Good morning, and thank you for joining us for RBC Bearings fiscal first quarter 2025 earnings call. I'm Rob Moffatt, Director of Investor Relations. And with me on the call today are Dr. Michael 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. Before beginning today's call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to 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 described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website. With that, I'll now turn the call over to Dr. Hartnett.

Thank you, Rob, and good morning to everyone, and thanks for joining us. I'm going to start today's call with a quick review of our quarter and fiscal year and hand it over to Rob for some detailed color on the numbers. And then I'll finish with some high-level thoughts on the industry, RBC's positioning, and our fiscal '25 outlook. First quarter sales came in at $406.3 million, a 5% increase over last year. Strong performance from our Aerospace and Defense sector showed a 23.7% expansion, where our Industrial business contracted slightly at 3.5%. In Aerospace and Defense, sales expanded approximately $30 million quarter-to-quarter, year-over-year with $149.1 million on the quarterly result. The Defense sector led with a 38.1% expansion rate. Unquestionably, we can expect continued strong showings from our A&D sector through the balance of the year. On the Industrial side, we held our own against our peers showing a small contraction of 3.5% sales. Sales were $257.2 million. Weakened sector performance was seen in Oil & Gas, semiconductor machinery, and some general industrial markets. We currently expect and plan for these markets to strengthen in the second half of the year. Adjusted gross margin for the quarter came in at $184 million, 45.3% of sales, and almost two full percentage points above last year. Clearly, our manufacturing plants are executing extremely well. We are operating well within our sweet spot in this regard, and many completed synergies and improvement projects contributed to this performance. Still, many more productive concepts and plans are in the process and/or active today. And these are very productive and promising areas for us to prospect. I'd like to acknowledge and thank our teams for this quarter's performance. Clearly, it is they who are the reason for RBC's continued successes. As a result, adjusted net income was $2.54 a share and adjusted EBITDA was 33% of revenues. Obviously, we're very pleased with this performance, and we really can't think of a better way to start our fiscal year. Net cash provided by operating activities was $97.4 million versus $61.7 million last year, a 57.9% increase. This allowed us to reduce debt by another $60 million during the period, bringing the EBITDA to net debt ratio to approximately 2.1 times, another sweet spot. Overall, we expect more of the same performance from the Aerospace and Defense group through the year-end. Some ups and downs in this regard as a result of normal seasonal impacts of holidays, vacations, and supply chain. On the Industrial side, we are planning to see strengthening in the second half of the year and are setting our plans today accordingly. RBC is well-positioned to support additional demand from both industrial and Aerospace, Defense customers as well as space customers. We have the production capacity, the trained and skilled workforces in place, and are in the process of augmenting plant capacities to accommodate additional business awards. I'll now turn the call over to Rob for more details on our financial performance.

Thank you, Mike. As Dr. Hartnett indicated, this is another strong quarter for RBC. Total sales growth of 5% in the quarter was surpassed by adjusted EBITDA growth of 11.3% and adjusted EPS growth of 19.2%. Along with that, we had free cash flow growth of 61% year-over-year. This was driven in large part by strong gross margin expansion with first quarter gross margin as a percentage of sales coming in at 45.3%, an expansion of roughly 190 basis points year-over-year. The two biggest drivers here continue to be the ongoing tailwinds from Dodge synergies and increased utilization of our Aerospace manufacturing assets. We also saw tailwinds from strong plant efficiency, expedites, and a favorable mix. On the SG&A line, we continue to make investments in our future growth. This includes sales force additions to support the international expansion that we have highlighted as part of our Dodge strategy and the resources needed to support that growth, including IT infrastructure and back-office support. With that said, the rate of growth on the SG&A line moderated versus the year-ago period, and we were able to extract a modest amount of leverage this quarter. Going forward, we expect SG&A as a percentage of sales to increase in Q2 and Q3 before normalizing in Q4. This led to an adjusted EBITDA of $134 million this quarter, up 11.3% year-over-year, and adjusted EBITDA margin of 33%, which is up almost 190 basis points versus last year's 31.1%. The EBITDA margin is a new record for RBC, eclipsing our recent peak of 31.7% in the second quarter of fiscal '24. The achievement of this milestone was a multifaceted effort with credit being deserved across multiple layers of the company, including the Dodge team for their efforts in extracting synergies and our operations and plant management teams for running at very high levels of plant efficiency during the quarter. Interest expense in the quarter was $17.2 million. This was down 16% year-over-year, reflecting the ongoing repayment of our term loan. The tax rate in our adjusted EPS calculation was 22.4%, a moderate year-over-year headwind versus last year's 22%. Altogether, this led to adjusted diluted EPS of $2.54, representing 19.2% of year-over-year growth, an impressive result on revenue growth of 5%. In terms of cash, the free cash flow of $88.4 million ran at a 144% conversion rate and grew 61% on a year-over-year basis. This was fueled by strong net income growth and improved working capital performance. As usual, we used a meaningful portion of the cash generated to continue to pay down our term loan. We repaid $60 million of the loan this quarter and continue to expect to repay $275 million to $300 million total for the year. The balance on the term loan at the end of the quarter was $615 million, leaving net debt at $1.05 billion and trailing net leverage of 2.1 times. We continue to expect trailing net leverage to be well below the two-times mark exiting the fiscal year, leaving ample room for a return to M&A should the right deal come across our path. As a reminder, our Series A Mandatory Convertible Preferred Stock is expected to automatically convert on October 15, 2024. Using Q1 results as an approximation, the net impact of this conversion is expected to be slightly accretive to earnings per share, assuming conversion at the current share price. It will be more meaningfully accretive, however, to free cash flow as the conversion will remove the cash dividend payment, reducing our future total cash outlays by approximately $23 million on an annualized basis. This is roughly 9.5% of fiscal '24's total free cash flow. In closing, this was another strong quarter for RBC. We remain focused on leveraging our core strengths in engineering, manufacturing, and product development to drive organic and inorganic growth, continued margin excellence, and high levels of free cash flow conversion. With that, operator, please open the call for Q&A.

Thank you. Our first question comes from Kristine Liwag with Morgan Stanley. Please go ahead with your question.

Hi, good morning, everyone. You know with the Industrial end-market starting to decline here, can you provide more content and detail about what you're seeing in the different end-markets, and exactly how far away we are from a trough? And what we've had to see to see improvement? Because it seems like the issue in the quarter is just a little bit of weakness in the top-line. But that said, I mean, with a 45% gross margin for the business, that's still a pretty incredible performance.

Yes, when we look at the Industrial markets, there are a few areas where we've experienced significant softness, and this trend has persisted for nearly 12 months now, particularly in Semicon and Oil & Gas.

Hello, I think the line dropped.

Ladies and gentlemen, this is the operator. Please standby, we're experiencing some technical issues. We'll resume shortly. Thank you for your patience. Kristine, please go ahead with your questions.

Where did I leave you, Kristine?

Great. Mike, you were talking about semiconductors is where you've seen the weakness in Oil & Gas and that's where the line dropped off.

Yes, okay. So those are the two majors. The Oil & Gas sector has a major customer who experienced a planning issue and purchased too much last year, and is currently working to liquidate that position. We anticipate an improvement as the year moves forward. For the rest of the business, there is a slight downward trend in the market. There are some positive and some negative aspects, but the overall trend is downward.

Great. And just a follow-up in terms of where we're seeing the weakness. Are these mostly on new builds or was the slowdown in buying also in the aftermarket if there was a little bit of an overage in buying before?

Yes, I think it's by and large a slowdown in the aftermarket. So, in the various industrial sectors that support the aftermarket.

I see. And then as you look at the recovery for each of these end markets, at which quarter do you think Industrial revenue could potentially drop? And do you have any visibility into that?

If I had the visibility, I would probably know what stocks to buy and which stocks to sell, right? I don't have that kind of visibility. What we do have is economic models that sort of give us general overall direction. And those economic models have been telling us that it's flat through our third quarter and very strong in our last quarter. And that's sort of how we're piloting the sector today.

Well, great. Thank you for the color. I'll get back in queue. Thanks.

Thank you. Our next question is from the line of Michael Ciarmoli with Truist Securities. Please proceed with your question.

Hi, good morning, everyone. Thank you for taking my questions. I want to focus on the Industrial segment. It seems that the quarterly revenue numbers fell short of your guidance. Was the weakness in Industrial the main factor behind this discrepancy, or were there other significant issues?

No, that was the biggest driver. It's just all about consumption rates and Industrial consumption rates. Our estimates for those rates at the beginning of the quarter and the actual consumption that we see during the quarter creates a variance.

Got it. Got it. Do you have, you know, since the acquisition of Dodge and the amount of Industrial revenues that go through aftermarket distribution now is pretty sizable at the company level. I mean, do you have the level of visibility into the distributors to know if there's really going to be a more pronounced destock in any of these industrial sectors? Or do you even have some sort of min-max thresholds where you have a certain base level of demand that you're shipping to in the Industrial channels?

Well, we have probably the same information that you have. I mean, some of these are public companies and they publish quite detailed information on what their situation is. And basically, I don't think there's any serious destocking going on. I think part of the year-to-year comp delta there was that a year ago we were still benefiting from a recovering supply chain and cleaning up the backlog. Those are products that have been on the order book for an extended period of time, but as a result of supply chain difficulties, we couldn't complete those orders. And so last year, we probably benefited from some number that it might be as high as $10 million of that backlog reduction. And this year, the supply chain is normal. And so we're just living on the economic consumption rate.

Got it. Do you think as you look out for the remainder of '25, I mean, you had a tough comp year-over-year in the first quarter for Industrial, but they certainly get easier. Do you think Industrial grows for fiscal '25? Or do you think it's going to be sort of low single-digit kind of pressure all year?

You know, our plan today has it growing.

Okay.

And that's we're expecting, as I said, a recovery and some recovery in Semicon. We're expecting a milder recovery in Oil & Gas and then the rest of it is about the Industrial economic consumption rate.

Okay. Got it. And then just real quickly and then I'll jump off here. Any more detail on the year-over-year growth rates by channel and Aerospace, aero OEM aftermarket distribution? I think you called out the Defense already.

Yes, I think Rob can give you those. He's looking at it now. So I'll turn the call over to Rob.

Yes, they were very consistent, like they were both right around at 23.7 per OEM, 23.9 per distribution. So very consistent.

Okay. Perfect. All right, guys. I'll jump back in the queue. Thanks.

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

Hi, good morning, guys. Nice performance. Hi, Mike, just on the total growth in Defense, I think you said 38%. Was there a few programs that are helping to drive that or because you're just growing so much above the market, above all the OEMs? So I'm just wondering if you could give us more color on what's driving that. It’s like the fourth quarter in a row of that type of really strong growth. And I don't know if you could talk about pricing at all in terms of pricing maybe finally catching up with past inflation because I know you're on a lot of LTAs as well. So just if you could comment there.

Yes. To address the pricing aspect, we are not currently seeing any benefits from it. A number of our contracts will be renewed in '25 and '26, so we are still dealing with pricing that was likely set in '21, '20, or even '19. This presents a headwind for us. However, we are engaged in several major programs that will continue to drive expansion. The year-over-year comparisons may become more challenging since they began around a year ago. The need to build submarines will persist for at least the next five to ten years, which will be demanding for us. Additionally, we have significant demands related to missiles, joint strike fighters, and long-range bombers. There are many large programs we are involved with. Furthermore, the cancellation of the FARA program for scout helicopters, which affected Sikorsky and Lockheed, ultimately benefitted our other platforms like the CH-47, Apache, and Black Hawk. There was uncertainty regarding the purchase of these platforms based on the direction of DoD funding, but that situation has cleared up, and there is renewed interest in those platforms. Overall, the environment on the Defense side is highly favorable for us.

Yes, that makes sense. I have one follow-up regarding the commercial side. It seems that Boeing is currently producing about 25 MAX units per month in June and July. Can you remind us where you were in the past couple of quarters? I believe they have been maintaining production in the 30s. Does that sound accurate?

Yes, that sounds about right. I think our planning now is probably at a 33 grade. Although they've indicated they'll be at 38 by the end of the year, and the new CEO has agreed with that. I hope when he goes up to his office he agrees with it even further. Yes, I think we have a very modest expectation built into our planning regarding Boeing demand, and that seems to be the way it's playing out.

Yes. If they reach 38 or 8 by the end of the year, you could potentially accelerate compared to fiscal '26, it sounds like.

Yes. I think they need the FAA to approve a step-up beyond 38, assuming they can reach 38. Our parts generally need to be available six months in advance of our planning cycle for aircraft assembly rates. This has shifted the timeline from April to October for the 38 rate. Therefore, we should be very conservative by using the 33 planning rate.

Right, right. Okay. Appreciate it. Thank you.

Yes.

Our next question is from the line of Jordan Lyonnais with Bank of America. Please proceed with your questions.

Hi, good morning. On M&A, could you guys give any color on deals in the pipe, what you're seeing? Any changes in size or scope? And two, if you're looking at anything to get more capacity if the A&D side keeps growing at this rate.

Well, you know, I think we're seeing A&D-like companies coming to market. And we're investigating the fit with RBC. We have really nothing to report at this point. Obviously, if one of those companies does come to market, they'll likely come to market with their own capacity, so they probably won't tax ours. But there's just a lot going on in the A&D world, and we're very pleased with our growth in that sector and the outlook in that sector for the next several years. So we're being cautious and conservative about what we take on.

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

Thanks. Hi, Mike, seeing gross margin above 45% with Industrial down 3.5% is a great performance.

Thank you.

Was that all mix in Aerospace? Yes, sure. You earned it. Was that all mix in Aerospace? Or was there something unusual in there?

Aerospace made a contribution and its margin is getting better. As I mentioned, we are currently managing several contracts that were signed in 2019, 2020, and 2021, which are slightly challenging. However, we are becoming more efficient in executing those contracts due to increased volume and better resource absorption. Additionally, we have implemented improved methods and some better funding to handle these designs more effectively. Overall, I would say the strong performance from the Industrial sector really drove our success.

So, Industrial margins were up even against negative 3.5% organic?

Yes, that's right.

And what in Industrial drove that? Because that's a pretty big absorption headwind to overcome, isn't it? Like what was in mix that made that so rich?

Well, you know, we've been talking about synergies for a long time, and we're starting to see it. They did have a favorable mix this quarter. I can't say that we're going to see margins like that forever, but we saw it in the first quarter. I think the neighborhood that we'll probably end up living in is more like 44% when the year is all done, but we'll see. That's hard to predict. So there's a lot of synergies that went on. The mix was favorable. Plant efficiencies were absolutely better. There's no question about that. I mean, they're operating in their sweet spot, and we've had methods improvements, and we've had improvements in supply chain cost structure. So you know, everybody sort of has a role when they come to work in the morning, and a little piece of each one of these issues cumulatively makes a difference.

So I guess you're guiding fiscal Q2 gross margin down 100 or 200 basis points against what is obviously a tough comp. But is there any specific thing causing that sequential decrease?

I think there are fewer production days in the second and third quarters, which has been consistent over time, creating a bit of a challenge. When combined with the favorable mix we experienced in the first quarter, it contributes to what we're observing as we move into the second quarter.

Got it.

And the right way to look at it is probably more on a year-over-year basis, right, and you know that's the range is calculated from expansion on a year.

Understood. And then on the revenue side, Aerospace was up 24% against the 21% comp. You talked about all the things that are going right there. Do you expect 20% plus growth again in Q2?

You know, we're not planning for it, but I can't say that it won't happen.

Well, I guess the question then is, you expect Industrial to recover in the back half? Do you think that's up sequentially from a revenue standpoint or is that more likely down given some of the softness that you're seeing right now?

Yes, that's more likely down.

Understood. All right. Thanks very much.

Yes.

Our next question is from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions.

Thanks. This is Vivek Srivastava on for Joe. I just want to start with a more long-term question. Your EBITDA margin this quarter is 32.9%, the highest we've seen. You've previously talked about mid-30s long-term EBITDA margin, which is not far away from where you are today. So just wondering what kind of updated long-term margins you have your eyes set on? And just how to think about the margin improvement path from here once the Industrial businesses do start inflecting positively.

We're thrilled with the 33% that we achieved this year. We are far ahead coming out of the gate of what we talked about in Q1. We talked about where we're seeing gross margins into Q2. Our mission is to continue to squeeze the lemon to expand margin every quarter as best for our ability. So we're not looking to put out long-term guidance, but we are telling you that we're continuing to strive to eke out that EBITDA margin. And I think we have opportunities in different pockets to develop.

That's helpful. And maybe just a follow-up on that. As your margin continues to improve Industrial growth, your long-term target probably close to two times GDP, is reinvesting within the Industrial business something that could potentially accelerate a bit more from here to return to that two times GDP growth target?

I believe those are two separate issues. We are reinvesting in the Industrial business to reduce our cost of sales by acquiring capital equipment that enhances our plant efficiency and allows us to implement manufacturing processes that are currently expensive to source externally. This investment is significant, and we are optimistic that it will positively impact our gross margin over time. Additionally, the Industrial business is currently generating over $1 billion annually. To significantly affect that revenue, we need to focus on large projects, and we are identifying some substantial opportunities. However, these larger initiatives will require time to execute, and we are currently in the process of managing that.

That's very helpful color. Thanks for that. Maybe one last question from me. Just on the backlog, noticed that, in the press release, you provided backlog beyond 12 months, but we didn't see backlog due within 12 months. Just wanted to understand the rationale behind that and just any color on the backlog due within 12 months?

Yes. We made a strategic decision and communicated last quarter that from here on out, we were just going to be presenting the full backlog because that's such a significant part of our business, especially on the Defense side at this point. We think that's the more appropriate way to look at our overall backlog position.

Very helpful. I'll pass it on. Thanks.

Thank you. Our next question is from the line of Tim Thein with Raymond James. Please proceed with your questions.

Yes, thanks. Good morning. I have a question regarding the gross margins, especially concerning the outlook for the second quarter. The expectation for this year was that we might see more of an improvement in the second half as we better utilize our Aerospace fixed capacity and the synergies from Dodge begin to have a larger impact. However, with the industrial economy being weaker, does this change the outlook for the Dodge side? Additionally, might some benefits that were anticipated later in the year have occurred earlier, contributing to the first quarter results? In summary, do you still anticipate that there will be opportunities for an even greater increase in the second half from these drivers?

Yes, we still anticipate a boost in the second half of the year. One of the reasons we were drawn to Dodge during the acquisition was its consistent revenue performance across various economic cycles, showcasing its low volatility. Dodge is deeply integrated into U.S. infrastructure, meaning our products contribute to everyday activities, from breakfast to commuting via roads and bridges. Our supplies only last a few years before they need to be replaced due to natural wear, which supports strong recurring revenue driven by human demand in North America. Regardless of whether the economy is growing or slightly contracting, Dodge is likely to perform well during those cycles. Looking ahead, we anticipate growth in the semiconductor sector and a recovery in oil and gas. Additionally, any potential escalation of tensions in the Middle East affecting oil production could further accelerate our business. This is the current state of affairs.

Got it. Got it. Okay. All right. Thanks a lot. Appreciate it.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the call over to Dr. Hartnett for any closing remarks.

Okay. Well, I'd like to thank everyone for participating today. And we look forward to speaking again to you in the fall. So a good day.

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.