Q3 2022 RBC Bearings Inc Earnings Call

February 10, 2022

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

Speaker 1: Good day and thank you for standing by. Welcome to the RBC Baring fiscal 2022 third quarter conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during this session you'll know the price star one on your telephone.

Speaker 1: Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, Mike Cummings with Alpha IR. Please go ahead.

Please be advised today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today, Mike Cummings with Alpha IR. Please go ahead.

Speaker 2: Morning, and thank you for joining us for RBC Bearings fiscal 2022 third quarter earnings conference call. With me on the call today are Dr. Michael J. Hartnett, Chairman, President, and Chief Executive Officer, Daniel A. Bergeron, Director, Vice President and Chief Operating Officer, and Robert Sullivan, Vice President and Chief Financial Officer.

Good morning, and thank you for joining us for RBC bearings fiscal 2022 third quarter earnings Conference call.

With me on the call today are Dr. Michael J, Hartnett, Chairman, President Chief Executive Officer, Daniel a Bergeron director, Vice President and Chief operating Officer, and Robert Sullivan, Vice President and Chief Financial Officer.

Speaker 2: 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.

Before beginning todays 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 995.

Speaker 2: Actual results may differ materially from those projected or implied due to a variety of factors.

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

Speaker 2: We refer you to RBC Barings' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial conditions.

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.

Speaker 2: These factors are also described in greater detail in the press release and on the company's web.

These factors are also described in greater detail in the press release and on the Companys web.

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.

Speaker 2: 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 turn the call over to Dr. Hartman.

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

Okay. Thank you Mike.

Speaker 3: Okay, thank you, Mike, and good morning to all, and welcome.

Good morning to all and welcome.

This is our first quarterly report after completing the acquisition of industrial products Division from let's say, a brown with area of Switzerland.

Speaker 3: This is our first quarterly report after completing the acquisition of Dodge Industrial Products Division from Isaiah Brown, Bavaria, Switzerland on November 1, 2022.

On November one 2022.

Two months of <unk> operational performance are included in this report.

Speaker 3: Two months of DIGE operational performance are included in this report.

But three months of financial drag was experienced as we work through the acquisition of mechanics through October and acquired the company in November one.

Speaker 3: three months of financial drag was experienced as we worked through the acquisition mechanics through October and acquired the company.

Speaker 3: We are pleased and excited to welcome the Dodge businesses and teams into RBC Varianx family and look forward to the next session.

We are pleased and excited to welcome the Dutch businesses and teams into RBC bearings family.

And look forward to and can fully.

Speaker 3: visualize a long, fruitful, and mutually beneficial relationship for our investors.

Visualize a long fruitful and mutually beneficial relationship for our investors employees customers and suppliers.

Speaker 3: Dodge businesses materially strengthen our industrial offering.

The Dutch business has materially strengthened our industrial offering.

This positions us very favorably relative to large and important base of customers with an exciting new platform of products and I'll talk more about this later.

Speaker 3: us very favorably relative to large and important basic customers.

Speaker 3: with an exciting new platform of products. And I'll talk more about.

Speaker 3: In summary, RBC bearing net sales for the third quarter of fiscal 2020.

In summary, RBC bearing net sales for the third quarter of fiscal 2022 were $267 million versus $145 9 million for the same period last year and.

Speaker 3: $267 million versus $145.9 million for the same period last year, an increase of 83 percent.

An increase of 83%.

Sales were $110 million over the two month period.

For the third fiscal quarter of 2021 sales of industrial products represented 65% of our net sales with aerospace products.

Speaker 3: third fiscal quarter of 2021, sales of industrial products represented 65% of our net sales, with aerospace products representing 35% of our net sales.

Representing 35%.

Adjusted gross margin for the quarter was 100 $303 million or 37, 6% of net sales.

Speaker 3: 100.3 million or 37.6% of net sales.

This compares to $56 4 million or 38, 7% for the same period last year.

Speaker 3: compares to $56.4 million or 38.7% for the same period last year. Adjusted operating income was $44.8 million, $16.8 million, and $

Adjusted operating income was $44 8 million 16, 8% of net sales compared to last year's $27 9 million.

And 19, 1% of net sales.

EBITDA for the was $71 4 million or 26, 7% of net sales compared to $41 million and 28, 1%.

Speaker 3: EBITDA for the was 71.4 million or 26.7% of net sales compared to 41 million in

A 72, 8% increase.

As others have reported and we concur the industrial demand.

Speaker 3: As others have reported, and we concur, the industrial demand today is through the roof. While industrial sectors we serve are performing, demand for industrial products in many cases exceeds our capacity, mostly as a result of supply chain constraints, particularly at the Dodge businesses. We have worked through these constraints with vigor over the past nine months and see improvements ahead, but it's a problem that will linger and continue to bite our ankles.

Today is through the roof.

While industrial sectors, we serve are performing.

Demand for industrial products in many cases exceeds our capacity.

Mostly as a result of supply chain constraints, particularly at the Dodge businesses. We have worked through these constraints with vigor over the past nine months and see improvements ahead.

It's a problem that will linger and continue to buy at our ankles.

At least for the first half of fiscal 2023.

A sample of important sectors, we serve.

With their strengths are.

Mining sand and gravel.

Taconite, both surface and subsurface.

Steel shortages today drive.

The substantial demand here for our products.

Construction is strong.

Speaker 3: construction is strong. Aggregate is a very strong outlook for... Currently in 18 months we expect the increase in order flow from the infrastructure...

Aggregate is a very strong outlook for <unk>.

Currently and in 18 months, we expect the increase in order flow from the infrastructure Bill for highways and bridges, which has been.

The typical lead lag.

The equation in that in that.

Sector food.

Food and beverage proteins beef cattle, Turkey chicken Canning.

<unk>.

Continues to grow with increased demand for new products new product offerings.

Speaker 3: Oil and gas is very strong and I'm sure everyone knows the story here when you fill up your tank.

Oil and gas is very strong and I am sure everyone knows the story here when you fill up your tank.

And warehousing.

It's a great rush to build fulfillment centers to supply the last mile to support the last mile strategies underway.

Speaker 3: great rush to build fulfillment centers to support the last mile strategies under

Speaker 3: by Amazon, Tractor Supply, Home Depot, Walmart, Target, etc. Our products are well integrated into these new businesses.

Amazon tractor supply home depot, Walmart target et cetera.

Our products are well integrated into these into these.

New businesses.

Semiconductor machinery.

Strong.

<unk> for new plants.

Speaker 3: have been announced by Intel, Samsung, Taiwan Semiconductor, and many others. And industrial distribution as a result of all the demand for the previous sectors mentioned continues to be strong, and that sector is consolidating. To summarize, we are making as much as we can, in every sector, in every sector.

<unk> has been announced by Intel Samsung.

Taiwan semiconductor and many others.

Industrial distribution as a result of.

All the demand for the previous sectors mentioned.

<unk> to be strong.

And that sector is consolidating.

To summarize we are making as much as we can.

Every site, where we have induction of industrial production.

Turning now to aerospace and defense, our third quarter of fiscal 'twenty, two net sales were up by three 5%.

Led by aircraft OEM, which is up by 10, 5%.

Weak defense sales held down the expansion.

These can be lumpy quarter to quarter, depending upon build schedules and milestone achievements in our plants.

Speaker 3: These can be lumpy quarter to quarter depending upon build schedules and milestone achievements in our plants.

But we expect these to normalize by the end of the year.

Speaker 3: Also, postponement of the 787 production dampens the OEM rate, capping it at the 10.5% previously mentioned. Our backlog for this sector is up over $80 million, and we are planning for a major volume expansion.

<unk> also postponement of the 787 production Dampens the OEM right.

The 10, 5% previously mentioned.

Backlog for this sector is up over $80 million.

We're planning for a major volume expansion beginning next year.

Boeing and Airbus expand build rates for their single aisle planes and dreamworld Dreamliner production resumes.

Speaker 3: Important airframes in our lineup are the 737 MAX, 787, 777X, the 777, 777X, 777X, 777X,

<unk> airframes in our lineup the 737 Max.

787, triple 7% ex the triple seven.

<unk> hundred 20, and the <unk> hundred 50.

We're visited often by the major plane builders to make sure that we have enough capacity in our plants to service the demand.

Speaker 3: We're visited often by the major plane builders to make sure that we have enough capacity in our plants to service the...

Yes.

Ahead in the.

You see it in quarters.

So.

Regarding our fourth quarter, we're expecting sales of between 340 and $350 million in total.

Speaker 3: Regarding our fourth quarter, we're expecting sales of between 340 and 350.

And I will now turn the call over to Dan and Rob for more details on the financial performance.

Speaker 3: And I'll now turn the call over to Dan and Rob for more details.

Speaker 3: Thank you, Mike. Expanding on gross margin that Mike already covered, gross margin for the third quarter of fiscal 2022 was affected by a $7.0 million inventory step up related to the Dodge acquisition.

Expanding on gross margin that Mike already covered gross margin for the third quarter of fiscal 2022 was affected by a 7.0 million inventory step up related to the Dodge acquisition.

Speaker 3: Fourth quarter fiscal 2022 gross margin is expected to be affected by a 6.8 million dollar inventory step up related to that.

Fourth quarter fiscal 2022 gross margin is expected to be affected by a $6 8 million inventory step up related to the acquisition.

Speaker 3: SG&A for the third quarter of fiscal 2022 was 43.2 million compared to 25.7 million for the same period last year. Excluding 12.0 million in costs from the Dodge business, the increase is primarily associated with an increase in personnel costs year over year. As a percentage of net sales, SG&A was 16.2% for the third quarter of fiscal 2020.

SG&A for the third quarter of fiscal 2022 was $43 2 million compared to $25 7 million for the same period last year excluding.

Excluding $12 zero million in costs from the <unk> business. The increase is primarily associated with an increase in personnel costs year over year as a percentage of net sales SG&A was 16, 2% for the third quarter of fiscal 2022 compared to 17, 6% for the same period last year.

Speaker 3: compared to 17.6% for the same period last year.

Other operating expenses for the third quarter of fiscal 2022 totaled $35 8 million compared to $3 3 million for the same period last year.

Speaker 3: Other operating expenses for the third quarter of fiscal 2022 totaled $35.8 million compared to $3.3 million for the same period last year.

Speaker 3: In the third quarter of fiscal 2022, other operating expenses included $23.5 million of costs associated with the Dodge acquisition, $12.1 million of amortization

For the third quarter of fiscal 2022 other operating expenses included $23 5 million of costs associated with the Dodge acquisition, $12 1 million of amortization of intangible assets and <unk> 2 million of other items.

Speaker 3: 0.2 million of other items. Other operating expense for the same period last year consisted mainly of $2.6 million of amortization of intangible assets, $0.5 million of restructuring costs and related items, and $0.2 million of other costs.

Other operating expense for the same period last year consisted mainly of $2 6 million of amortization of intangible assets.

$5 million of restructuring costs and related items and zero point $2 million of other costs.

Speaker 4: Operating income was 14.4 million for the third quarter of fiscal 2022 compared to operating income of 26.5 million for the same period of fiscal 2020.

Operating income was $14 4 million for the third quarter of fiscal 2022 compared to operating income of $26 5 million for the same period in fiscal 2021.

Speaker 4: On an adjusted basis, operating income would have been $44.8 million for the third quarter of fiscal 2022, compared to adjusted operating income of $27.9 million for the third quarter of 2022.

On an adjusted basis operating income would have been $44 8 million for the third quarter of fiscal 2022 compared to adjusted operating income of $27 9 million for the third quarter of fiscal 2021.

Speaker 4: Other non-operating expense was expensive 1.4 million for the third quarter of fiscal 2022 compared to income of 0.1 million for the same period last year. For the third quarter of fiscal 2022 other non-operating expenses were comprised of 0.9 million of charges. Associated with the elimination of a domestic debt facility.

Other non operating expense was expense of $1 4 million for the third quarter of fiscal 2022 compared to income of <unk> 1 million for the same period last year.

For the third quarter of fiscal 2022 other non operating expenses were comprised of <unk> 9 million of charges associated with the elimination of a domestic debt facility of <unk> $4 million of post retirement benefit costs and <unk> 1 million of other items.

Speaker 4: $0.4 million of post-retirement benefit costs and $0.1 million of other items.

For the third quarter of fiscal 2021 other non operating income was comprised of zero point $5 million of gains on marketable securities partially offset by <unk> 2 million of foreign exchange loss and zero point $2 million of other items.

Speaker 4: For the third quarter of fiscal 2021, other non-operating income was comprised of $0. 5 million of gains on marketable securities, partially offset by $0. 2 million of foreign exchange loss and $0.2 million of other items.

For the third quarter of fiscal 2022, the company reported a net losses of <unk> 1 million compared to net income of $21 6 million for the same period last year.

Speaker 4: In the third quarter of fiscal 2022, the company reported a net loss of $0.1 million compared to net income of $21.6 million for the same period last year. On an adjusted basis, net income was $26.1 million for the third quarter of fiscal 2022 compared to $22.7 million for the same period last year.

On an adjusted basis net income was $26 1 million for the third quarter of fiscal 2022 compared to $22 7 million for the same period last year.

Net loss available to common stockholders for the third quarter of fiscal 2022 was negative $5 8 million compared to net income of $21 6 million for the same period last year.

Speaker 4: Net loss available to common stockholders for the third quarter of fiscal 2022 was five negative 5.8 million compared to net income of 21.6 million for the same period last year.

On an adjusted basis net income available to common stockholders for the third quarter of fiscal 2022 was $20 3 million compared to $22 7 million for the same period last year.

Speaker 4: On an adjusted basis, net income available to common stockholders for the third quarter of fiscal 2022 was $20.3 million compared to $22.7 million for the same period last year.

Speaker 4: Adjusted cash net income available to the common stockholders for the third quarter of fiscal 2022 was 42.2 million compared to 33.9 million for the same period last year.

Adjusted cash net income available to common stockholders for the third quarter of fiscal 2022 was $42 2 million compared to $33 9 million for the same period last year.

Speaker 4: Diluted earnings per share with negative 20 cents per share for the third quarter of fiscal 2022 compared to 86 cents per share for the same period last year.

Diluted earnings per share was negative <unk> 20 per share for the third quarter of fiscal 2022 compared to 86 per share for the same period last year.

On an adjusted basis diluted EPS for the third quarter of fiscal 2022 was <unk> 70 per share compared to adjusted diluted EPS of <unk> 90 per share for the same period last year.

Speaker 4: On an adjusted basis, diluted EPS for the third quarter of fiscal 2022 was 70 cents per share compared to adjusted diluted EPS of 90 cents per share for the same period last year.

Speaker 4: That leaded cash EPS was an adjusted $1.46 per share for the third quarter of fiscal 2022, compared to $1.35 per share for the same period last year.

Diluted cash EPS was an adjusted.

<unk> 46 per share for the third quarter of fiscal 2022 compared to $1 35 per share for the same period last year.

Adjusted cash net income and adjusted cash earnings per share excludes non cash expenses for depreciation and amortization of fixed and intangible assets stock compensation and amortization of deferred financing fees net of their income tax impact. We believe that adjusted cash net income and adjusted cash earnings per share are useful in assessing <unk>.

Speaker 4: Adjusted cash net income and adjusted cash earnings per share exclude non-cash expenses for depreciation and amortization of fixed and intangible assets, stock compensation, and amortization of deferred financing fees, net of their income tax.

Speaker 4: We believe that adjusted cash net income and adjusted cash earnings per share are useful in assessing our financial performance by excluding items that do not affect the cash available to commons.com.

Our financial performance by excluding items that do not affect the cash available to common stockholders.

Speaker 4: Turning to cash flow, the company generated $40.0 million in cash from operating activities for the third quarter of fiscal 2022, compared to $36.1 million for the same period last year, and $133.4 million in cash from operating activities for the nine-month period of fiscal 2022, compared to $110.6 million for the same nine-month period last year.

Turning to cash flow the company generated $40.0 million in cash from operating activities for the third quarter of fiscal 2022 compared to $36 1 million for the same period last year.

$133 4 million in cash from operating activities for the nine months period of fiscal 2022 compared to $110 6 million for the same nine months period last year capital expenditures were $14 9 million for the third quarter of fiscal 2022 compared to $2 8 million for the same period last year.

Speaker 4: Capital expenditures were 14.9 million for the third quarter of fiscal 2022, compared to 2.8 million for the same period last year.

Approximately approximately $6 2 million of capital spending this quarter was related to the Dodge acquisition.

Speaker 4: Approximately $6.2 million of capital spending this quarter was related to the Dodge acquisition.

Speaker 4: and they were submitted post-closing purchase price adjustment costs.

And they were submitted post closing purchase price adjustment costs.

Speaker 4: Total debt as of January 1st, 2022 was $1,790,000,000.

Total debt as of January one 2022 was $1 $790 million.

Speaker 4: cash on hand was $255.5 million. I would now like to turn the call back to the operator for the question and answer session.

And cash on hand was $255 5 million I would now like to turn the call back to the operator for the question and answer session.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Speaker 1: Thank you. If you have a question at this time, please press star then 1 on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Speaker 1: And our first question comes from the line of Pete Skabitsky with Almbich Global. Your line is open. Please go ahead. Yeah, good morning guys.

And our first question comes from the line of Pizza Kubicki with Alembic Global Your line is open. Please go ahead.

Hey, good morning, guys.

<unk>.

Mike I missed a little bit did you say Dodge contributed $100 million in sales in the quarter or 110 I missed that.

Speaker 4: Mike, I missed a little bit. Did you say Dodge contributed $100 million in sales in the quarter or $110 million? I missed that.

Speaker 5: I think it was 110. 110. 110. Okay, okay. And can you give us what they contributed in terms of backlog? Because backlog was up sequentially pretty meaningfully.

I think it was one.

I went to one time, okay, Okay, and can you give us what they contribute in terms of backlogs because backlog was up sequentially pretty pretty meaningfully.

I think it was about $50 million.

Speaker 5: 50 million, okay, okay. So did your organic industrial sales rise? Because it, you know, it sounds like everything's going great guns, but did you have any issues that slow your organic industrial sales at all?

50 million okay. Okay.

So did you did you organic industrial sales rise because.

It sounds like everything is going great guns, but did you have any issues.

That slowed your organic industrial sales at all.

No I mean organic.

Industrial sales are.

Speaker 3: industrial sales are up, everything's up.

Our up every everything is up.

Our legacy RBC industrial business was up close to 26%.

Speaker 2: Your legacy RBC industrial business was was up close to 26%.

Okay. Okay.

Speaker 5: I'll look at that. Mike, so let me ask one more. There's kind of a perception out there, I think in the broad market that, you know, ISM PMI's have dipped below 60. There's maybe a little bit of a growth scare out there, combined with inflation rising. You're not it sounds like to me, you're not seeing any kind of a growth scare in your industrial markets. You're talking about adding capacity and.

I'll look at that.

Mike So.

Let me ask one more there is a kind of a perception out there I think in the broad market that.

<unk>.

Low $60, maybe a little bit of growth scare out there combined with inflation rising you're not it sounds like to me youre not seeing any kind of a growth scare in your industrial markets Youre talking about adding capacity in.

Speaker 5: you know, it sounds like you have some some visibility to that as well. Is that a fair characterization?

It sounds like you have some visibility to that as well is that a fair characterization.

Speaker 3: Well, I think we...

Well, yes, I think.

Yes.

We have the capacity to meet to meet demand, if we could get the supply chain.

Speaker 3: We have half the capacity to meet demand if we could get the supply chain to support us with the materials we need to...

To support us with the with the materials, we need to.

To execute right now.

The.

Speaker 3: That's a bit out of balance. So all the work is going into fixing that supply chain.

That's a bit out of balance.

So although all the work is going into.

Fixing that supply chain problem and everybody has got a problem.

Sure.

It's.

Speaker 3: I've listened to the other conference calls. They're all talking about it.

I listened to the other conference calls, they're all talking about it.

And we have it too.

Okay understood.

No.

Speaker 5: maybe one for Rob. So this is the segmentation going forward. It's going to be aerospace and industrial. And will we get kind of a, you know, the historic for, you know, FY22 and FY21 for the new segmentation?

Maybe one for Rob. So this is a segmentation going forward, it's going to be it's going to be aerospace and industrial and when we get kind of a.

The historic for.

FY 'twenty, two and FY 'twenty, one for those for the new segmentation Youll.

So you'll see in the Q that comes out this afternoon, the nine month period year over year for the aerospace defense versus industrial and then that will walk you down the line as you would expect and then at year end Youll see the full 12 months picture.

Speaker 4: You'll see in the queue that comes out this afternoon, the nine-month period year over year for the aerospace defense versus industrial, and then that'll walk you down the line as you'd expect, and then at year end, you'll see the full 12-month picture. Okay, okay.

Okay. Okay. Okay. Thanks, guys.

Speaker 1: And our next question comes from the line of Christine Lubick with Morgan Stanley . Your line is open. Please go ahead. Hey, guys. Good morning. This is a question from the line of Christine Lubick with Morgan Stanley . Please go ahead. Hey, guys.

Thank you and our next question comes from the line of Kristine <unk> with Morgan Stanley . Your line is open. Please go ahead.

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

So congratulations on closing on the Dodge deal can.

Speaker 6: So congratulations on closing on the Dodge deal. Can you provide an update in terms of how integration is going so far? I know it's a little bit early here, but what are you most focused on in the near term that we should watch out for? And is there anything unexpected that has come up so far?

Can you provide an update in terms of how integration is going so far I know, it's a little bit early here, but what are you most focused on in the near term.

That we should watch out for and is there any is there anything unexpected that has come up so far.

Well there is.

Speaker 3: Well, I would, you know, there's always the unexpected with regard to an acquisition. I would say the unexpected here is not has it been material, it's just been sort of......

The unexpected.

With regard to acquisition and.

I would say the unexpected here.

Has it been material.

It's just been.

Sort of.

Normal too.

To changes in ownership.

<unk>.

I don't.

Speaker 3: I think one of the things that we've had to deal with in the acquisition is that they basically …

I think I think one of the one of the things that we've had to deal with.

And the acquisition is that.

They basically move their entire corporate headquarters.

Another site.

Sort of.

In December .

Speaker 3: December and into January and they're still sort of settling out that site today. So that's not a normal thing that we do.

And into January and there is still sort of settling out site today. So.

That's not a normal thing that we.

Experience with an acquisition and particularly one of this size. So that was that was a little bit challenging I think also the.

Speaker 3: experience with an acquisition, and particularly one of this size. So that was a little bit challenging. I think also the just getting.

Just getting.

Our computer systems in place and.

Speaker 3: our computer systems in place and currently we have an agreement with ABB to support us with their computer systems until ours are in place. And so that's taking a lot of focus and...

Currently we have an agreement with ABB to support us with their computer systems until ours are in place and so that's that's taking a lot of.

A lot of focus and effort in beta use.

And.

We're working through it and it's making the progress it should make.

Speaker 6: Thanks, that's helpful, Color. And then, you guys provided a revenue outlook for next quarter. How should we think about the gross margin mix there because you've got your volume mix but we've also got some of the acquisition noise. How should we think about the normalized level of gross margin?

Thanks, that's helpful color and then thank.

Thank you I mean, you guys provided.

Our revenue outlook for next quarter, how should we think about the gross margin mix there because you've got your volume mix, but we've also got some of the acquisition.

Noise, how should we think about the normalized level of gross margin.

Speaker 4: So I think for next quarter, Dan, for the fourth quarter, we should expect to see gross margins be at least 1% better than what we experienced.

So I think for next quarters, it's Dan.

Fourth quarter, we should expect to see gross margins be at least 1% better than what we experienced in Q3, and then I expect to see that again in the first quarter.

Speaker 4: and then I expect to see that again in the first quarter of the following year. But we'll be able to give you more color on that on Q1.

Following year, but we'll be able to give you more color on that on Q1 and Q2 next year once we get on the conference call at the end of the year.

Speaker 4: two of next year once we get on the conference call at the end of the year. But just keep in mind that for Dodge, it's two months in there, and like RBC, it's the two worst months of the year, right? It was November and December , which is packed full of holidays and the least amount of production.

But just keep in mind that Predock, it's two months in there and like RBC. It's the two worst months of the year right. It was November and December which is packed full of holidays and the least amount of production days.

Speaker 6: I see. And Dan, just to confirm, you said that's a one percentage point increase in gross margin sequentially next quarter versus this quarter, right? That's not a year over year number? Yes.

And Dan just to confirm you said, that's a one percentage point increase in gross margin sequentially next quarter versus this quarter right, that's not a year over year number yes.

Okay, Great and then if I could squeeze in one more what are you guys seeing from our supply chain and inflation standpoint.

Speaker 6: Okay, great. And then if I could squeeze in one more, what are you guys seeing from a supply chain and inflation standpoint? What are you seeing in terms of unexpected price increases? And how are you able to, or to what degree are you able to pass it through your customers? Well, you know, supply chain for November and December kicked Dodge right in the shin. And so that's.

What are you seeing in terms of our expected price increases and how are you able to or to what degree are you able to pass it through your customers.

Well.

The supply chain.

For November and December .

Kicked dodge right in the Shin.

And.

So.

That impacted the gross margins.

I don't think anybody would expect it to see what we saw in.

But it was what it was.

We've rectified the situation in January .

Speaker 3: rectify this.

So can you guys provide a little bit more color in terms of what you had to do to rectify that and what gives you the confidence about one percentage point gross margin increase next quarter, because thats, a pretty meaningful jump, especially with the headwinds you mentioned.

Speaker 6: Wow, so can you guys provide a little bit more color in terms of what you had to do to rectify that? And you know, what gives you the confidence of that 1% point gross margin increase next quarter? Because that's a pretty meaningful jump, especially with the headwind you mentioned.

Speaker 3: Well, we did a few things. One of the things we did was increase prices.

Well.

We did a few things one of the things we did was.

Increased prices.

And the next thing we did was.

Do some account management.

That.

Was.

Select.

Could lead to significant improvements.

Great, Thanks, and I'll pass off to the next person I appreciate the time guys.

Speaker 6: Great, thanks. And I'll pass off to the next person. I appreciate the time, guys.

Thank you and our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead.

Speaker 1: Thank you. And our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead. Thanks. Good morning, everyone.

Hi, Thanks, Good morning, everyone. Good morning, Joe.

Okay. So maybe just I know you gave us some color around arrow.

Speaker 2: OK, so maybe just that I know you gave us some color around aero trends this quarter. I'm curious, like how did your MRO business trend this quarter? And then can you maybe give us a little bit more insight on the defense business? I think you guys called that out as being a little bit weaker. And I guess we're hearing from some of the other companies we cover that US defense is probably going to be a little bit weaker throughout 2022. So any color there would be helpful.

<unk> trends this quarter I'm curious how did how did your MRO business trend. This quarter and then can you maybe give us a little bit more insight on the defense business, but you guys called that out as being a little bit weaker and yes I.

I guess, we're hearing from some of the other companies we cover that U S. Defense is probably going to be a little bit weaker throughout 2022, so any color there would be helpful.

Okay. So Joe what was your first question.

Speaker 4: Probably just really about the Arrow aftermarket MRO business and how that business did this quarter. Well, we don't have much business in the Arrow aftermarket, but the Arrow aftermarket MRO business is a little bit different.

Just really about the Aero aftermarket MRO business and how that business did this quarter.

We don't we don't have much business in the Aero aftermarket.

<unk> Aero aftermarket that we do have.

Speaker 3: is doing quite well. And so that business is up and...

Is doing quite well.

So.

That business.

Is up and.

And approaching pre.

Pre pandemic levels.

There, yet, but we can see it getting there.

Speaker 3: there yet, but we can see it getting there.

It's doing very well a lot of our we'll call. It will take while aftermarket is really really aircraft distribution and that aircraft distribution is through.

Speaker 3: very well. A lot of what they call aftermarket is really aircraft distribution. That aircraft distribution is both aftermarket and also the aircraft distribution supplies small,

As both aftermarket.

Aftermarket and also the aircraft's distribution.

<unk> small.

And maybe not so small.

Subcontractors to the major builders.

And so.

Theyre going to wax and wane with build rates.

Got it that makes sense and what about on the defense side, just the commentary around U S effect.

Speaker 2: Got it. That makes sense. What about on the defense side? Is the commentary around US defense?

Speaker 3: You know, the defense business, you know, we have pockets of weakness and pockets of great strength.

The defense business.

We have we have.

Pockets of weakness pockets of great strength.

And.

And normally where we have.

And where we have pockets of great strength, we have very complex products.

Speaker 3: and where we have pockets of great strength, we have very complex products.

Speaker 3: that are not easy to make, and that's why they come to us to make them.

That are not easy to make and that's why they come to us to make them.

Speaker 3: Sometimes they don't go out the door when they're supposed to go out the door, according to our plan.

And sometimes they don't go out the door when theyre supposed to go out the door. According to our plan.

Speaker 3: That's what happened in the quarter, and we expect to rectify a good part of that.

And Thats what happened in the quarter and we expect to rectify a good part of that.

In the fourth quarter.

Speaker 2: on it. Okay, that's helpful. And maybe one last one for me, being the new person on the block covering you guys. I'm just curious, just in terms of the...

Got it Okay. That's helpful and maybe one last one for me.

<unk> being the new person on the block covering you guys I'm just curious just in terms of the.

Speaker 2: disclosures and now that you've got industrial and aero, much bigger businesses, is there any thought around providing a little bit more detail granularity around the margins of these businesses so we can see the next impact going forward a little bit easier?

Disclosure is in now that you've got.

Industrial and Aero.

Much bigger businesses.

Is there any thought around providing a little bit more detail granularity around like the margins in these businesses. So we can see kind of like the mix impact going forward.

Im a little bit easier.

Well if you if you could kind of guarantee our competition wouldn't read that report, we would be happy to give it to you of it.

Speaker 3: Well, if you could kind of guarantee our competition wouldn't read that report, we would be happy to give you a chance to read that report.

Speaker 3: You know, it's, you know, it's, it's, it's.

Okay.

Sure.

Yes.

Pretty it's pretty confidential.

Yes, no guarantee that.

Speaker 2: Yeah, I can guarantee that. I'm sure they'd be interested in it.

I'd be interested in it.

Speaker 4: You will at least get within the segment footnote, you'll get the definition of the aerospace defense versus industrial, and then we will have the gross margins for each of the segments as you'd expect. So that'll be in the queue. Okay, cool Before it gets too thick.

You will at least get within the segment footnote Youll get the definition of the aerospace defense versus industrial and then we will have the gross margins for each of the segments. As you would expect so that will be in the queue.

Okay, great. Thanks, guys I'll pass it on thank you.

Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one and our next question comes from the line of Michael <unk> with.

Speaker 1: Thank you and again ladies and gentlemen if you have a question at this time please press star then 1. And our next question comes from the line of Michael Simoli with Truist Securities. Your line is open. Please go ahead.

<unk> Securities. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions I guess, one first it looks like looking at the segment level data for industrial and Aero on the trailing basis, you've made some adjustments to last year's number what moved out of.

Speaker 2: Hey, good morning, guys. Thanks for taking the questions. I guess one first, it looks like looking at the segment level data for industrial on aero on the trailing basis, you made some adjustments to last year's number. What moved out of, I guess, the industrial segment and into aerospace?

I guess, the industrial segment and into aerospace.

Speaker 4: The biggest component to move Mike was the marine business. The marine business was historically classified with an industrial, but it's a defense product, so it was moved over with aerospace and defense.

The biggest component of moves to move Mike was the marine business right. The marine businesses historically classified within industrial but its a defense.

So it was moved over with aerospace and defense.

Okay got it.

Speaker 7: Um, okay, that makes sense. And then are you guys planning to give us any more detail on, you know, ongoing costs here for modeling purpose? I mean, I know you have the

Okay that makes sense and then are you guys planning to give us any more detail on.

Ongoing costs here for modeling purpose I mean, I know you have the.

Speaker 7: the transaction costs, you've spelled out the amortization, but

The transaction costs, you've spelled out the amortization, but do you have an expectation of what we can expect for integration costs.

Speaker 7: Do you have an expectation of what we can expect for integration costs, you know, the full sort of amortization? Were there any other fair value step ups or do you plan to disclose that just to kind of help us with modeling here?

Full short of amortization were there any any other fair value step up sure.

We plan to disclose that just kind of help us with modeling here.

Speaker 4: Yeah, I mean, as we mentioned earlier, you know, we've got enough about another 6.8 million in the step up of amortization of the inventory that will come out in the next quarter. You know, we've incurred, I would say that

Yes.

As we mentioned earlier, we've got about another $6 8 million and the step up of amortization of the inventory.

That will come out in the next quarter.

We've incurred I would say that.

The majority of the onetime acquisition cost there will still be I'd say half a million to $1 million of additional costs in the fourth quarter kind of one time costs, there and then the TSA cost.

Speaker 4: majority of the one-time acquisition costs, there will still be, you know, I'd say half a million to a million of additional costs in the fourth quarter, kind of one-time cost there. And then the TSA costs

We're probably expecting another $4 5 million next quarter and those.

Speaker 4: probably expecting another $4.5 million next quarter. And those are bridged out over the 12 months after the acquisition close date of 11-1. And they'll slowly fall off, so we'll have more color to offer on the next call.

Bridged out over the 12 months after the acquisition close date of 11, one and it will slowly fall off so we'll have more color to offer on the next call and depreciation and amortization.

Speaker 4: amortization is going to be just under 28 million next quarter.

$110 million, that's right. So the depreciation and amortization is going to be just under $28 million.

Next quarter, Okay total okay.

Speaker 7: Got it. Got it. And are you guys, you know, when you announced this, you talked about a seven to eight dollar, you know, EPS range, I guess, cash EPS. I guess I've never seen anybody add back depreciation. And if I.

Got it got it.

Are you guys. When you announced it you talked about seven to $8.

EPS range, I guess cash EPS, I guess I've never seen anybody add back depreciation and if I did an apples to apples I mean, you guys did $7 15.

Speaker 7: did an apples to apples. I mean, you guys did seven dollars and fifteen cents in fiscal 20, adding back depreciation, adding back stock comp. I mean, it seems like that.

Fiscal 'twenty, adding back depreciation, adding back stock comp I mean, it seems like that that's.

Speaker 7: That's seven to eight. You know, you know, again, adding back depreciation and you're trying to get a cash number, but you probably should deduct a CapEx.

That seven to eight.

Again, adding back depreciation I know youre trying to get a cash capex cash number, but probably should deduct the capex.

Speaker 7: Almost seems like it's a free cash flow number. I mean, what's the I've just never seen that before just wondering what the thought process there was

It almost seems like it's a free cash flow number I mean whats the gist.

Just never seen that before just wondering what the.

Thought process there.

Speaker 4: It's just our view of cash EPS. So we're just taking our net income available to shareholders and if we didn't have these non-cash items tax-effective, what would be the cash EPS number? So we define it in the press release. We gave you a breakdown exactly how it's calculated. And it's just a way that we're measuring our performance on our cash EPS.

Yeah, just Dan. This is just our view of cash EPS. So we're just taking our net income available to shareholders and if we didn't have.

These noncash items tax effective what would be the cash EPS number. So we define it in the press release, we gave you a breakdown of exactly how it's calculated.

It's just the way that we're measuring our performance on our cash EPS number.

Thank you and our next question comes from the line of Steve Barger with Keybanc capital markets. Your line is open. Please go ahead hey, good.

Speaker 1: Thank you. And our next question comes from the line of Steve Barger with KeyBank Capital Markets. Your line is open. Please go ahead.

Speaker 8: a good morning guys sorry i got on the call a little late so hopefully this isn't redundant but

Good morning, guys.

Sorry, I got on the call little late so hopefully this isn't redundant but.

Speaker 8: Trailing 12 month revenue for Dodge was around $620 million, if I'm remembering right. And I think that's what we basically tracked to this quarter for the two month contribution. How should we think about organic growth on that trailing 12 month base or trailing quarter base in 4Q? And how does that compare to role organic for industrial?

Trailing 12 month revenue for Dodge was around $620 million, if I'm remembering right.

And I think Thats, what we basically track to this quarter for the for the two months contribution how should we think about organic growth on that trailing 12 month base or trailing quarter base in <unk> and how does that compare to roll organic for industrial.

Well.

I think I think their organic growth is too.

Speaker 3: I think their organic growth is to some extent muted by supply chain. And their organic growth could be...

Some.

Extent muted.

<unk> supply chain.

And their organic growth could be.

Sort of where it rolls organic growth is.

We don't have the kind of supply chain issues that they have we're a little bit more vertically integrated.

Speaker 3: that they have were a little bit more vertically integrated. And as a result of that, we avoid some of that.

And as a result of that we avoid some of that.

So.

Sure.

Speaker 3: Their organic growth will certainly be up double digits. They'll probably be in the low double digits, but it could be better.

There are organic growth will certainly be up double digits, probably be in the low double digits, but it could be it could be better than that if they.

If they can get on the other side of the supply chain issues.

Speaker 8: And did you say what you expect for your, you know, the legacy business, for lack of a better term, will do an organic growth for Q?

And did you say what you expect for your.

The legacy business for lack of a better term, we'll do in organic growth for <unk>.

<unk>.

We didn't say it but.

Would you like to.

Yes.

Speaker 3: Well, it's going to be in the upper single digits.

Well, it's going to be in the upper single digits.

That's what we're modeling.

So so Dodge will actually do better I thought you said low double digit there and youre, saying upper single digits for your.

Speaker 8: So, Dodge will actually do better. I thought you said low double digit there and you're saying upper single digits for the legacy business? Yeah.

Legacy business, yes, okay.

Okay.

Speaker 8: And how are you seeing growth for, since they have so much aftermarket exposure, what's their aftermarket growth rate versus OEM? Is that growing faster for them?

And how are you seeing growth for us since they have so much aftermarket exposure and what's their aftermarket growth rate versus OEM is that is that growing faster and faster for them.

Yeah.

Speaker 3: It's sort of an 80-20 thing where 80% of their business is what they call aftermarket or aftermarket, or rather a & the most commonly accepted versus most commonly sold,umews talk

It's sort of an 80 20 thing where 80% of their businesses.

What they call aftermarket or.

Distribution market.

Speaker 3: market. So it's so biased towards that 80 percent that...

So it's so biased towards that 80%.

The 20%.

It doesn't.

Present.

Speaker 3: create much sway and certainly the...

Much sway and.

Certainly the.

The difficulty right now is servicing that 80% and servicing it well.

Speaker 3: The difficulty right now is servicing that 80 percent.

<unk>.

Speaker 8: And I know in general, Dodge has good margins, but are there any product lines you need to reprice or exit there now that you've gotten in to look at the whole portfolio?

And I know in general Dodge has good margins, but are there any product lines, you need to reprice or exit there now that you've gotten in to look at the.

At the whole portfolio.

Well the short answer there is yes.

Is that a.

Sizable portion of the portfolio or is that pretty small.

Speaker 8: sizable portion of the portfolio or is that pretty small?

Yes.

It's not small.

Speaker 3: It's not small, but it's relative to the size of Dodge, it's not material either.

Relative to the size of that just not material either.

Right.

And.

Speaker 8: And now that you've been through the factories more in detail, do you see opportunities for automation or robotics to drive some efficiency or productivity, or are they pretty well optimized in terms of that kind of historical capex for? Right here.

Now that you've been through the factories more in detail do you see opportunities for automation and robotics to drive some efficiency or productivity or are they pretty well optimized.

In terms of that kind of historical capex for for.

<unk> programs.

Speaker 3: Um, you know, for the most part, I would say, you know,

For the most part I would say.

75% of their factories are pretty pretty optimized there's still 25% that that.

Speaker 3: 75% of their factories are pretty optimized. There's still 25% that...

That.

That can do better than that basically they just haven't gotten too.

They've been working through at one factory at a time, so there's still some upside there.

Speaker 3: they've been working through it one factory at a time. So, there's still some up.

Got you and just last one I know, there's always a lot of charges and adjustments when you're integrating a big acquisition.

Speaker 8: Gotcha, and just last one, I know there's always a lot of charges and adjustments when you're integrating a big acquisition, but just I guess, you know, supply chain notwithstanding, when would you expect that we start to see what we can consider more normal free cash flow from the complete portfolio?

But just I guess supply chain notwithstanding when would you expect that we start to see what we can consider more normal free cash flow from the complete portfolio.

I would say is as we enter into the first quarter of next year, you'll start to see it.

Speaker 9: I would say as we enter into the first quarter of next year, you'll start to see it.

Yeah, and I think Q4 will be pretty clean too, yes. So I think you should.

Speaker 4: and i think you for be pretty clean too uh... so i i think you should uh... yet

Yeah see pretty clean slate in Q4, Okay and can you remind us what do you expect the entire portfolio will run in terms of our free cash flow margin or just what you convert free cash flow from revenue.

Speaker 8: And can you remind us, what do you expect the entire portfolio will run in terms of a free cash flow margin or just what you convert free cash flow.

Speaker 4: We haven't given that number, but we definitely will at the end of May when we're talking about fiscal year 2023 and we have a full year of Dodge baked into our forecast and a full year of RBC baked in.

Yeah, we haven't given that you haven't given that number but.

We definitely will at the end of May when we're talking about fiscal year 2023, and we have a full year Dodge baked into our forecast and a full year of RBC baked in.

Alright, guys. Thanks.

Speaker 1: Thank you and we have a follow-up question from the line of Pete Skibitsky with Olympic Global. Your line is open please go ahead.

Thank you and we have a follow up question from the line of Peter Keith with Alembic Global Your line is open. Please go ahead.

Yes, just a couple of other modeling questions.

Speaker 5: Yeah, just a couple other modeling questions. The inventory step up that you gave for the third quarter and the fourth quarter, does that that just stay in the income statement for, you know, kind of that midterm kind of kind of time horizon for that six to 7 million type of a level? Nope, that'll be it after the fourth quarter. We should be all set with that one.

The inventory step up that you gave for the third quarter and the fourth quarter does that does that just stay in the income statement for kind of that mid term time kind of time horizon for that.

Six to 7 million type of level.

That'll be it after the fourth quarter, we should be all set with that one.

Speaker 5: Okay, that's gone. In terms of, you guys put out that adjusted EBITDA margin goal of, I think it was in the mid-30s, I believe. Do you have a sense of what the components of that are?

Okay that's gone.

Just in terms of you guys put out that adjusted EBITDA margin goal.

I think it was in the mid Thirty's I believe can you do you have a sense of what the components of that or is it.

Speaker 5: half and half gross margin, SG&A improvements, or any maybe you could walk us through a little bit of how you intend to reach those goals.

Half and half gross margin SG&A improvements or any maybe you could walk us through a little bit of how you intend to reach those goals.

I don't have the exact math would tell you that but I can tell you is that as Dan alluded to we're expecting steady strong gross margin improvement in the coming quarters, which is going to bleed right into that and then the SG&A you can see the consolidated SG&A this quarter at 16% as we start to.

Speaker 9: I don't have the exact math to tell you, but what I can tell you is that as Dan alluded to, we're expecting steady, strong gross margin improvement in the coming quarters, which is going to bleed right into that. And then the SG&A, you can see the consolidated SG&A this quarter at 16% as we start to...

Speaker 9: feel another full quarter of dodge in there, the SG&A as a percentage of sales will continue to bleed down to the EBITDA line and really benefit that number.

<unk> another full quarter of Dodge and there the percentage of SG&A as a percentage of sales will continue to bleed down to the EBITDA line and really benefit that number so.

Speaker 4: that kind of direction will start to take us where we want to get to. And Pete, I think you're referring to also the synergies that we were anticipating on the business and I'd say that was probably broken down 60-40, 60 impact in sales, COGS, and 40 impact in sales.

That kind of Directionally, what will start to take us, where we want to get too and.

Pete I think referring to also the <unk>.

The synergies that we were anticipating on the business and I'd say that was probably broken down $60 $40 60 impact in sales Cogs 40 impact in.

Speaker 4: S, G and A. And all those programs we've started, but it's only been two months in, right? So, but I think we're more than well on target for what we thought fiscal year 2023 would be.

SG&A.

And all of those programs, we've started but it's only been two months or so.

I think we're more than well on target for what we thought fiscal year 2023 would be.

Speaker 4: on our synergies. So I think we'll probably be ahead of the game for what we anticipated for the first year.

On our synergies so I think we'll probably be ahead of the game for what we anticipated for the first year synergies and we'll report more on that on the fourth quarter. When we have more firm numbers and more to talk about.

Speaker 4: And we'll report more on that on the fourth quarter when we have more firm numbers and more to talk about.

Great I appreciate the color. Thank you.

Thank you and our next question comes from the line of Kristine <unk> with Morgan Stanley . Your line is open. Please go ahead hey.

Speaker 1: Thank you. And our next question comes from the line of Christine Leibig with Morgan Stanley . Your line is open. Please go ahead.

Speaker 6: Hey guys, thanks for taking my follow up. Mike, earlier you mentioned my question about unexpected things that you found at Dodge. I guess like with the supply chain issue, the inflation issue being solved already and now you guys have had time to look at all the factories thoroughly.

Hey, guys. Thanks for taking my follow up.

Mike earlier, you mentioned.

My question about unexpected things that you've found at Dodge I guess like with.

The supply chain issue that inflation issue being solved already.

And now you guys have had time to look at all the factors thoroughly.

Is there a reason to change or is there a change.

Speaker 6: Is there a reason to change or is there a change in terms of your expected run rate synergy of 70 to 100 million annually by the fifth year of the acquisition close? Do you see potential upside to that number or downside to that number from what you've seen so far? Do you see potential upside to that number or downside to that number from what you've seen so far?

In terms of your expected run rate synergy of $70 million to $100 million annually by the fifth year of the acquisition closed do you see potential upside to that number or or downside to that number from what you've seen so far.

Well.

Speaker 3: Well, you know, when we've gone through the factories and got...

When we've gone through the factories.

And got a sense of Av.

Where the where the where the easy synergies are and so we've kind of want to line those up first.

Speaker 3: where the easy synergies are, so we kind of want to line those up first. I think the consideration...

I think the consideration here is if we decide if we decide to use <unk>.

Speaker 3: traditional RBC classic manufacturing capacity, what is the best use of that capacity?

Traditional RBC classic manufacturing capacity.

What is the best use of that capacity is it is it too.

Is it to improve.

The gross margin which is.

Theres, some very obvious things that we could do if we embarked upon that path.

Okay.

Speaker 3: that we identified. But I think another alternative and another consideration.

That we identified.

And I think that I think.

Another alternative and in another consideration is there is some growth opportunities in <unk>.

Some of their products.

Speaker 3: they had a more cost effective way of getting those products to market. Right now those products are somewhat throttled based upon cost price pressure.

Had a more cost effective way of getting those products to market right.

Right now those products are somewhat throttled based upon.

Cost price pressure.

And so.

Okay.

Promote them lightly.

And there's a lot of upside in the marketplace.

Yes.

If those products could be.

<unk>.

With a better cost structure so yes.

Speaker 3: So yeah, I mean, do we want to chase it?

Yes.

Do we want to do we want to chase the expansion in gross margin or do you want to chase the expansion in sales.

Speaker 3: expansion in gross margin or do you want tasty expansion in sales?

Speaker 3: Because once you commit to one of those paths.

Once you once you commit to one of those paths.

Hugh.

Speaker 3: commit to the other one. So we're trying to make sure that we make the best decision possible on

Commit to the other one so we're trying to we're trying to make sure that we use.

Make the best decision possible.

What we can do to.

Improve the operating results of the entire company.

I see I mean does that have that right is either through the gross margin expansion or revenue growth you're going to get some of these synergies either through cost synergies. The revenue synergies. So my my my next question would be on a net basis is that 70 to 100.

Speaker 6: I see. I mean the net of that is either through the gross margin expansion or revenue growth, you're going to get some of these synergies either through cost synergies or revenue synergies. So my net question would be on a net basis is that 70 to 100.

Doable or is it looking like you could do a lot better.

Speaker 6: doable or is it looking like you could do a lot better?

Well.

<unk>.

If I say, we're going to do a lot better you're going to make a 200.

Speaker 6: If I say we're going to do a lot better, are you going to make it 200? Well, I've covered you guys for a long time and you always meet expectations, so I'm just trying to find where that happy medium is. And maybe it's too early, you know, but it kind of hurts to try and ask, right?

Well I've covered you guys for a long time and you always beat expectations. So I'm, just trying to find out where that happy medium is but.

And maybe it's too early.

You can't hurt it kind of hard to try and ask right.

Yeah.

Speaker 3: I think let's leave the goalposts where they are right now. We are still working on that.

Yes, I think let's let's let's leave the Gulf Coast.

What are they are right now.

We are.

We're still working on the first phase of this.

Great. Thanks, guys. Thanks Christine.

Speaker 1: Thank you and our next follow-up question comes from the line of Michael Siramoli with Truist Securities. Your line is open, please go ahead.

Thank you and our next follow up question comes from the line of Michael <unk> with <unk> Securities. Your line is open. Please go ahead.

Speaker 7: Hey guys, just one more on the supply chain. I know you talked about initially at Dodge, you know, the 200 million of component costs per year. Has any of the

Hey, guys just two.

One more on the supply chain I know I know you talked about.

Initially at Dodge the $200 million of component cost per year.

Sure.

Tightness and bottlenecks in supply chain, giving you the opportunity to accelerate.

Speaker 7: tightness and bottlenecks in supply chain, giving you the opportunity to accelerate. You know, it sounded like initially you were going to let contracts sort of run their course. But, you know, presumably with all suppliers dealing with extended lead times and higher prices, have you thought about accelerating the insourcing of those components? Well, you know that

It sounded like initially you were going to let contracts sort of run their course, but presumably with all suppliers dealing with extended lead times and higher prices have you thought about accelerating.

The in sourcing of those components.

Well the major the major.

Issue.

Speaker 3: Issues aren't anything that we produce. I mean, we don't make steel. And right now, the industry has a real problem.

Issues or anything that we produce I mean, we don't we don't make steel.

Right now the industry is a real problem getting steel.

Speaker 3: so everywhere at RBC.

So everywhere at RBC.

To a lesser extent Dodge, we're moving lead times out because.

Speaker 3: lesser expense dodge, we're moving lead times out because we need to hedge our backlogs with regard to when we're going to get to be able to produce the product. So, you know, steel is, steel, um,

We need.

We need to hedge.

Hey, Joe.

Our backlogs with regard to.

When we when we're going to get steel since the product so.

Steel is.

Steel.

In some cases has doubled.

And.

And so it's.

It's something that.

I think the entire industry is wrestling with right now.

Got it.

Alright, great. Thanks, guys.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to Dr. Hartnett for any further remarks.

Speaker 1: Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Dr. Hartnett for any further remarks.

Okay well.

I appreciate your attention and your comments and questions.

Speaker 3: Appreciate your attention and your comments and questions this meeting. We look forward to seeing you again soon.

This meeting in.

And we look forward to speaking with you again I think it's late May.

By the time, we do this again and we will have much.

Speaker 3: by the time we do this again and we'll have much.

Much more to speak about and.

Speaker 3: much more to speak about and we expect we have some pretty good news.

And we expect we have some some pretty good news by the end of May So thank you and good day.

This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.

[music].

Speaker 1: Good day and thank you for standing by. Welcome to the RBC bearing fiscal 2022 third quarter conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during this session you'll only press star 1 on your telephone.

Good morning, and thank you for joining us for RBC bearings fiscal 2022 third quarter earnings Conference call.

Speaker 7: Morning, and thank you for joining us for RBC Varian's fiscal 2022 third quarter earnings conference call. With me on the call today are Dr. Michael J. Hartnett, Chairman, President, and Chief Executive Officer, Daniel A. Bergeron, Director, Vice President, and Chief Operating Officer, and Robert Sullivan, Vice President and Chief Financial Officer.

With me on the call today are Dr. Michael J, Hartnett, Chairman, President and Chief Executive Officer, Daniel a Bergeron Director, Vice President and Chief operating Officer, and Robert Sullivan, Vice President and Chief Financial Officer.

Speaker 2: 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.

Before beginning todays 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 995.

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

Speaker 7: Actual results may differ materially from those projected or implied due to a variety of factors.

Speaker 7: We refer you to RBC Barring's recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results in financial conditions.

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.

Speaker 7: These factors are also described in greater detail in the press release and on the company's web.

These factors are also described in greater detail in the press release and on the Companys web.

Speaker 7: 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 turn the call over to Dr. Hartman.

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 turn the call over to Dr. Hartnett.

Okay.

Speaker 3: Okay, thank you, Mike, and good morning to all, and welcome.

Thank you Mike.

Good morning to all and welcome.

Speaker 3: This is our first quarterly report after completing the acquisition of Dodge Industrial Products Division from Isaiah Brown, Bavaria, Switzerland on November 1, 2022.

This is our first quarterly report after completing the acquisition of Dodge Industrial products Division from let's say, a brown, but area of Switzerland.

On November one 2022.

Two months of <unk> operational performance are included in this report.

Speaker 3: Two months of DIGE operational performance are included in this report.

But three months of financial drag was experienced as we work through the acquisition of mechanics through October and acquired the company in November one.

Speaker 3: three months of financial drag was experienced as we worked through the acquisition mechanics through October and acquired the company.

We are pleased and excited to welcome the Dutch businesses and teams into RBC bearings family.

Speaker 3: We are pleased and excited to welcome the Dodge businesses and teams into RBC bearings family and look forward

And look forward to and can fully.

Visualize a long fruitful and mutually beneficial relationship for our investors employees customers and suppliers.

Speaker 3: visualize a long, fruitful, and mutually beneficial relationship for our investors, employees,

Speaker 3: and Dodge businesses materially strengthen our industrial offering.

The Dutch business has materially strengthened our industrial offering.

This positions us very favorably relative to a large and important base of customers with an exciting new platform of products and I'll talk more about this later.

Speaker 3: us very favorably relative to large and important basic customers.

Speaker 3: with an exciting new platform of products. And I'll talk more about.

In summary, RBC bearing net sales for the third quarter of fiscal 2022 were $267 million versus $145 9 million for the same period last year and.

Speaker 3: In summary, RBC bearing net sales for the third quarter of fiscal 2020.

Speaker 3: $267 million versus $145.9 million for the same period last year, an increase of 83 percent.

An increase of 83%.

<unk> sales were $110 million over the two month period.

For the third fiscal quarter of 2021 sales of industrial products represented 65% of our net sales with aerospace products.

Speaker 3: In the third fiscal quarter of 2021, sales of industrial products represented 65 percent of our net sales with aerospace products representing 35 percent of the total sales

Representing 35%.

Adjusted gross margin for the quarter was 100 $303 million or 37, 6% of net sales.

Speaker 3: 100.3 million or 37.6% of net sale.

This compares to $56 4 million or 38, 7% for the same period last year.

Speaker 3: compares to 56.4 million or 38.7% for the same period last year. Adjusted operating income was 44.8 million, 15.8 %

Adjusted operating income was $44 8 million 16, 8% of net sales compared to last year's $27 9 million.

And 19, 1% of net sales.

Speaker 3: EBITDA for the was 71.4 million or 26.7% of net sales compared to 41 million and

EBITDA for the was $71 4 million or 26, 7% of net sales compared to $41 million and 28, 1%.

A 72, 8% increase.

As others have reported and we concur the industrial demand.

Today is through the roof.

All industrial sectors, we serve are performing.

Demand for industrial products in many cases exceeds our capacity.

Mostly as a result of supply chain constraints, particularly at the Dodge businesses. We have worked through these constraints with vigor over the past nine months and see improvements ahead.

It's a problem that will linger and continue to buy at our ankles.

At least for the first half of fiscal 2023.

A sample of important sectors, we serve.

With their strengths are.

Mining sand and gravel.

Taconite, both surface and subsurface.

Steel shortages today drive.

Substantial demand here for our products.

Construction is strong.

Speaker 3: Instruction is strong. Aggregate is a very strong outlet for agencies. Currently, in 18 months, we expect the increase in order flow from the infrastructure.

Aggregate is a very strong outlook for <unk>.

Currently and in 18 months, we expect the increase in order flow from the infrastructure Bill for highways and bridges, which has been.

The typical lead lag.

The equation in that in that sector.

Food and beverage proteins beef cattle, Turkey chicken.

<unk>.

Continues to grow with increased demand for new our new product offerings.

Speaker 3: grow with increased demand for our new product.

Speaker 3: Oil and gas is very strong and I'm sure everyone knows the story here when you fill up your tank.

Oil and gas is very strong and I'm sure everyone knows the story here when you fill up your tank.

And warehousing.

Speaker 3: great rush to build fulfillment centers to support the last mile strategies under

Great rush to build fulfillment centers to supply the last mile to support the last mile strategies underway.

Speaker 3: by Amazon, Tractor Supply, Home Depot, Walmart, Target, etc. Our products are well integrated into these new businesses.

By Amazon tractor supply home depot, Walmart target et cetera.

Our products are well integrated entities into these.

New businesses.

Semiconductor machinery, it's very strong.

Billions for new plants.

Speaker 3: have been announced by Intel, Samsung, Taiwan Semiconductor and many others. And industrial distribution as a result of all the demand for the previous sectors mentioned continues to be strong.

<unk> has been announced by Intel Samsung.

Taiwan semiconductor and many others.

Industrial distribution as a result of all.

All the demand for the previous sectors mentioned continues to be strong.

That sector is consolidating.

To summarize we are making as much as we can.

Every site, where we have index and industrial production.

Turning now to aerospace and defense, our third quarter of fiscal 'twenty, two net sales were up by three 5%.

Led by aircraft OEM, which is up by 10, 5%.

Weak defense sales held down the expansion these can be lumpy quarter to quarter, depending upon build schedules and milestone achievements in our plants.

But we expect these to normalize by the end of the year.

<unk> also postponement of the 787 production Dampens the OEM right.

At the 10, 5% previously mentioned.

Our backlog for this sector is up over $80 million and we are.

We're planning for a major volume expansion, beginning next year as Boeing and Airbus expand build rates for their single aisle planes and Dreamworks Dreamliner production resumes.

Important airframes in our lineup are the 737 Max.

Speaker 3: The important airframes in our lineup are the 737 MAX, 787, 777X, the 777, 777X, 777X,

787, Triple seven ex the triple seven.

<unk> hundred 20, and the <unk> hundred 50.

Were visited often by the major plane builders to make sure that we have enough capacity in our plants to service the demand.

Speaker 3: We're visited often by the major plane builders to make sure that we have enough capacity in our plants to service the

Yes.

Ahead in the <unk>.

Succeeding quarters.

So.

Speaker 3: Regarding our fourth quarter, we're expecting sales of between 340 and 350.

Regarding our fourth quarter, we're expecting sales of between 340 and $350 million in total.

Speaker 3: And I'll now turn the call over to Dan and Rob for more details on the...

And I'll now turn the call over to Dan and Rob for more details on the financial performance.

Speaker 9: Thank you, Mike. Expanding on gross margin that Mike already covered gross margin for the third quarter of fiscal 2022 was affected by a $7.0 million inventory step up related to the dodge acquisition.

Mike expanding on gross margin that Mike already covered gross margin for the third quarter of fiscal 2022 was affected by a 7.0 million inventory step up related to the Dodge acquisition.

Speaker 9: Fourth quarter fiscal 2022 gross margin is expected to be affected by a $6.8 million inventory step up related to that.

Fourth quarter fiscal 2022 gross margin is expected to be affected by a $6 $8 million inventory step up related to the acquisition.

Speaker 9: SG&A for the third quarter of fiscal 2022 was 43.2 million compared to 25.7 million for the same period last year. Excluding 12.0 million in costs from the Dodge business, the increase is primarily associated with an increase in personnel costs year over year. As a percentage of net sales, SG&A was 16.2% for the third quarter of fiscal 2020.

SG&A for the third quarter of fiscal 2022 was $43 2 million compared to $25 7 million for the same period last year.

Excluding 12.0 million in costs from the Dodge business. The increase is primarily associated with an increase in personnel costs year over year as a percentage of net sales SG&A was 16, 2% for the third quarter of fiscal 2022 compared to 17, 6% for the same period last year.

Speaker 9: compared to 17.6% for the same period last year.

Other operating expenses for the third quarter of fiscal 2022 totaled $35 8 million compared to $3 3 million for the same period last year.

Speaker 9: Other operating expenses for the third quarter of fiscal 2022 totaled $35.8 million compared to $3.3 million for the same period last year.

Speaker 9: third quarter of fiscal 2022, other operating expenses included $23.5 million of costs associated with the dodge acquisition, $12.1 million of amortization of

Speaker 9: 0.2 million of other items. Other operating expense for the same period last year consisted mainly of $2.6 million of amortization of intangible assets, $0.5 million of restructuring costs and related items, and $0.2 million of other costs.

Other operating expense for the same period last year consisted mainly of $2 6 million of amortization of intangible assets <unk>.

<unk> 5 million of restructuring costs and related items and zero point $2 million of other costs opt.

Operating income was $14 4 million for the third quarter of fiscal 2022 compared to operating income of $26 5 million for the same period in fiscal 2021.

Speaker 9: Operating income was 14.4 million for the third quarter of fiscal 2022 compared to operating income of 26.5 million for the same period of fiscal 2020.

On an adjusted basis operating income would have been $44 8 million for the third quarter of fiscal 2022 compared to adjusted operating income of $27 9 million for the third quarter of fiscal 2021.

Speaker 9: On an adjusted basis, operating income would have been $44.8 million for the third quarter of fiscal 2022, compared to adjusted operating income of $27.9 million for the third quarter of fiscal 2022.

Speaker 9: Other non-operating expense was expensive 1.4 million for the third quarter of fiscal 2022 compared to income of 0.1 million for the same period last year. For the third quarter of fiscal 2022, other non-operating expenses were comprised of 0.9 million of charges associated with the elimination of a domestic debt facility.

Other nonoperating expense was expense of $1 4 million for the third quarter of fiscal 2022 compared to income of <unk> 1 million for the same period last year for the third quarter of fiscal 2022. Other non operating expenses were comprised of <unk> 9 million of charges associated with the elimination of a domestic depth.

<unk> and <unk> 4 million of post retirement benefit costs, and <unk> 1 million of other items.

Speaker 9: $0.4 million of post-retirement benefit costs and $0.1 million of other items.

For the third quarter of fiscal 2021 other non operating income was comprised of <unk> 5 million of gains on marketable securities partially offset by <unk> 2 million of foreign exchange loss and zero point $2 million of other items.

Speaker 9: For the third quarter of fiscal 2021, other non-operating income was comprised of $0.5 million of gains on marketable securities, partially offset by $0.2 million of foreign exchange loss and $0.2 million of other items.

Speaker 9: third quarter of fiscal 2022, the company reported a net loss of 0.1 million compared to net income of 21.6 million for the same period last year. On an adjusted basis, net income was 26.1 million for the third quarter of fiscal 2022 compared to 22.7 million for the same period last year.

For the third quarter of fiscal 2022, the company reported a net loss of <unk> 1 million compared to net income of $21 6 million for the same period last year.

On an adjusted basis net income was $26 1 million for the third quarter of fiscal 2022 compared to $22 7 million for the same period last year.

Net loss available to common stockholders for the third quarter of fiscal 2022 was five negative $5 8 million compared to net income of $21 6 million for the same period last year.

Speaker 9: Net loss available to common stockholders for the third quarter of fiscal 2022 was negative 5.8 million compared to net income of 21.6 million for the same period last year.

Speaker 9: On an adjusted basis, net income available to common stockholders for the third quarter of fiscal 2022, with 20.3 million compared to 22.7 million for the same period last year.

On an adjusted basis net income available to common stockholders for the third quarter of fiscal 2022 was $20 3 million compared to $22 7 million for the same period last year.

Adjusted cash net income available to common stockholders for the third quarter of fiscal 2022 was $42 2 million compared to $33 9 million for the same period last year.

Speaker 9: Adjusted cash net income available to the common stockholders for the third quarter of fiscal 2022 was 42.2 million compared to 33.9 million for the same period last year.

Speaker 9: diluted earnings per share with negative 20 cents per share for the third quarter of fiscal 2022 compared to 86 cents per share for the same period last year.

Diluted earnings per share was negative <unk> 20 per share for the third quarter of fiscal 2022 compared to 86 per share for the same period last year.

Speaker 9: On an adjusted basis, diluted EPS for the third quarter of fiscal 2022 was 70 cents per share compared to adjusted diluted EPS of 90 cents per share for the same period last year.

On an adjusted basis diluted EPS for the third quarter of fiscal 2022 was <unk> 70 per share compared to adjusted diluted EPS of <unk> 90 per share for the same period last year.

Speaker 9: That lead to cash EPS was an adjusted $1.46 per share for the third quarter of fiscal 2022 compared to $1.35 per share for the same period last year.

Diluted cash EPS and adjusted <unk>.

<unk> 46 per share for the third quarter of fiscal 2022 compared to $1 35 per share for the same period last year.

Speaker 9: Adjusted cash net income and adjusted cash earnings per share exclude non-cash expenses for depreciation and amortization of fixed and intangible assets, stock compensation, amortization of deferred financing fees, net of their income tax.

Speaker 9: We believe that adjusted cash net income and adjusted cash earnings per share are useful in assessing our financial performance by excluding items that do not affect the cash available to Commons.com.

Our financial performance by excluding items that do not affect the cash available to common stockholders.

Speaker 9: Turning to cash flow, the company generated $40.0 million in cash from operating activities for the third quarter of fiscal 2022 compared to $36.1 million for the same period last year and $133.4 million in cash from operating activities for the nine-month period of fiscal 2022 compared to $110.6 million for the same nine-month period last year.

Turning to cash flow the company generated $40 zero million dollars in cash from operating activities for the third quarter of fiscal 2022 compared to $36 1 million for the same period last year.

$133 4 million in cash from operating activities for the nine month period fiscal 2022 compared to $110 6 million for the same nine months period last year capital expenditures were $14 9 million for the third quarter of fiscal 2022 compared to $2 8 million for the same period last year.

Speaker 9: Capital expenditures were $14.9 million for the third quarter of fiscal 2022, compared to $2.8 million for the same period last year.

Speaker 9: Approximately $6.2 million of capital spending this quarter was related to the Dodge acquisition.

The proxy approximately $6 2 million of capital spending this quarter was related to the Dodge acquisition.

Speaker 9: and they were submitted post-closing purchase price adjustment costs.

And they were submitted post closing purchase price adjustment costs.

Total debt as of January one 2022 was $1 $790 million in.

Speaker 9: Total debt as of January 1st, 2022 was $1,790,000,000.

Speaker 9: cash on hand was $255.5 million. I would now like to turn the call back to the operator for the question and answer session.

And cash on hand was $255 5 million I would now like to turn the call back to the operator for the question and answer session.

Thank you if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered very wish to remove yourself from the queue. Please press the pound key.

Speaker 1: And our first question comes from the line of Pete Skabitski with Elmbic Global. Your line is open. Please go ahead. Yeah, good morning guys.

And our first question comes from the line of Pizza Kubicki with Almac.

Global Your line is open. Please go ahead.

Hey, good morning, guys.

Yes.

Mike I missed a little bit did you say Dodge contributed $100 million in sales in the quarter or 110 I missed that.

Speaker 5: Mike, I missed a little bit. Did you say Dodge contributed $100 million in sales in the quarter or $110? I missed that.

Speaker 5: I think it was 110. 110. 110. Okay, okay. And can you give us what they contributed in terms of backlogs, because backlog was up sequentially pretty meaningfully.

I think it was 110.

The one time, okay. Okay.

And can you give us what they contribute in terms of backlogs because backlog was up sequentially pretty pretty meaningfully.

I think it was about $50 million.

Okay. Okay.

So did you did your organic industrial sales rise because it.

It sounds like everything is going great guns, but did you have any issues.

That slowed your organic industrial sales at all.

No I mean organic.

Speaker 3: industrial sales are up, everything's up.

Industrial sales are.

Our up everything is up.

Speaker 4: Yeah, our legacy RBC industrial business was up close to 26%.

Yes, our legacy RBC industrial business was up close to 26%.

Okay. Okay.

Speaker 5: I'll look at that. Mike, so let me ask one more. There's kind of a perception out there, I think, in the broad market that, you know, ISM PMI's have dipped below 60. There's maybe a little bit of a growth scare out there, combined with inflation rising. You're not it sounds like to me, you're not seeing any kind of a growth scare in your industrial markets. You're talking about adding capacity and.

Ill look at that.

Mike So.

Let me ask one more there is a kind of a perception out there I think in the broad market that.

<unk> dipped below $60, maybe a little bit of a gross scare out there combined with inflation rising you're not it sounds like to me youre not seeing any kind of a growth scare in your industrial markets Youre talking about adding capacity in.

It sounds like you have some visibility to that as well is that a fair characterization.

Speaker 5: you know, it sounds like you have some some visibility to that as well. Is that a fair characterization?

Well, yes, I think we.

Speaker 3: Well, I think we...

Yes.

We have the capacity to meet to meet demand, if we could get the supply chain.

Speaker 3: We have half the capacity to meet demand if we could get the supply chain to support us with the materials we need to...

To support us with the with the materials, we need to.

To execute right now.

Speaker 3: That's a bit out of balance. So all the work is going into fixing that supply chain.

That's a bit out of balance and so although all the work is going into.

Fixing that supply chain problems and everybody has their problem.

Uh huh.

It's.

Speaker 3: I've listened to the other conference calls. They're all talking about it.

I've listened to the other conference calls or they are all talking about it.

And we Havent too.

Speaker 5: Yeah, okay, I understood. And so, maybe one for Rob. So this is the segmentation going forward. It's gonna be aerospace and industrial. And will we get kind of a, you know, the historic for, you know, FY22 and FY21 for the new segmentation.

Yeah, Okay understood and so.

Maybe one for Rob. So so this is a segmentation going forward, it's going to be it's going to be aerospace and industrial.

And when we get kind of a.

Now the historic FERC.

FY 'twenty, two and FY 'twenty, one for those for the new segmentation.

Speaker 9: You'll see in the queue that comes out this afternoon, the nine-month period year over year for the aerospace defense versus industrial, and then, you know, that'll walk you down the line as you'd expect, and then at year end, you'll see the full 12-month picture. Okay, okay.

So youll see in the Q that comes out this afternoon, the nine month period year over year for the aerospace defense versus industrial and then that will walk you down the line as you would expect and then at year end Youll see the full 12 months picture.

Okay. Okay. Okay. Thanks, guys.

Thank you and our next question comes from the line of Kristine <unk> with Morgan Stanley . Your line is open. Please go ahead.

Speaker 1: And our next question comes from the line of Christine Lubick with Morgan Stanley . Your line is open. Please go ahead. Hey, guys. Good morning.

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

So congratulations on closing on the Dodge deal. Can you provide an update in terms of how integration is going so far? I know it's a little bit early here, but what are you most focused on in the near term that we should watch out for? Is there anything unexpected that has come up so far?

So congratulations on closing on the Dodge deal.

Can you provide an update in terms of how integration is going so far I know, it's a little bit early here, but what are you most focused on in the near term.

We should watch out for and is there any is there anything unexpected that has come up so far.

Well theres always the unexpected.

Well, I would, you know, there's always the unexpected with regard to an acquisition. I would say the unexpected here is not has it been material, it's just been sort of......

With regard to a acquisition and.

I would say the unexpected here.

<unk>.

Has it been material.

It's just been.

Sort of.

Normal too.

To changes in ownership.

<unk>.

I think one of the things that we've had to deal with in the acquisition is that they basically...

I don't know.

I think I think one of the one of the things that we've had to deal with.

And the acquisition is that.

They basically move their entire corporate headquarters.

Another site.

Sort of.

In December .

December and into January and they're still sort of settling out that site today. So that's not a normal thing that we do.

And into January and there is still sort of settling out that site today. So.

That's not a normal thing that we.

experience with an acquisition, and particularly one of this size. So that was a little bit challenging. I think also the just getting

<unk> with an acquisition and particularly one of this size.

That was that was a little bit challenging I think also the year just getting.

our computer systems in place and currently we have an agreement with ABB to support us with their computer systems until ours are in place. And so that's taking a lot of focus and...

Our computer systems in place and.

Currently we have an agreement with ABB to support us with their computer systems until ours are in place and so that's taking a lot of.

A lot of focus and effort in beta use and.

And.

We're working through it.

Making the progress it should make.

Thanks, that's helpful color and then.

Thanks, that's helpful, Color. And then, you guys provided a revenue outlook for next quarter. How should we think about the gross margin mix there because you've got your volume mix but we've also got some of the acquisition noise. How should we think about the normalized level of gross margin?

Thank you I mean, you guys provided.

Our revenue outlook for next quarter, how should we think about the gross margin mix. There because you have got your volume mix, but we've also got some of the acquisition.

Noise, how should we think about the normalized level of gross margin.

So I think for next quarters Dan.

So I think for next quarter's ban, for the fourth quarter, we should expect to see gross margins be at least 1% better than what we experienced.

The fourth quarter, we should expect to see gross margins be at least 1% better than what we experienced in Q3, and then I expect to see that again in the first quarter.

and then I expect to see that again in the first quarter of the following year. But we'll be able to give you more color on that on Q1.

The following year, but we'll be able to give you more color on that on Q1 and Q2 of next year. Once we get on the conference call at the end of the year.

two of next year once we get on the conference call at the end of the year. But just keep in mind that for Dodge, it's two months in there, and like RBC, it's the two worst months of the year, right? It was November and December , which is packed full of holidays and the least amount of production.

But just keep in mind that Predock, it's two months in there.

And like RBC, it's the two worst months of the year right. It was November and December which is packed full of holidays.

The least amount of production days.

And Dan just to confirm you said, that's a one percentage.

And Dan, just to confirm, you said that's a one percentage point increase in gross margin sequentially next quarter versus this quarter, right? That's not a year over year number? Yea.

The increase in gross margin sequentially next quarter versus this quarter right, that's not a year over year number yes.

Okay, great. And then if I could squeeze in one more. What are you guys seeing from a supply chain and inflation standpoint? What are you seeing in terms of unexpected price increases? And how are you able to, or to what degree are you able to pass it through your customers? Well, you know, supply chain for November and December kicked Dodge right in the shin. And so that.

Okay, Great and then if I could squeeze in one more what are you guys seeing from our supply chain and inflation standpoint.

What are you seeing in terms of our expected price increases and how are you able to or to what degree are you able to pass it through your customers.

Well.

Apply chain.

For November and December .

Kicked dodge right in the Shin.

<unk>.

So.

That impacted their gross margins.

I don't think anybody would expect it to see what we saw in.

But it was what it was.

We've rectified the situation in January .

rectified this picture.

Wow, so can you guys provide a little bit more color in terms of what you had to do to rectify that? And you know, what gives you the confidence of that one percentage point gross margin increase next quarter? Because that's a pretty meaningful jump, especially with the head one you mentioned.

Well, yes.

Well, we did a few things. One of the things we did was increase prices.

We did a few things one of the things we did was.

Increased prices.

And the next thing we did was.

Do some account management.

<unk>.

That.

We saw it.

Could lead to significant improvements.

Great, Thanks, and I'll pass off to the next person I appreciate the time guys.

Great, thanks. And I'll pass off to the next person. I appreciate the time, guys.

Thank you and our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead.

Thank you. And our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open. Please go ahead. Thanks. Good morning, everyone.

Hi, Thanks, good morning, everyone.

Thanks, Joe.

Okay, so maybe just that I know you gave us some color around arrow trends this quarter. I'm curious, like how did how did your MRO business trend this quarter and then he needed to give us a little bit more insight on the defense business. You guys call that out as being a little bit weaker and yeah, I guess we're hearing from from from some of the other companies we cover, you know that US defense is probably going to be a little bit weaker throughout 2020. So when you color there would be helpful.

Hey, So maybe just I know you gave us some color around arrow.

Trends this quarter I'm curious how did how did your MRO business trend. This quarter and then can you maybe give us a little bit more insight on the defense business, but you guys called that out as being a little bit weaker.

I guess, we're hearing from some of the other companies we cover that U S. Defense is probably going to be a little bit weaker throughout 2022, so any color there would be helpful.

Okay. So Joe what was your first question.

Probably just really about the aero aftermarket MRO business and how the how that business did this quarter.

Just really about the Arrow aftermarket MRO business and how that business did this quarter. Well, we don't have much business in the Arrow aftermarket, but the Arrow aftermarket MRO business is a little bit different.

We don't.

We don't have much business in the early aftermarket the aero aftermarket that we do have.

<unk> is.

is doing quite well. And so that business is up and...

Is doing quite well.

So.

That businesses.

Is up and.

And approaching.

Pre pandemic levels.

there yet, but we can see it getting there.

Not there yet, but we can see of getting there.

very well. A lot of what they call aftermarket is really aircraft distribution. That aircraft distribution is both aftermarket and also the aircraft distribution supplies small,

Stewart is doing very well a lot of our call.

What they call aftermarket is really really aircraft distribution and that aircraft distribution is through.

As.

<unk> aftermarket and also the aircraft's distribution supplies more.

And maybe not so small.

Subcontractors to the major builders.

And so theyre going to wax and wane.

Build rates.

Got it that makes sense, but what about on the defense side, just the commentary around U S effects.

Got it. That makes sense. What about on the defense side? Does the commentary run U.S. defense?

You know, the defense business, we have pockets of weakness and pockets of great strength.

The defense business.

We have pockets of weakness and pockets of great strength.

And.

And normally where we have.

And where we have pockets of great strength, we have very complex products.

and where we have pockets of great strength, we have very complex products.

that are not easy to make, and that's why they come to us to make.

Net.

Or are not easy to make and that's why they come to us to make them.

And sometimes they don't go out the door when they're supposed to go out the door. According to our plan.

Sometimes they don't go out the door when they're supposed to go out the door, according to our plan.

And Thats what happened in the quarter and we expect to rectify a good part of that.

that's what happened in the quarter, and we expect to rectify a good part of that.

In the fourth quarter.

Got it Okay. That's helpful and maybe one last one for me.

on it. Okay, that's helpful. And maybe one last one for me, being the new person on the block covering you guys. I'm just curious, just in terms of the...

<unk> being the new person on the block covering you guys I'm just curious just in terms of the disclosure and now that you've got.

disclosures and now that you've got industrial and aero, much bigger businesses, is there any thought around providing a little bit more detail granularity around the margins of these businesses so we can see the next impact going forward a little bit easier?

Industrial and Aero.

Much bigger businesses.

Is there any thought around providing a little bit more detail granularity around like the margins in these businesses. So we could see kind of like the mix impact going forward.

A little bit easier.

Well, if you could kind of guarantee our competition wouldn't read that report, we would be happy to go

Well if you if you could kind of guarantee our competition wouldn't read that report, we would be happy to give it to you of it.

You know, it's...

Okay.

It's pretty it's pretty confidential.

Yes, no guarantee that I'm sure they would be interested in it.

Yeah, I can guarantee that. I'm sure they'd be interested in it.

You will at least get within the segment footnote, you'll get the definition of the aerospace defense versus industrial, and then we will have the gross margins for each of the segments as you'd expect. So that'll be in the queue. Okay.

You will at least get within the segment footnote Youll get the definition of the aerospace and defense versus industrial and then we will have the gross margins for each of the segments. As you would expect so that'll be in the queue.

Okay, great. Thanks, guys I'll pass it on.

Okay Joe.

Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one and our next question comes from the line of Michael <unk> with.

Thank you. And again, ladies and gentlemen, if you have a question at this time, please press star then one. And our next question comes from the line of Michael Simoli with Truist Securities. Your line is open. Please go ahead.

Sure Securities. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions. I guess one first. It looks like looking at the segment level data for industrial and aero on the trailing basis, you made some adjustments to last year's number. What moved out of, I guess, the industrial segment and into aerospace?

Hey, good morning, guys. Thanks for taking the questions I guess, one first it looks like looking at the segment level data for industrial and Aero on the trailing basis, you made some adjustments to last year's number what moved out of.

I guess, the industrial segment and into aerospace.

The biggest component moves to move Mike was the marine business and marine businesses historically classified within industrial but at the defense.

The biggest component to move Mike was the marine business. The marine business was historically classified with an industrial, but it's a defense product, so it was moved over with aerospace and defense.

So it was moved over with aerospace and defense.

Okay got it.

Um, okay, that makes sense. And then are you guys planning to give us any more detail on, you know, ongoing costs here for modeling purpose? I mean, I know you have the

Okay that makes sense and then are you guys planning to give us any more detail on.

Ongoing costs here for modeling purpose I mean, I know you have the.

the transaction costs, you've spelled out the amortization, but

The transaction costs, you spelled out the amortization, but do you have an expectation of what we can expect for integration costs.

Do you have an expectation of what we can expect for integration costs? You know, the full sort of amortization, were there any, any other fair value step ups or do you plan to disclose that just to kind of help us with modeling here?

We'll sort of amortization were there any any other fair value step up sure.

We plan to disclose that just kind of help us with modeling here.

Yeah, I mean, as we mentioned earlier, you know, we've got to know about another 6.8 million in the step up of amortization of the inventory that will come out in the next quarter. You know, we've incurred, I would say that

Yes, yes.

As we mentioned earlier, we've got about another $6 8 million and the step up of amortization of the inventory.

That will come out in the next quarter.

We've incurred I would say that the.

majority of the one-time acquisition costs, there will still be, you know, I'd say half a million to a million of additional costs in the fourth quarter, kind of one-time cost there. And then the TSA costs

A majority of the one time acquisition cost there will still be I'd say half a million to $1 million of additional costs in the fourth quarter kind of one time costs, there and then the TSA cost.

We're probably expecting another $4 5 million next quarter and those.

probably expecting another $4.5 million next quarter. And those are bridged out over the 12 months after the acquisition close date of 11-1. And they'll slowly fall off, so we'll have more color to offer on the next call.

Bridged out over the 12 months after the acquisition close date of 11, one and they'll slowly fall off so we'll have more color to offer on the next call and depreciation and amortization is roughly at $110 million. That's right. So the depreciation and amortization is going to be just under $28 million.

amortization is 110 million? That's right. So depreciation amortization is going to be just under 28 million next quarter.

Next quarter Okay.

Okay.

Got it. Got it. And are you guys, you know, when you announced this, you talked about a seven to eight dollar, you know, EPS range, I guess, cash EPS. I guess I've never seen anybody add back depreciation. And if I

Got it got it.

Are you guys when you announced it you talked about 7% to $8.

EPS range, I guess cash EPS I guess.

Never seen anybody add back depreciation and if I did an apples to apples I mean, you guys did $7 15 in fiscal 'twenty.

did an apples to apples. I mean, you guys did $7.15 in fiscal 20, adding back depreciation, adding back stock comp. I mean, it seems like that.

Adding back depreciation, adding back stock comp I mean, it seems like that.

That's seven to eight. You know, you know, again, adding back depreciation and you're trying to get a cash number, but you probably should deduct a CapEx.

That seven to eight.

Again, adding back depreciation I know youre trying to get a cash capex cash number, but probably should deduct the capex.

It almost seems like it's a free cash flow number I mean whats the I've just never seen that before just wondering what the.

Almost seems like it's a free cash flow number. I mean, what's the I've just never seen that before. Just wondering what the thought process there was.

Thought process there was.

Yes, it's just our as Dan. This is just our view of cash EPS. So we're just taking our net income available to shareholders and if we didn't have.

It's just our view of cash EPS, so we're just taking our net income available to shareholders, and if we didn't have these non-cash items tax-effective, what would be the cash EPS number? We define it in the press release. We gave you a breakdown, exactly how it's calculated, and it's just a way that we're measuring our performance on our cash EPS.

These noncash items tax effective what would be the cash EPS number. So we define it in the press release, we gave you a breakdown of exactly how it's calculated and it's just the way that we're measuring our performance on our cash EPS number.

Thank you and our next question comes from the line of Steve Barger with Keybanc capital markets. Your line is open. Please go ahead hey.

Thank you. And our next question comes from the line of Steve Berger with KeyBank Capital Markets. Your line is open. Please go ahead.

a good morning guys Sir, I got on the call a little late so hopefully this isn't redundant but...

Good morning, guys.

Sorry, I got on the call a little late so hopefully this isn't redundant but.

Trailing 12 month revenue for Dodge was around $620 million, if I'm remembering right. And I think that's what we basically tracked to this quarter for the two month contribution. How should we think about organic growth on that trailing 12 month base or trailing quarter base in 4Q? And how does that compare to role organic for industrial?

Selling 12 month revenue for Dodge was around $620 million, if I'm remembering right.

And I think Thats, what we basically track to this quarter for the for the two months' contribution how should we think about organic growth on that trailing 12 month base or trailing quarter base in <unk> and how does that compare to roll organic for industrial.

Well.

I think their organic growth is to some extent muted by supply chain. And their organic growth could be...

I think I think their organic growth is to some.

Some.

Extent muted.

<unk> supply chain.

Organic growth could be.

Sort of where our roles organic growth is.

We don't have the kind of supply chain issues that they have we're a little bit more vertically integrated and as a result of that we avoid some of that.

that they have were a little bit more vertically integrated. And as a result of that, we avoid some of that.

Sure.

So.

They are.

their organic growth will certainly be up double digits. It could be better.

There are organic growth will certainly be up double digits and probably be in the low double digits, but it could be it could be better than that.

If they can get on the other side of the supply chain issues.

And did you say what you expect for your.

and did you say what you expect for your you know the the legacy business for lack of a better term will do an organic growth report for you

Our legacy business for lack of a better term, we'll do in organic growth for.

<unk>.

We didn't say it but.

Would you like to.

Well, it's going to be in the upper single digits.

Well, yes.

It's going to be in the upper single digits.

That's what we're modeling.

So, Dodge will actually do better. I thought you said low double digit there and you're saying upper single digits for the legacy business? Yeah.

So so Dodge will actually do better I thought you said low double digit there and youre seeing upper single digits for your the.

Legacy business.

Okay.

And how are you seeing growth for, since they have so much aftermarket exposure, what's their aftermarket growth rate versus OEM? Is that growing faster for them?

And how are you seeing growth for us since they have so much aftermarket exposure and what's their aftermarket growth rate versus OEM is that is that growing faster faster for them.

No.

It's sort of an 80-20 thing where, you know, 80% of their business is what they call aftermarket or...

It's sort of an 80 20 thing where 80% of their businesses.

Is what they call aftermarket.

Sure.

Distribution market.

market. So it's so biased towards that 80 percent that...

So it's so biased towards that 80%.

The 20%.

It doesn't.

Create much sway and.

create much sway, and certainly the...

Certainly the.

The difficulty right now is servicing that 80% servicing as well.

The difficulty right now is servicing that 80 percent and servicing it.

Right.

And I know in general Dodge has good margins, but are there any product lines do you need to reprice or exit there now that you've gotten in to look at the at the whole portfolio.

And I know in general, Dodge has good margins, but are there any product lines you need to reprice or exit there now that you've gotten in to look at the whole portfolio?

The short answer there is yes.

Is that a.

sizable portion of the portfolio or is that pretty small?

Sizable portion of the portfolio or is that pretty small.

Yes.

Sure.

It's not small but it's.

It's not small, but relative to the size of Dutch, it's not material either.

Relative to the size of that just not material either.

Right.

And now that you've been through the factories more in detail, do you see opportunities for automation or robotics to drive some efficiency or productivity, or are they pretty well optimized in terms of that kind of historical capex?

And.

Now that you've been through the factories more in detail do you see opportunities for automation and robotics to drive some efficiency or productivity or are they pretty well optimized.

In terms of that kind of historical capex for for.

For programs.

Well, for the most part, I would say, you know...

For the most part I would say.

75% of their factories are pretty pretty optimized there's still 25% that that.

75% of their factories are pretty optimized. There's still 25% that...

That.

That can do better than that.

That basically they just haven't gotten too.

They've been working through it one factory at a time so right there is still some upside there.

They've been working through it one factory at a time. So there's still some up.

Gotcha, and just last one, I know there's always a lot of charges and adjustments when you're integrating a big acquisition, but just I guess, you know, supply chain notwithstanding, when would you expect that we start to see what we can consider more normal free cash flow from the complete portfolio?

Got you and just last one I know, there's always a lot of charges and adjustments when you're integrating a big acquisition.

But just I guess supply chain notwithstanding when would you expect that we start to see what we can consider more normal free cash flow from the complete portfolio.

I would say is as we enter into the first quarter of next year, you'll start to see it.

I would say as we enter into the first quarter of next year, you'll start to see it.

Yeah, and I think Q4 will be pretty clean, too. Yeah. So I think you should, yeah, it's super.

Yeah, and I think Q4 will be pretty clean too yes.

I think you should.

Okay, and can you remind us, what do you expect the entire portfolio will run in terms of a free cash flow margin? Or just what you convert free cash flow?

Yeah, we haven't given that you haven't given that number but.

We haven't given that number, but we definitely will at the end of May when we're talking about fiscal year 2023 and we have a full year of Dodge baked into our forecast and a full year of RBC baked in.

We definitely will at the end of May when we're talking about fiscal year 2023, and we have a full year Dodge baked into our forecast and a full year of RBC baked in.

Alright, guys. Thanks.

Thank you and we have a follow up question from the line of Peter Keith with Alembic Global Your line is open. Please go ahead.

Thank you and we have a follow-up question from the line of Pete Skibitsky with Olympic Global. Your line is open. Your line is open.

Yeah, just a couple other modeling questions. The inventory step up that you gave for the third quarter and the fourth quarter, does that does that just stay in the income statement for you know, kind of that midterm time, a kind of time horizon for that six to 7 million time of a level? Nope, that'll be after the fourth quarter, we should be all set with that one.

Yes, just a couple other modeling questions.

The inventory step up that you gave for the third quarter and the fourth quarter does that does that just stay in the income statement for kind of that mid term kind of time horizon for that.

$6 7 million type of level.

That'll be after the fourth quarter, we should be all set with that one.

Okay, that's gone. And in terms of, you know, you guys put out that adjusted EBITDA margin goal of, I think it was in the mid-30s, I believe. Do you have a sense of what the components of that are?

Okay that's gone.

Just in terms of you guys put out that adjusted EBITDA margin goal.

I think it was in the mid Thirty's I believe can you do you have a sense of what the components of that or is it.

Half and half gross margin SG&A improvements or any maybe you could walk us through a little bit of how you intend to reach those goals.

half and half gross margin, SG&A improvements or any maybe you could walk us through a little bit of how you intend to reach those goals.

I don't have the exact math to tell you, but what I can tell you is that, as Dan alluded to, we're expecting steady, strong gross margin improvement in the coming quarters, which is going to bleed right into that. And then, you know, the SG&A, you can see the consolidated SG&A this quarter at 16% as we start to...

feel another full quarter of dodge in there, the SG&A as a percentage of sales will continue to bleed down to the EBITDA line and really benefit that number.

Full quarter of Dodge in there the percentage of SG&A SG&A as a percentage of sales will continue to bleed down to the EBITDA line and really benefit that number so.

That kind of Directionally, what will start to take us, where we want to get too and Pete I think youre, referring to also the.

that kind of direction will start to take us where we want to get to. Pete, I think you're referring to also the synergies that we were anticipating on the business. I'd say that was probably broken down 60-40, 60 impact in sales, COGS, and 40 impact in

The synergies that we were anticipating on the business and I would say that was probably broken down $60 $40 60 impact in sales Cogs 40 impact in.

S, G and A and all those programs we've started, but it's only been two months in, right? So, but I think we're more than well on target for what we thought fiscal year 2023 would be.

SG&A.

And all of those programs, we've started but it's only been two months or so.

I think we're more than well on target for what we thought fiscal year 2023 would be on our synergies. So I think we'll probably be ahead of the game for what we anticipated for the first year synergies and we'll report more on that on the fourth quarter.

on our synergies. So I think we'll probably be ahead of the game for what we anticipated to the first area for as long as we can'm able to make the score.

And we'll report more on that on the fourth quarter when we have more firm numbers and more to talk about.

<unk> when we have more firm numbers and more to talk about.

Great I appreciate the color. Thank you.

Thank you and our next question comes from the line of Kristine <unk> with Morgan Stanley . Your line is open. Please go ahead.

Thank you. And our next question comes from the line of Christine Liebig with Morgan Stanley . Your line is open. Please go ahead. Hey, guys. Thanks for taking my follow-up. Mike, earlier you mentioned, you know, my question about unexpected things that you found at Dodge. I guess, like, with the supply chain issue, the inflation issue being solved already, and now you guys have had time to look at all the factories thoroughly.

Hey, guys. Thanks for taking my follow up.

Mike earlier, you mentioned.

My question about unexpected things that you've found at Dodge I guess like with.

The supply chain issue the inflation issue being solved already.

And now you guys have had time to look at all the factors thoroughly.

Is there a reason to change or is there a change in terms of your expected run rate synergy of 70 to 100 million annually by the fifth year of the acquisition close? Do you see potential upside to that number or downside to that number from what you've seen so far? Do you see potential upside to that number or downside to that number from what you've seen so far? Do you see potential upside to that number or downside to that number or downside to that number?

Is there a reason to change or is there a change.

Well.

Well, you know, when we've gone through the factories and got...

<unk>.

When we've gone through the factories and the.

And got a sense of Av.

No.

where the easy synergies are, so we kind of want to line those up first. I think the consideration...

Where the where the where the easy synergies are and so we've kind of want to line those up first.

I think the consideration here is if we decide if we decide to use.

traditional RBC classic manufacturing capacity, what is the best use of that capacity?

Traditional RBC classic manufacturing capacity.

What is what is the best use of that capacity is it is it too.

As to improve.

The gross margin, which is theres, some very obvious things that we could do.

If we embarked upon that path.

Good.

That we identified.

that we identified. And I think that another alternative and another consideration is...

And I think that I think.

Another alternative and in another consideration is there is some growth opportunities in some of their products.

they had a more cost effective way of getting those products to market. Right now those products are somewhat throttled based upon cost price pressure.

If they had to pay more cost effective way of getting those products to market.

And right now those products are somewhat throttled based upon.

Cost price pressure.

And so.

Okay.

Promote them lightly.

And there is there's a lot of upside in the marketplace.

Yes.

If those products could be.

Factored.

With a better cost structure so yes.

So yeah, I mean, do we want to chase it?

Yes.

Do we want to do we want to chase the expansion in gross margin or do you want to chase the expansion in sales.

expansion in gross margin or do you want tasty expansion in sales?

Because once you commit to one of those paths.

Once you once you commit to one of those paths.

Hugh.

<unk> to the other one so we're trying to we're trying to make sure that we use.

commit to the other one. So we're trying to make sure that we make the best decision possible on

Make the best decision possible.

What we can do to.

Improve the operating results of the entire company.

I see. I mean the net of that is either through the gross margin expansion or revenue growth, you're going to get some of these synergies either through cost synergies or revenue synergies. So my net question would be on a net basis is that 70 to 100...

I see I mean does that have that rate is either through the gross margin expansion or revenue growth you'll get to get some of these synergies either through cost synergies. The revenue synergies. So my my my next question would be on a net basis is that 70 to 100.

doable or is it looking like you could do a lot better?

Doable or is it looking like you could do a lot better.

Well.

<unk>.

If I say we're going to do a lot better, are you going to make it 200? Well, I've covered you guys for a long time and you always meet expectations, so I'm just trying to find where that happy medium is, but maybe it's too early, you know, but it kind of hurts to try and ask, right?

If I tell you we're going to do a lot better you're going to make it 200.

Well I've covered you guys for a long time and you always beat expectations. So I'm just trying to find out.

That had the medium is but.

And maybe it's too early.

You can't hurt it kind of hard to try and ask right.

Sure.

Yes, I think let's let's let's leave the goalposts.

I think let's leave the goalposts where they are right now and we're still working on it.

What are they are right now.

We're still working on the first phase of this.

Great. Thanks, guys. Thanks Christine.

Thank you. And our next follow-up question comes from the line of Michael Siramoli with Truro Securities. Your line is open. Please go ahead.

Thank you and our next follow up question comes from the line of Michael <unk> with <unk> Securities. Your line is open. Please go ahead.

Hey, guys just.

Hey guys, just one more on the supply chain. I know you talked about initially at Dodge, you know, the 200 million of component costs per year. Has any of the...

One more on the supply chain I know I know you talked about.

Initially at Dodge the $200 million of component cost per year.

The.

tightness and bottlenecks in supply chain, giving you the opportunity to accelerate. It sounded like initially you were going to let contracts sort of run their course, but presumably with all suppliers dealing with extended lead times and higher prices. Have you thought about accelerating the insourcing of those components? Well, you know,

Tightness and bottlenecks in supply chain, giving me the opportunity to accelerate.

The in sourcing of those components.

Well.

The major the major.

Issue.

Issues aren't anything that we produce. I mean, we don't make steel. And right now, the industry has a real problem.

Issues or anything that we produce I mean, we don't we don't.

Not make steel.

Right now the industry is.

Real problem getting scale.

so everywhere at RBC.

And so everywhere at RBC.

lesser expense dodge, we're moving lead times out because we need to hedge our backlogs with regard to when we're going to get steel to produce the product. So, you know, steel is, steel is...

To a lesser extent Dodge, we're moving lead times out because we.

We need.

We need to hedge.

Hedge or our.

Backlogs with regard to.

When we when we're going to get steel since the products. So.

Steel is.

Steel.

In some cases has doubled.

And.

And so it's.

It's something that.

I think the entire industry is wrestling with right now.

Got it.

Alright, great. Thanks, guys.

Thank you and I'm showing no further questions at this time I would like to turn the conference back over to Dr. Hartnett for any further remarks.

Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to Dr. Hartnett for any further remarks.

Okay well.

We appreciate your attention and your comments and questions this meeting, and we look forward to seeing you again.

I appreciate your attention and your comments and questions to this meeting.

And we look forward to speaking with you again.

Think it's.

Late may.

by the time we do this again and we'll have much.

By the time, we do this again and we will have much.

much more to speak about and we expect we have some pretty good news.

Much more to speak about and.

And we expect we have some some pretty good news by the end of May So thank you and good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call. Thank you for participating you may now disconnect.

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