RBC Bearings Incorporated (RBC) Earnings

Management highlights

### Overall Financial Performance - Q4 FY26 results exceeded management expectations: adjusted diluted EPS grew 27.9% YoY to $3.62, adjusted EBITDA grew 21% YoY to $168.9 million, and full-year free cash flow reached $342.6 million (119.1% conversion, up from 99% last year). - The company paid down $116 million of debt in Q4, with an additional $27 million paid down after quarter-end, and remains on track to pay off the remainder of its term loan by November 2026. - Consolidated gross margin was 44.4% GAAP / 45.3% adjusted, up slightly from 44.2% adjusted in the prior year quarter. ### A&D Segment Growth Drivers - Defense growth is led by strong demand for submarine fleet components (for Virginia and Columbia class programs) and missile programs, with the company currently adding production capacity, machinery and floor space to accommodate ramping production rates. - Missile segment growth reflects increased content across major programs (including Patriot, GMLRS, Tomahawk, Standard Missile, JAGM, Aster, next-generation Hellfire, and hypersonic programs), partially driven by the VACO acquisition, with management expecting sustained demand growth amid current global conditions. - Space segment growth is fueled by record public and private investment, with revenue from both traditional defense prime contractors and new commercial space companies (including SpaceX, Blue Origin, and Rocket Lab); management views space as both a critical national strategic priority and a fast-growing commercial market. - Commercial aircraft growth is driven by unprecedented OEM build rates at major manufacturers, with continued growth expected at both the OEM and aftermarket levels. ### Industrial Segment and Capital Allocation - Industrial demand has remained steady, with recent momentum broadening beyond aerospace and data center end markets, with visible strength tied to AI-related server farm construction that flows through the company's aggregates business. - The company's core capital allocation priority remains deleveraging, after which management will target opportunistic acquisitions of mechanical product businesses that serve RBC's existing customer base, with a preference for distressed companies in accessible geographies.

Guidance

- For Q1 FY27, management guides revenue of $500 million to $510 million, representing 14.7% to 17% YoY revenue growth. - Q1 FY27 adjusted gross margin is guided to a range of 45.25% to 45.5%, and SG&A as a percentage of net sales is expected to be 16.5% to 16.75%. Quarterly SG&A is expected to run slightly above $80 million. - For full-year FY27, management expects consolidated gross margins to expand by approximately 50 basis points. - Commercial aerospace growth is planned to exceed 15% YoY in FY27, and combined defense and space growth is expected to be faster than commercial aerospace growth. - RBC targets doubling marine/submarine segment revenue over the next 24 to 36 months.

Segment performance

RBC Bearing operates two core business segments, with 57% of Q4 FY26 revenue coming from the Industrial segment and 43% coming from the Aerospace & Defense (A&D) segment. Total Q4 FY26 net sales were $518 million, an 18.3% year-over-year (YoY) increase. For the A&D segment: Q4 revenue grew 41.2% YoY; organic revenue (excluding the recent VACO acquisition) grew 22.8% YoY. Full-year FY26 A&D segment revenue grew 32% YoY, with 19.1% organic growth. Within A&D, commercial aircraft revenue grew 17.8% YoY (17.3% organic), defense revenue grew 65.4% YoY (22.1% organic), full-year space revenue reached just over $70 million (up from $4 million in 2021), and full-year missile-related revenue exceeded $45 million. A&D Q4 gross margin was 41.6% GAAP / 44.2% adjusted; excluding VACO, adjusted A&D gross margin was 43.7% YoY. Total A&D backlog currently stands at $2.3 billion. For the Industrial segment: Q4 OEM revenue grew 7.8% YoY, and distribution revenue grew 4.5% YoY, with strength across aggregates, warehousing, food and beverage, grain, and semiconductor end markets. Industrial Q4 gross margin was 46.5% GAAP / 46.2% adjusted.

Risks & headwinds

- Capacity constraints are most acute in the marine/submarine defense segment, as the entire supply chain is ramping up from a long period of low production to meet aggressive government demand targets, creating near-term operational pressure. - Hiring for new production capacity is more difficult in U.S. locations compared to Mexico, which could slow capacity expansion. - Input supply chain constraints are a monitoring risk: high alloy steel is available but at elevated prices, and titanium and aluminum supply for A&D programs is being watched closely for potential disruptions. - Only 60% of commercial OEM long-term agreements have been repriced to reflect post-COVID inflation as of Q4 FY26, with the remaining 40% scheduled to be repriced by January 2027. - There is early monitoring risk of potential headwinds to commercial aerospace aftermarket demand from higher jet fuel prices prompting airline cost cutting, though no weakness has been observed to date.

Analyst Q&A

• Q: How does RBC's VACO acquisition position it to capture projected massive missile demand growth, and can RBC increase its share of content on these programs beyond existing participation? /

  A: VACO produces unique fuel system components for liquid propulsion missiles, including key programs like Tomahawk, and RBC already supplies bearings for a broad range of major missile programs including Patriot, GMLRS, hypersonic missiles, and multiple international programs. RBC is expanding production capacity to meet growing volume, and is actively working to increase its per-ship content share; management expects this share increase to be fully realized within a three-year timeline as tooling is put in place.

• Q: Where is RBC most capacity constrained today, how much revenue can the current footprint support, and are there upstream supply chain constraints that could impact growth? /

  A: The tightest capacity is in marine hardware for submarine programs, which are ramping aggressively after decades of low production; RBC is adding equipment, floor space, test capacity, and personnel to double marine revenue over 24 to 36 months. Current CapEx is shifting from infrastructure modification to production equipment, and RBC's Mexican facilities provide significant flexible capacity that mitigates U.S. hiring challenges. Upstream, high alloy steel is available but very expensive, while titanium and aluminum supply are being monitored closely for potential constraints.

• Q: What is RBC's exposure to the space market, and what customer segments drive its space growth? /

  A: RBC serves both traditional legacy space prime contractors (Boeing, Lockheed Martin, Northrop Grumman, Raytheon) that have served government programs for decades, and new commercial space companies including SpaceX, Blue Origin, and Rocket Lab. Management notes the space market has expanded far beyond just NASA programs to a large, diversified market with multiple growth opportunities that leverage RBC's manufacturing and technical capabilities.

• Q: How much of RBC's commercial OEM long-term agreements have been repriced for post-COVID inflation, and when will the rest be completed? /

  A: Only approximately 60% of commercial OEM LTAs have been repriced as of Q4 FY26. The remaining 40% are scheduled to be repriced effective January 2027.