Sure.

Speaker #2: Howard, next question is from Steve Barger with KeyBank Capital Markets.

Operator: Our next question is from Steve Barger with KeyBanc Capital Markets.

Speaker #5: Hey, good morning, guys.

Steve Barger: Hey, good morning, guys.

Speaker #3: Hey, Steve. Good morning, Steve.

Michael J. Hartnett: Hey, Steve. Good morning, Steve.

Mike Hartnett: Hey, Steve. Good morning, Steve.

Steve Barger: Mike, backlog was flat sequentially for the first time in a while, which was kind of surprising to me. I would think some missile rearmament programs would be coming in. We know that the Marine programs are really strong. You just talked about space. Can you just talk a little bit about what's going on with backlog?

Speaker #5: Backlog was flat sequentially for the first time in a while, which was kind of surprising to me. I would have thought some missile rearmament programs would be coming in.

Speaker #5: We know that the Marine programs are really strong. You just talked about space. Can you just talk a little bit about what's going on with backlog?

Speaker #3: Yeah, I mean, I think a lot of our long-term contracts, particularly on the airframe and engine side of the business, are not reflected in our backlog.

Michael J. Hartnett: Yeah. I think a lot of our long-term contracts, particularly on the airframe and engine side of the business, are not reflected in our backlog. It just isn't. You would see small increases in the backlog as 12 months of demand rolls in and rolls out. That would be the only adjustment there. There's some really large programs that are inbound where we're 100% certain that we will be the supplier because we're sole source on these programs, which will probably create a material change to that backlog. Also, I think the release of the seventh lot of Virginia-class will be a significant event for us, I don't think that's going to happen for another 12 to 18 months.

Mike Hartnett: Yeah. I think a lot of our long-term contracts, particularly on the airframe and engine side of the business, are not reflected in our backlog. It just isn't. You would see small increases in the backlog as 12 months of demand rolls in and rolls out. That would be the only adjustment there. There's some really large programs that are inbound where we're 100% certain that we will be the supplier because we're sole source on these programs, which will probably create a material change to that backlog. Also, I think the release of the seventh lot of Virginia-class will be a significant event for us, I don't think that's going to happen for another 12 to 18 months.

Speaker #3: And I mean, it just isn't. So you would see small increases in the backlog as 12 months of demand rolls in and rolls out.

Speaker #3: And so, that would be the only adjustment there. There are some really large programs that are inbound where we are 100% certain that we will be the supplier because we're sole source on these programs, which will probably create a material change to that backlog.

Speaker #3: Also, I think the release of the seventh lot of Virginias will be a significant event for us, but I don't think that's going to happen for another 12 to 18 months.

Speaker #5: Got it. So your visibility exceeds the book, the backlog you report in a big way.

Steve Barger: Got it. Your visibility exceeds the book, the backlog you report in a big way?

Speaker #3: In a big way, yes.

Michael J. Hartnett: In a big way, yes.

Mike Hartnett: In a big way, yes.

Speaker #5: Got it. That's great to hear. The PR said the vast majority of your end markets are growing. You said a couple were running down year over year.

Steve Barger: Got it. That's great to hear. The PR said the vast majority of your end markets are growing. You said a couple were running down year over year. What isn't growing? Just more broadly, is the industrial cycle continuing to broaden out into something that feels more durable for the next year or two?

Speaker #5: What isn’t growing? And, just more broadly, is the industrial cycle continuing to broaden out into something that feels more durable for the next year or two?

Speaker #3: Yeah. I mean, the only sector that wasn't growing for us was metals, and that was flat. We couldn't call it growing.

Michael J. Hartnett: Yeah, the only sector that wasn't growing for us was metals, and that was flat. We couldn't call it growing, so it was flat over the period year to year. Virtually every industrial sector other than that was up for us. Some of them, the ones that I mentioned, were up double digits.

Mike Hartnett: Yeah, the only sector that wasn't growing for us was metals, and that was flat. We couldn't call it growing, so it was flat over the period year to year. Virtually every industrial sector other than that was up for us. Some of them, the ones that I mentioned, were up double digits.

Speaker #3: So, it's flat. So, it was flat over the period, year to year. But virtually every industrial sector, other than that, was up for us.

Speaker #3: And some, you know, some of them—the ones that I mentioned—were up double digits.

Speaker #5: And that has continued in July and you feel like this has some legs to it from an industrial side?

Steve Barger: That has continued in July, and you feel like this has some legs to it from an industrial sector standpoint?

Michael J. Hartnett: Yeah. It's continued right through July. Yeah, absolutely.

Mike Hartnett: Yeah. It's continued right through July. Yeah, absolutely.

Speaker #3: Yeah, it's continued right through July. Yeah, absolutely.

Speaker #5: All right. That's great. Thank you.

Steve Barger: All right. That's great. Thank you.

Speaker #3: Yep.

Michael J. Hartnett: Yep.

Mike Hartnett: Yep.

Speaker #2: Our next question is from Scott Ducheril with Deutsche Bank.

Operator: Our next question is from Scott Deuschle with Deutsche Bank.

Speaker #6: Hi, good morning. Rob, can you share how the tariff refund benefits split between Industrial and A&D? Was it primarily A&D?

Scott Deuschle: Hi, good morning. Rob, can you share how the tariff refund benefit split between industrial and A&D? Was it primarily A&D?

Speaker #3: No, actually, it was primarily industrial. The majority of it went through industrial.

Rob M. Sullivan: No, actually, it was primarily industrial. The majority of it went through industrial.

Rob Sullivan: No, actually, it was primarily industrial. The majority of it went through industrial.

Speaker #6: Okay, got it. And then, Dr. Hartnett, is there any impact to the space growth outlook from the launch pad explosion that Blue Origin had recently?

Scott Deuschle: Okay, got it. Dr. Hartnett, is there any impact to the space growth outlook from the launch pad explosion that Blue Origin had recently, or is their demand signal to you relatively unchanged?

Speaker #6: Or is the demand signal to you relatively unchanged?

Speaker #3: No, it's unchanged. It's unchanged.

Michael J. Hartnett: No, it's unchanged.

Mike Hartnett: No, it's unchanged.

Speaker #6: Okay. And then are your commercial aerospace competitors getting any better at meeting demand or is there performance still creating big opportunities for RBC to gain share?

Scott Deuschle: Okay. Are your commercial aerospace competitors getting any better at meeting demand, or is their performance still creating big opportunities for RBC to gain share?

Michael J. Hartnett: Well, I hate to disparage my competition, but we see a lot of customers that are having difficulty getting product in the market today that we don't normally see. Let's leave it there.

Mike Hartnett: Well, I hate to disparage my competition, but we see a lot of customers that are having difficulty getting product in the market today that we don't normally see. Let's leave it there.

Speaker #3: Well, I hate to disparage my competition. But we see a lot of customers that are having difficulty getting product. In the market today that we don't normally see.

Speaker #3: Let's leave it there.

Speaker #6: Okay. Just on that, I spoke with one of your customers recently and they said RBC is great, but they're not aggressive enough about taking market share from some of these suppliers that can't perform.

Scott Deuschle: Okay. Just on that, I spoke with one of your customers recently, and they said RBC is great, but they're not aggressive enough about taking market share from some of these suppliers that can't perform. I know you guys have this policy to not bail out your competitors, but I guess, is there any maybe change in heart there to become a little bit more aggressive?

Speaker #6: I know you guys have this policy to not bail out your competitors, but I guess is there any maybe change in heart there to become a little bit more aggressive?

Speaker #3: Yeah. I mean, right now, it's very easy for us to overbook our plants, which creates a problem for the plants because we're booking more capacity than we have.

Michael J. Hartnett: Yeah. Right now, it's very easy for us to overbook our plants, which will create a problem for the plants because we're booking more capacity than we have. If we do that, we're going to have the same kind of service levels that the rest of the industry has. We have very good customers that give us long-term contractual obligations. Three years, five years. Sometimes, some of them ask for 10 years. Our priority is to take care of them first. If we see somebody else that comes in that we haven't seen for a long time and has an immediate need, but is unwilling to make a long-term commitment, if we can supply him without hurting somebody else, we probably will.

Mike Hartnett: Yeah. Right now, it's very easy for us to overbook our plants, which will create a problem for the plants because we're booking more capacity than we have. If we do that, we're going to have the same kind of service levels that the rest of the industry has. We have very good customers that give us long-term contractual obligations. Three years, five years. Sometimes, some of them ask for 10 years. Our priority is to take care of them first. If we see somebody else that comes in that we haven't seen for a long time and has an immediate need, but is unwilling to make a long-term commitment, if we can supply him without hurting somebody else, we probably will.

Speaker #3: And if we do that, then we're going to have the same kind of service levels that the rest of the industry has. So, we have very good customers that give us long-term contractual obligations.

Speaker #3: Three years, five years, sometimes some of them ask for ten years. And so, those are our priorities—to take care of them first.

Speaker #3: If we see somebody else that comes in that we haven't seen for a long time and has an immediate need but is unwilling to make a long-term commitment, then if we can supply him without hurting somebody else, we probably will.

Speaker #3: But if we can't supply him without hurting somebody else, we're not going to hurt our long-term the customers that support our business in the long term.

Michael J. Hartnett: If we can't supply him without hurting somebody else, we're not going to hurt the customers that support our business in the long term. That's probably what they're seeing. I would say that everybody today that's working on the RBC side are seeing significant more demand than they have capacity. That's an environment that few have experience in, and it's easy to make mistakes.

Mike Hartnett: If we can't supply him without hurting somebody else, we're not going to hurt the customers that support our business in the long term. That's probably what they're seeing. I would say that everybody today that's working on the RBC side are seeing significant more demand than they have capacity. That's an environment that few have experience in, and it's easy to make mistakes.

Speaker #3: So that's probably what they're seeing. I would say that everybody today that's working on the RBC side are seeing significant more demand than they have capacity.

Speaker #3: And so that's an environment that few have experience in. And it's easy to make mistakes.

Speaker #6: Very helpful. Thank you.

Scott Deuschle: Very helpful. Thank you.

Speaker #2: Our next question is from Pete Skibitzi with Alembic Global.

Operator: Our next question is from Pete Skibitski with Alembic Global.

Speaker #5: Yeah. Good morning, guys. Hey Rob, maybe just to clarify one thing on the gross margin benefit you spoke to from the contract resolution and the tariffs.

Peter Skibitski: Yeah, good morning, guys.

Michael J. Hartnett: Good morning.

Mike Hartnett: Good morning.

Steve Barger: Hey, Rob, maybe just to clarify one thing on the gross margin benefit that you spoke to from the contract resolution and the tariffs. Did those two items impact revenue at all or just gross margin?

Speaker #5: Did those two items impact revenue at all or just gross margin?

Rob M. Sullivan: The tariff would be just in the margins. There'd just be a cost offset. The contract resolution would have led to additional revenues, as well as margin benefit.

Rob Sullivan: The tariff would be just in the margins. There'd just be a cost offset. The contract resolution would have led to additional revenues, as well as margin benefit.

Speaker #3: The tariff would be just in the margins. It would just be a cost offset. The contract resolution would have led to additional revenues as well as margin benefit.

Speaker #5: Okay. And which segment was that in?

Steve Barger: Okay. What segment was that in?

Speaker #3: That was in A&D.

Rob M. Sullivan: That was in A&D.

Rob Sullivan: That was in A&D.

Speaker #5: Okay, gotcha. So yeah, just maybe to follow up—I forgot who I asked it of—but just on the industrial tailwinds. There was a really nice quarter, this revenue quarter, in industrial.

Steve Barger: Okay.

Peter Skibitski: Okay. Yeah, just maybe to follow up, I forgot who asked it, but just on the industrial tailwinds, it was a really nice quarter, this revenue quarter in industrial. It wasn't a particularly easy comp, I didn't think. I think you've got easier comps in Q3 and Q4, but I know there's seasonality there. Just kind of trying to back into the industrial outlook from your guide. Are you expecting continued upper single-digit type growth at industrial the next couple of quarters on the easier comps, or will seasonality kind of weigh on that?

Speaker #5: It wasn't a particularly easy comp, I didn't think. I think you've got easier comps in the third quarter and fourth quarter, but I know there's seasonality there.

Speaker #5: So just kind of trying to back into the industrial outlook from your guide, are you expecting continued kind of upper single-digit type growth in industrial over the next couple of quarters on the easier comps, or will seasonality kind of weigh on that?

Speaker #3: Yeah, I think that's certainly baked into the range that we put out there for the next quarter.

Michael J. Hartnett: Yeah, I think that's certainly baked into the range that we put out there for the next quarter.

Mike Hartnett: Yeah, I think that's certainly baked into the range that we put out there for the next quarter.

Speaker #5: Okay, okay, okay. Maybe just one last one for me. For whoever—guys, VACO seems like it's coming in maybe better than expected. Just in terms of the growth there, I think this was the highest revenue quarter you've had with VACO.

Peter Skibitski: Okay. Maybe just one last one for me, for whoever. Guys, VACCO seems like it's coming in maybe better than expected, just in terms of the growth. I think this is the highest revenue quarter you've had with VACCO. Maybe you could tell us how far along you are with just net assessment there on VACCO and, maybe which side of the shop is growing faster, the marine side or the space side for VACCO? Thanks.

Speaker #5: So maybe you could tell us how far along you are with just net assessment there on VACO, and maybe which side of the shop is growing faster—the marine side or the space side for VACO?

Speaker #5: Thanks.

Speaker #3: Yeah, sure. Well, yeah, I think VACO had a good quarter, and there's strong demand on both sides of that street for VACO, and that's great news.

Michael J. Hartnett: Yeah, sure. Well, yeah, I think VACCO had a good quarter. There's strong demand on both sides of that street for VACCO and that's great news. I think in terms of balance, longer term, I think they're going to be about equal in terms of revenue production and probably margin production will be seeing more benefit from the space side. That's just the way it seems to be shaping up. The space side of the business is definitely an unexpected benefit of the acquisition.

Mike Hartnett: Yeah, sure. Well, yeah, I think VACCO had a good quarter. There's strong demand on both sides of that street for VACCO and that's great news. I think in terms of balance, longer term, I think they're going to be about equal in terms of revenue production and probably margin production will be seeing more benefit from the space side. That's just the way it seems to be shaping up. The space side of the business is definitely an unexpected benefit of the acquisition.

Speaker #3: And I think in terms of balance, longer term, I think they're going to be about equal in terms of revenue, production, and probably margin. Production will see more benefit from the space side.

Speaker #3: That's just the way it seems to be shaping up. And where the space side of the business is definitely an unexpected benefit of the acquisition.

Speaker #5: Yeah. That's great. Thanks, guys.

Peter Skibitski: Yeah. That's great. Thanks, guys.

Speaker #3: Yep. Thanks.

Michael J. Hartnett: Yep. Thanks.

Mike Hartnett: Yep. Thanks.

Speaker #2: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Our next question is from Ronald Epstein with Bank of America.

Operator: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Our next question is from Ronald Epstein with Bank of America.

Speaker #3: Yeah. Hey, good morning, guys.

Ronald Epstein: Yeah. Hey. Good morning, guys.

Speaker #4: Good morning.

Michael J. Hartnett: Good morning, Ronnie.

Mike Hartnett: Good morning, Ronnie.

Speaker #3: So, with the demand you're seeing across the business—retaining labor, attracting new labor—how is that going? And how is the enrollment in your internal training programs, and so on and so forth?

Ronald Epstein: With the demand you're seeing across the business, retaining labor, attracting new labor, how's that going? How's the enrollment in your internal training programs and so on and so forth?

Speaker #4: Yeah, well, that's a big question too, Ron. Well, certainly on the labor side, depending upon where you are in the country, it can be challenging, or it can be easy.

Michael J. Hartnett: Yeah. Well, that's a big question, too, Ron. Well, certainly on the labor side, depending upon where you are in the country, it can be challenging or it can be easy. I think the benefit that we have is that we have over 1,000 people in our Mexican facilities, and we don't have a labor shortage in Mexico. That's certainly a big aid to the US plants in terms of capacity ramp, whenever we have to ramp into any of these sectors, and we are ramping now. In the US, on the labor side, it's more difficult in the Northeast. Depending upon where you are in Los Angeles, it could be difficult or it could be not so difficult. If you're in Los Angeles County, it's easier. If you're in Orange County, it's more difficult.

Mike Hartnett: Yeah. Well, that's a big question, too, Ron. Well, certainly on the labor side, depending upon where you are in the country, it can be challenging or it can be easy. I think the benefit that we have is that we have over 1,000 people in our Mexican facilities, and we don't have a labor shortage in Mexico. That's certainly a big aid to the US plants in terms of capacity ramp, whenever we have to ramp into any of these sectors, and we are ramping now. In the US, on the labor side, it's more difficult in the Northeast. Depending upon where you are in Los Angeles, it could be difficult or it could be not so difficult. If you're in Los Angeles County, it's easier. If you're in Orange County, it's more difficult.

Speaker #4: The I think the benefit that we have is that we have over 1,000 people in the in our Mexican facilities and we don't have we don't have a labor shortage in Mexico.

Speaker #4: And so that's certainly a big aid to the U.S. plants in terms of capacity ramp whenever we have to ramp into any of these sectors.

Speaker #4: And we are ramping now. In the US, on the labor side, it's more difficult. In the Northeast, and it's in the depending upon where you are in Los Angeles, it could be difficult or it could be not so difficult.

Speaker #4: If you're in Los Angeles County, it's easier. If you're in Orange County, it's more difficult. In terms of our training program, at any given time of the year, we probably have in training close to 100 people with engineering or general business degrees, either training on manufacturing engineering, design engineering, applications engineering, or business management practices.

Michael J. Hartnett: In terms of our training program, at any given time of the year, we probably have, in training, probably close to 100 people with engineering or general business degrees, either training on manufacturing engineering, or design engineering, or applications engineering, or business management practices, or sales practices. Yeah, I'd say at any given time, it's pretty easy to find 100 people going through that process.

Mike Hartnett: In terms of our training program, at any given time of the year, we probably have, in training, probably close to 100 people with engineering or general business degrees, either training on manufacturing engineering, or design engineering, or applications engineering, or business management practices, or sales practices. Yeah, I'd say at any given time, it's pretty easy to find 100 people going through that process.

Speaker #4: Or sales, sales practices. So yeah, I'd say at any given time, it's pretty easy to find 100 people going through that process.

Speaker #3: Gotcha. Gotcha. Gotcha. But on balance, across the business, you're able to find enough talent to get done what you need to get done?

Ronald Epstein: Got you. On balance across the business, you're able to find enough talent to get done what you need to get done?

Speaker #4: Yes. Thankfully, we've had this training program going now for, I don't know, maybe 15 or 20 years. It hasn't been at the scale that it is today, but it ramped up to that scale sort of linearly over that time period.

Michael J. Hartnett: Yes. Thankfully, we've had this training program going now for, I don't know, maybe 15, 20 years. It hasn't been the scale that it is today, but it ramped up to that scale sort of linearly over the last time period. Maybe 20 years ago, we had 50 people going through the system. Now we have 100 people going through. We have a really deep base of talent in many places, and they're the core to our ability to execute.

Mike Hartnett: Yes. Thankfully, we've had this training program going now for, I don't know, maybe 15, 20 years. It hasn't been the scale that it is today, but it ramped up to that scale sort of linearly over the last time period. Maybe 20 years ago, we had 50 people going through the system. Now we have 100 people going through. We have a really deep base of talent in many places, and they're the core to our ability to execute.

Speaker #4: Maybe 20 years ago, we had 50 people going through the system. Now we have 100 people going through. So we have a really deep base of talent in many places, and they're the core to our ability to execute.

Speaker #3: Gotcha. Gotcha. And in your remarks, you talked a little bit about some knots—you had a knot in the supply chain. Are there any knots left out there that you worry about, or are there any knots that were kind of double knots or trickier to unpack?

Ronald Epstein: Got you. In your remarks, you talked a little bit about some knots. You had a knot in the supply chain. Are there any knots left out there that you worry about, or are there any knots that were kind of double knots or trickier to untie?

Speaker #4: Yeah, there are some double knots. We definitely had some double knots. And particularly, the supply chain is, well, it's fragile. And when the parts are complex, and one of your suppliers goes out of business because they got old and didn't want to do it anymore—and had a certain amount of expertise in those particular processes—recovering it can be difficult.

Michael J. Hartnett: Yeah, there is some double knot. We definitely had some double knots. Particularly, the supply chain is, well, it's fragile. When the parts are complex and one of your suppliers goes out of business because they got old and didn't want to do it anymore, and had certain amount of expertise in those particular processes, recovering it can be difficult. Particularly when it's a metallurgical puzzle, as some of these are. Yeah. I think to the best of our ability, I think we've identified most of the double knots. I'm sure there's still a few knots out there, but we can't see where they are right now. I'm sure we'll find them. We'll deal with them. That's just part of the supply chain.

Mike Hartnett: Yeah, there is some double knot. We definitely had some double knots. Particularly, the supply chain is, well, it's fragile. When the parts are complex and one of your suppliers goes out of business because they got old and didn't want to do it anymore, and had certain amount of expertise in those particular processes, recovering it can be difficult. Particularly when it's a metallurgical puzzle, as some of these are. Yeah. I think to the best of our ability, I think we've identified most of the double knots. I'm sure there's still a few knots out there, but we can't see where they are right now. I'm sure we'll find them. We'll deal with them. That's just part of the supply chain.

Speaker #4: And we've, particularly when it's a metallurgical puzzle, as some of these are. And so, yeah, I think to the best of our ability, we've identified most of the double knots. I'm sure there are still a few knots out there.

Speaker #4: But we haven't—we can't see where they are right now. I'm sure we'll find them, and we'll deal with them, but that's just part of the supply chain.

Speaker #4: And I think in Los Angeles, of course, the suppliers are all really busy because it's all A and D and space and there's plenty of business around.

Michael J. Hartnett: I think in Los Angeles, of course, the suppliers are all really busy because it's all A&D and space and there's plenty of business around. It's a challenging world, but we survive.

Mike Hartnett: I think in Los Angeles, of course, the suppliers are all really busy because it's all A&D and space and there's plenty of business around. It's a challenging world, but we survive.

Speaker #4: And so, it's a challenging world, but we survive.

Speaker #3: And then maybe just one last one. And this is a much broader question. Can in your history, out in LA, I mean, have you seen a real rebirth in Southern California with regard to A and D, particularly because of all the space stuff that's going on?

Ronald Epstein: Maybe just one last one, and this is a much broader question. Kind of in your history out in LA, have you seen a real rebirth in Southern California with regard to A&D, particularly because of all the space stuff that's going on?

Michael J. Hartnett: There must have been. There's just a lot of shops around that have really unique capabilities. I think one of the big advantages in working in LA is that there's so many engineering schools that generate so many talented individuals that really come into our plants in a shorter period of time, are really productive for us.

Mike Hartnett: There must have been. There's just a lot of shops around that have really unique capabilities. I think one of the big advantages in working in LA is that there's so many engineering schools that generate so many talented individuals that really come into our plants in a shorter period of time, are really productive for us.

Speaker #4: There must have been. I mean, there's just a lot of shops around that have really unique capabilities. And I think one of the big advantages in working in L.A. is that there are so many engineering schools that generate so many talented individuals who really come into our plants in a short period of time and are really productive for us.

Speaker #4: And so that University of California system is spectacular. And of course, with VACO nestling up to JPL, that neighborhood's not too bad either.

Ronald Epstein: Yeah.

Michael J. Hartnett: The University of California system is spectacular. Of course, with VACCO nuzzling up to JPL, that neighborhood's not too bad either.

Mike Hartnett: The University of California system is spectacular. Of course, with VACCO nuzzling up to JPL, that neighborhood's not too bad either.

Speaker #3: Yeah, yeah, perfect. Well, thank you very much, guys.

Ronald Epstein: Yeah. Perfect. Well, thank you very much, guys.

Speaker #4: You. Thanks.

Michael J. Hartnett: Yeah, thanks.

Mike Hartnett: Yeah, thanks.

Speaker #1: Our next question is from Alexandra Mandary with Truist Securities.

Operator: Our next question is from Alexandra Mandry with Truist Securities.

Speaker #2: Hey, nice results and thanks for taking my question. I just had a quick one here. Are you seeing any headwinds as a result of the Middle East and the higher jet fuel environment?

Alexandra Mandry: Hey, nice results. Thanks for taking my question. I just had a quick one here. Are you seeing any headwinds as a result of the Middle East and higher jet fuel environment?

Alexandra Mandery: Hey, nice results. Thanks for taking my question. I just had a quick one here. Are you seeing any headwinds as a result of the Middle East and higher jet fuel environment?

Michael J. Hartnett: We are not. We are not seeing any headwinds. We're hearing from some of our customers that there may be headwinds in the aftermarket, but we're not seeing it, and we're not feeling it.

Mike Hartnett: We are not. We are not seeing any headwinds. We're hearing from some of our customers that there may be headwinds in the aftermarket, but we're not seeing it, and we're not feeling it.

Speaker #4: We are not. We are not seeing any headwinds. We're hearing from some of our customers that there may be headwinds in the aftermarket, but we're not seeing it and we're not feeling it.

Speaker #2: Great. And then, just to add another one, what is your appetite for expanding your business through M&A to take advantage of recent growth in products such as missiles and in the space industry?

Alexandra Mandry: Great. I guess just to add another one. I guess what is your appetite for expanding your business through M&A to take advantage of recent growth and products such as missiles and then the space industry?

Alexandra Mandery: Great. I guess just to add another one. I guess what is your appetite for expanding your business through M&A to take advantage of recent growth and products such as missiles and then the space industry?

Speaker #4: Well, I mean, we like to—we're not averse to M&A, as you can see from our history. And we like to do things that complement what we do already.

Michael J. Hartnett: Well, we're not adverse to M&A, as you can see from our history. We like to do things that complement what we do already and help us service our customer base that depends on us to supply certain things that nobody else can supply. When acquisitions come up that sort of fit that category, we can become aggressive. Right now in the acquisition world, you have to be aggressive.

Mike Hartnett: Well, we're not adverse to M&A, as you can see from our history. We like to do things that complement what we do already and help us service our customer base that depends on us to supply certain things that nobody else can supply. When acquisitions come up that sort of fit that category, we can become aggressive. Right now in the acquisition world, you have to be aggressive.

Speaker #4: And help us service our customer base that depends on us to supply certain things that nobody else can supply. And so, when acquisitions come up that sort of fit that category, we can become aggressive.

Speaker #4: And right now, in the acquisition world, you have to be aggressive.

Speaker #2: Great. Thank you.

Alexandra Mandry: Great. Thank you.

Alexandra Mandery: Great. Thank you.

Speaker #1: Thank you. There are no further questions at this time. I would like to hand the floor back over to Dr. Hartnett for any closing remarks.

Operator: Thank you. There are no further questions at this time. I would like to hand the floor back over to Dr. Hartnett for any closing remarks.

Speaker #3: Okay. Well, I thank everybody for their interest in RBC today and for participating in the call. We'll speak again in October.

Michael J. Hartnett: Okay. Well, I thank everybody for their interest in RBC today and participating in the call. We'll speak again in October.

Mike Hartnett: Okay. Well, I thank everybody for their interest in RBC today and participating in the call. We'll speak again in October.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.

Q1 2027 RBC Bearings Inc Earnings Call

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