Q1 2025 RBC Bearings Inc Earnings Call
Operator: Greetings. Welcome to RBC Bearings' Fiscal 2025 First Quarter Earnings Call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Rob Moffitt, the Director of Investor Relations. Please go ahead.
Greetings and welcome to the RBC bearings fiscal 'twenty 25 first quarter earnings call.
Operator: Welcome to RBC Bearings, Fiscal 2025, first quarter earnings call.
Operator: To this time, I'll just concern listening mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: This time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Rob Moffatt: I would now like to turn the conference over to your host, Rob Bosset, the Director of Vester Relations.
Rob market: I would now like to turn the conference over to your host Rob market. The director of Investor Relations. Please go ahead.
Rob Moffatt: Please go ahead.
Rob Moffatt: Good morning. And thank you for joining us for RBC Bearings, fiscal first quarter 2025 earnings call. I'm Rob Moffatt, Director of Investor Relations. And with me on the call today, Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, General Vergeron, Director of Vice President and Chief Operating Officer. And Rob Sullivan, Vice President and Chief Financial Officer.
Ron Moffitt: Morning, and thank you for joining us for RBC Bearings' Fiscal First Quarter 2025 Earnings Call. I'm Ron Moffitt, Director of Investor Relations. And with me on the call today are Dr. Michael Hartnett, Chairman, President, and Chief Executive Officer, Daniel Bergeron, Director, Vice President, and Chief Operating Officer, and Rob Sullivan, Vice President and Chief Financial Officer.
Belmont: Good morning, and thank you for joining us for RBC bearings fiscal first quarter 2025 earnings call I'm, Belmont and director of Investor Relations and with me on the call today are Dr. Michael Hart.
Speaker Change: Chairman, President and Chief Executive Officer, Jeremy Bergeron, Director, Vice President and Chief operating Officer, and Rob Sullivan, Vice President and Chief Financial Officer before beginning todays call. Let me remind you that some of the statements made today will be forward looking and made under the private Securities Litigation Reform Act 1995 actually.
Ron Moffitt: Before beginning today's call, let me remind you that some of the statements made today will be floor-level and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC Bearings' recent filings with the SEC or a more detailed discussion of the risks that could impact the company's future operating results and financial...
Rob Moffatt: Before beginning today's call, let me remind you that some of the statements in May today will be forward-loving and are made under the private spirit of litigation before Mac to 1995. Actual results may differ materially from those projected on flight due to a variety of factors. We refer you to RBC Bearings' recent filings with the SEC. We're more detailed discussion of the risks that could impact the company's future operating results of financial conditions. These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website.
Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC bearings recent filings with the SEC for more detailed discussion of the rest of that could impact the company's future operating results and financial condition. Please.
Factors are also described in greater detail in the press release and on the company's website.
Dr. Hart: Reconciliation between GAAP and non-GAAP financial information is included as part of the release is available on the company's website with that I'll now turn the Doc they call over to Dr. Hart.
Ron Moffitt: These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website. With that, I'll now turn the call over to Dr. Hartnett.
Michael Hartnett: With that, I'll turn the call over to Dr. Hartnett. Thank you, Rob, and good morning to everyone, and thanks for joining us. I'm going to start today's call with a quick review of our quarter and fiscal year and hand it over to Rob for some detailed color on the numbers.
Yeah.
Dr. Michael Hartnett: Thank you, Rob, and good morning to everyone, and thanks for joining us. I'm going to start today's call with a quick review of our quarter and fiscal year and hand it over to Rob for some detailed color on the numbers. Then I'll finish with some high-level thoughts on the industry, RBC's positioning, and some of our fiscal 25 outlook. First quarter sales came in at $406.3 million, a 5% increase over last year, and strong performance from our aerospace and defense sector showed a 23.7% expansion. Where are you?
Dr. Hart: Thank you Robin good morning to everyone and thanks for joining us.
Dr. Hart: I'm going to start today's call with a quick review of our quarter.
In fiscal year and hand, it over to Rob for some detailed color on the numbers.
Michael Hartnett: And then I'll finish with some in our fiscal 25 outlook. First quarter sales came in at 406.3 million, an 85% increase over the last year. Strong performance from our aerospace and defense sector showed a 23.7% expansion, where our industrial business contracted slightly at 3.5%. The aerospace and defense sales expanded approximately 30 million, quarter to quarter, year over year, with 149.1 million the quarterly result. The defense sector led with a 38.1% expansion rate. Unquestionably, we can expect continued strong showings from our AMD sector through the balance of the year. On the industrial side, we held our own against our peers, showing a small interaction of 3.5% sales, sales with 257.2 million.
Dr. Hart: And then I'll finish with some high level thoughts on the industry RBC.
Rob: Rpc's positioning.
Dr. Hart: And some are in our fiscal 'twenty outlook.
Rob: First quarter sales came in at or above six 3 million.
Rob: Eight 5% increase over last year.
Rob: <unk> performance from our aerospace and does it differ.
Rob: Defense sector showed a 23.7% expansion.
Rob: Right.
Dr. Michael Hartnett: industrial business contracted slightly at 3.5 in Aerospace and Defense. However, sales expanded approximately $30 million quarter-to-quarter, year-over-year, with $149.1 million the quarterly result. The defense sector led with a 38.1% expansion rate. Unquestionably, we can expect continued strong showings from our A&D sector through the balance of the year. On the industrial side, we held our own against our peers, showing a small contraction of 3.5% in sales. Sales were $257.2 million. Weakened sector performance was seen in oil and gas and semiconductor machinery in some general industrial markets.
Rob: Industrial business contracted slightly at three 5%.
Rob: In aerospace and defense sales.
Rob: Sales expanded approximately $30 million quarter to quarter.
Year over year with a 149.
Rob: <unk> 1 million.
Rob: The quarterly result.
Rob: Defense sector led.
Rob: It's 38, 1% expansion rate.
Rob: I believe we can expect continued strong showings from our A&D sector.
Rob: Through the balance of the year.
Rob: On the industrial side.
Rob: We hold our own against our peers, showing a small contraction of three 5% of sales.
Rob: Sales were $257 2 million.
Rob: Okay.
Michael Hartnett: We can sector performance with senior and oil and gas, semiconductor machinery in some general industrial markets. We currently expect in plan for these markets to strengthen in the second half of the year. We just to gross margin for the quarter came in at 184 million, 45.3% of sales, and almost two whole percentage points above last year. Clearly, our manufacturing points are manufacturing plants. Our we are operating well within our sweet spot in this regard, in many completed synergies and improvement projects contributed to this performance. Still many more productive concepts and plans are in the breach end or active today.
Rob: Weekend sector performance was seen in oil and gas semi.
Semiconductor machinery, and some general industrial markets.
Dr. Michael Hartnett: We currently expect and plan for these markets to strengthen in the second half of the year. Adjusted gross margin for the quarter came in at $184 million, 45.3% of sales, at almost two full percentage points above last year. Clearly, our manufacturing plants are executing extremely well. We are operating well within our sweet spot in this regard, and many completed synergies and improvement projects have contributed to this performance. Many more productive concepts and plans are in the breach and are active today, and these are very productive and promising areas for us to prosper. I'd like to acknowledge and thank our teams for this course performance. Clearly, it is them who are the reason for RBC's continued success.
Rob: We currently expect and plan for these markets to strengthen in the second half of the year.
Rob: Adjusted gross margin for the quarter came out came in at $184 million.
Rob: <unk> 45, 3% of sales.
Rob: And almost two full percentage points above last year.
Rob: Clearly our manufacturing plants manufacturing plants are executing extremely well.
Rob: We are operating well within our sweet spot in this regard and many completed synergies and improvement projects contributed to this performance.
Rob: Still many more productive concepts and plans are in the breach <unk> active today.
Michael Hartnett: And these are very productive and promising areas for us to prospect.
Rob: Okay.
Rob: And these are very productive.
Rob: Promising areas for us to prospect.
Michael Hartnett: I'd like to acknowledge and thank our teams for this quarter's performance. Clearly, it is they who are the reason for RBC's continued successes. As a result, adjusted net income was $2.54 a share, and adjusted EBITDA was 33% of revenues. Obviously, we're very pleased with this performance, and we really can't think of a better way to start our fiscal year. Net cash provided by the operating activities was 97.4 million versus 61.7 million last year, a 57.9% increase. This allowed us to reduce that another 60 million during the period, bringing the EBITDA to net ratio to approximately 2.1 times another sweet spot.
Rob: I'd like to acknowledge and thank our teams for this.
Rob: Quarters' performance clearly it is they who are the reason for rbcs continued successes.
Dr. Michael Hartnett: As a result, adjusted net income was $2.54 a share, and adjusted EBITDA was 33% of revenue. Obviously, we're very pleased with this performance, and we really can't think of a better way to start our fiscal year. Net cash provided by operating activities was $97.4 million versus $61.7 million last year, a 57.9% increase. This allowed us to reduce debt another $60 million during the period, bringing the EBITDA to net debt ratio to approximately 2.1 times. Another sweet spot.
Rob: As a result, adjusted net income was $2.54 a share in.
Rob: And adjusted EBIT da was 33% of revenues.
Rob: Obviously, we're very pleased with this performance.
Rob: And we really can't think of a better way to start our fiscal year.
Rob: Net cash provided by the operating activities was $97 4 million versus $61 7 million last year.
Rob: At 57, 9% increase.
Rob: This allowed us to reduce debt another $60 million during the period.
Rob: Bringing the EBITDA to net debt ratio to approximately $2 one times another sweet spot.
Michael Hartnett: Overall, we expect more of the same performance from the aerospace and defense group through the year-end. Some ups and downs in this regard as a result of normal seasonal impacts of holidays, vacations, and supply chain. On the industrial side, we are planning to see strengthening in the second half of the year, and our setting our plans today accordingly. RBC is well positioned to support additional demand from both industrial and aerospace defense customers, as well as space customers. We have the production capacity, the trained and skilled workforce forces in place, and are in the process of augmenting plant capacities to accommodate additional business awards.
Dr. Michael Hartnett: Overall, we expect more of the same performance from the Aerospace and Defense Group through the year-end, with some ups and downs in this regard as a result of normal seasonal impacts of holidays, vacations, and supply chains. On the industrial side, we are planning to see strengthening in the second half of the year and are setting our plans today accordingly. RBC is well positioned to support additional demand from both industrial and aerospace defense customers, as well as space customers. We have the production capacity, the trained and skilled workforce forces in place, and are in the process of augmenting plant capacities to accommodate additional business awards.
Rob: Overall, we expect more of the same performance from the aerospace and defense group.
Rob: Through the year and some ups and downs in this regard as a result of normal seasonal impacts of holidays vacations and supply chain.
Rob: On the industrial side, we are planning to see strengthening in earnest in the second half of the year and are setting our plans today accordingly.
Rob: RBC is well positioned to support additional demand from both industrial and aerospace defense customers.
Rob: As well as space customers we.
Rob: We have the production capacity the trained and skilled workforce forces in place and are in the process of augmenting plant capacities.
Rob: Accommodate additional business awards.
Rob Sullivan: I'll now turn the call over to Rob for more details on our financial performance. Thank you, Mike.
Rob: I'll now turn to the call over the RAB for more details on our financial performance. Total sales growth of 5% in the quarter was surpassed by adjusted EBITDA growth of 11.3% and adjusted EPS growth of 19.2%. Along with that, we had free cash flow growth of 61% year over year. This was driven in large part by strong gross margin expansion, with first quarter gross margin as a percentage of sales coming in at 45.3%, an expansion of roughly 190 basis points year over year.
Rob: I'll now turn the.
Rob: The call over to Rob for more details on our financial performance.
Rob: Mike as Dr. <unk> indicated this is another strong quarter for RBC total sales growth of 5% in the quarter, which surpassed by adjusted EBITDA growth of 11, 3% and adjusted EPS growth of 19, 2%.
Rob Sullivan: I'd like to hear an indicator. This is another strong quarter for RBC. Total sales growth is 5% in the quarter, which surpassed by adjusted EBITDA growth of 11.3%, and adjusted EPS growth of 19.2%. Along with that, we had free cash flow growth of 61% year over year. This was driven in large part by strong growth margin expansion, with first quarter growth margin as a percentage of sales coming in at 45.3%, and expansion of roughly 190 basis points year over year. The two biggest drivers here continue to be the ongoing tailwinds from Dodge synergies and increased utilization of our aerospace manufacturing assets.
Rob: Along with that we had free cash flow growth of 61% year over year. This was driven in large part by strong gross margin expansion with first quarter gross margin as a percentage of sales coming in at 45, 3% an expansion of roughly 190 basis points year over year.
Rob: The two biggest drivers here continue to be the ongoing tailwinds from Dodge Synergies and increased utilization of our aerospace manufacturing. We also saw tailwinds from strong plant efficiency expedites in a favorable mix. On the SG&A line, we continue to make investments in our future growth. This includes Salesforce additions to support the international expansion that we have highlighted as part of our Dodge strategy and the resources needed to support that growth, including IT infrastructure and back-office support.
Rob: The two biggest drivers here continue to be the ongoing tailwind from Dodge synergies and increase utilization of our aerospace manufacturing assets. We also saw a tailwind from strong plant efficiency expedites and a favorable mix.
Rob Sullivan: We also saw tailwinds from strong plant efficiency, expedites in a favorable mix.
Rob Sullivan: On the SGNA line, we continue to make investments in our future growth. This includes sales horse additions to support the international expansion that we have highlighted as part of our Dodge strategy, and the resources needed to support that growth, including IT infrastructure and back office support. With that said, the rate of growth on the SGNA line moderated versus the year-ago period, and we were able to extract the modest amount of leverage this quarter. Going forward, we expect SGNA as a percentage of sales to increase in Q2 and Q3 before normalizing in Q4. This led to adjusted EBITDA of 134 million this quarter, up 11.3% year over year, and adjusted EBITDA margin of 33%, which is up almost 190 basis points versus last year's 31.1%.
Rob: And the SG&A line, we continue to make investments in our future growth. This includes salesforce additions to support the international expansion that we have highlighted as part of our Dod strategy and the resources needed to support that growth, including it infrastructure and back office support.
Rob: With that said, the rate of growth on the SG&A line moderated versus the year-ago period, and we were able to extract a modest amount of leverage this quarter. Going forward, we expect SG&A as a percentage of sales to increase in Q2 and Q3 before normalizing in Q4. This led to adjusted EBITDA of $134 million this quarter, up 11.3% year-over-year, and an adjusted EBITDA margin of 33%, which is up almost 190 basis points versus last year's 31.1%. The IVIDA margin is a new record for RBC, eclipsing our recent peak of 31.7% in the second quarter of Fiscal 24.
Rob: With that said the rate of growth on the SG&A line moderated versus the year ago period, and we were able to extract a modest amount of leverage this quarter.
Rob: Going forward, we expect SG&A as a percentage of sales to increase in Q2 and Q3 before normalizing in Q4.
Rob: This led to adjusted EBITDA of $134 million this quarter up 11, 3% year over year, and adjusted EBITDA margin of 33%, which is up almost 190 basis points versus last year's 31, 1%.
Rob Sullivan: The EBITDA margin is a new record for RBC, eclipsing our recent peak of 31.7% in the second quarter of fiscal 24. The achievement of this milestone was a multi-faceted effort, with credit being deserved earned across multiple layers of the company, including the Dodge team for their efforts in extracting synergies, and to our operations and point management teams for running at very high levels of plan efficiency during the quarter. Interest expense in the quarter was 17.2 million. This was down 16% year over year, reflecting the ongoing repayment of our terminal. The tax rate in our adjusted EPS calculation was 22.4%, a moderate year over year had to win versus last year's 22%.
Rob: EBITDA margin is a new record for RBC eclipsing our recent peak of 31, 7% in the second quarter of fiscal 'twenty four.
Rob: The achievement of this milestone was a multifaceted effort, with credit deserved across multiple layers of the company, including the DODGE team for their efforts in extracting synergies and to our operations and plant management teams for running at very high levels of plant efficiency during the quarter. Interest expense in the quarter was $17.2 million. This was down 16% year-over-year, reflecting the ongoing repayment of our term limits. The tax rate in our adjusted EPS calculation was 22.4%, a moderate year-over-year headwind versus last year's 22%.
Speaker Change: Treatment of this milestone was a multifaceted effort with credit being deserved across multiple layers of the company, including the Dodge team for their efforts and extracting synergies into our operations and plant management teams for running at very high levels of plant efficiency during the quarter.
Rob: Interest expense in the quarter was $17 2 million this was down 16% year over year, reflecting the ongoing repayment of our term loan.
Rob: The tax rate and our adjusted EPS calculation was 22, 4% a moderate year over year headwind versus last year's 22%.
Rob Sullivan: All together, this led to adjusted diluted EPS of $2.54, representing 19.2% of year-over-year growth, an impressive result on revenue growth of 5%. In terms of cash, free cash flow of 88.4 million ran at 144% conversion rate and grew 61% on a year-over-year basis. This was fueled by strong net income growth and improved working capital performance. As usual, we used a meaningful portion of the cash generated to continue to pay down our terminal. We repaid 60 million of the loan this quarter and continue to expect a repay $275 to $300 million total for the year. The balance on the terminal at the end of the quarter was $615 million, leaving net debt at $1.05 billion, and trailing net leverage at 2.1 times.
Rob: Altogether, this led to adjusted diluted EPS of $2.54, representing 19.2% of year-over-year growth, an impressive result on revenue growth of 5%. In terms of cash, free cash flow of $88.4 million ran at a 144% conversion rate and grew 61% on a year-over-year basis. This was fueled by strong net income growth and improved working capital performance. As usual, we used a meaningful portion of the cash generated to continue to pay down our term loan.
Rob: Altogether. This led to adjusted diluted EPS of $2 54.
Rob: Representing 19, 2% of year over year growth, an impressive result on revenue growth 5%.
Rob: In terms of cash free cash flow of $88 4 million ran at a 144% conversion rate and grew 61% on year over year basis.
Rob: This was fueled by strong net income growth and improved working capital performance.
Rob: As usual, we used a meaningful portion of the cash generated to continue to pay down our term loan we repaid $60 million alone this quarter and continue to expect to repay $275 million to $300 million total for the year.
Rob: We repaid $60 million of the loan this quarter and continue to expect to repay $275 to $300 million total for the year. The balance on the term loan at the end of the quarter was $615 million, leaving net debt at $1.05 billion and trailing net leverage at 2.1 times. We continue to expect trailing net leverage to be well below the two-times mark exiting the fiscal year, leaving ample room for a return on M&A should the right deal come across our path.
Rob: The balance on the term loan at the end of the quarter was $615 million, leaving net debt at one $5 billion in trailing net leverage of two one times.
Rob Sullivan: We continue to expect trailing net leverage to be well below the two times mark, exiting the fiscal year.
Rob: We continue to expect trailing net leverage to be well below the two times mark exiting the fiscal year, leaving ample room for a return to M&A should the right deal to come across our path.
Rob Sullivan: Leaving ample room for a return to M&A should the right deal come across our path. As a reminder, our Series A mandatory convertible preferred stock is expected to automatically convert on October 15, 2024.
Rob: As a reminder, our Series A mandatory convertible preferred stock is expected to automatically convert on October 15, 2024, using Q1 results as an approximation. The net impact of this conversion is expected to be slightly accretive to earnings per share, assuming the conversion at the current share price. It will be more meaningfully accretive, however, to pre-cash flow, as the conversion will remove the cash dividend payment, reducing our future total cash outlays by approximately $23 million on an annualized basis.
Rob: As a reminder, our series a mandatory convertible preferred stock is expected to automatically convert on October 15 2024.
Rob Sullivan: Using Q1 resulted in approximation. The net impact of this conversion is expected to be slightly accreted to earnings per share, assuming conversion at the current share price. It will be more meaningfully accreted, however, to free cash flow, as the conversion will remove the cash dividend payment, reducing our future total cash outlays by approximately $23 million on an annualized basis. This is roughly 9.5% of Fiscal 24's total free cash flow.
Rob: Using Q1 results is an approximation.
Rob: The net impact of this conversion is expected to be slightly accretive to earnings per share assuming conversion at the current share price it will be more meaningfully accretive however to free cash flow as a conversion will remove the cash dividend payments were due.
Speaker Change: Using our future total cash outlays by approximately $23 million on an annualized basis.
Rob: This is roughly nine 5% of fiscal 2000, <unk> total free cash flow.
Rob Sullivan: In closing, this was another strong quarter for RBC. We remain focused on leveraging our core strengths in engineering, manufacturing, and product development to drive organic and organic growth, continued margin excellence, and high levels of free cash flow conversion.
Rob: This is roughly 9.5% of Fiscal 24's total free cash flow. In closing, this was another strong quarter for RBC. We remain focused on leveraging our core strengths in engineering, manufacturing, and product development to drive organic and inorganic growth, and continued margin excellence.
Speaker Change: In closing this was another strong quarter for RBC, we remain focused on leveraging our core strengths in engineering manufacturing and product development to drive organic and inorganic growth continued margin excellence and high levels of free cash flow conversion.
Operator: With that, operator, please open the call for Q&A. Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone to indicate your line is in the queue. You may press star two if you'd like to remove your question from the queue. For participant choosing speaker equipment, you may be necessary to pick up your handset before pressing the star keys.
Operator: With that said, Operator, please open the call for Q&A.
Speaker Change: Operator, please open the call for Q&A.
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the Q. Okay, Hey, maybe first start to feel like to move your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please. Will we poll for questions?
Operator: One moment, please, while we poll for questions. Thank you, and our first question is from the line of Christine LeLac with Morgan Stanley. Pleased to see you with your question. Hey, good morning.
Speaker Change: One moment, please for we poll for questions.
Kristine Liwag: Thank you, and our first question is from the line of Christine Lillag with Morgan Stanley. Please dispute your question. Hey, good morning, everyone.
Cristina <unk>: Thank you and our first question is from the line of Cristina <unk> with Morgan Stanley. Please proceed with your question.
Christine LeLac: Hey, good morning, everyone. Good morning, Christine.
Cristina <unk>: Hey, good morning, everyone.
Kristine Liwag: Good morning, Kristine. You know, within the industrial and market kind of starting to decline here, can you provide more content and detail about what you're seeing in the different end markets and exactly how far away we are from a trough and what we have to see to see improvement because it seems like, you know, the issue in the quarters is just a little bit of weakness in the top line. But that said, I mean, you know, we're the 45% gross margin for the business; that's still pretty incredible performance. Yeah, well, you know, when we're looking at the industrial markets, Kristine, there's a few things that, where we saw, you know, a substantial amount of softness.
Christine: Good morning Christine.
Christine LeLac: You know, with the industrial and market kind of starting to decline here, can you provide more content and detail about what you're seeing in the different end markets and exactly how, how far away we are from a trough and what we'd have to see to see improvement, because it seems like, you know, the issue in the quarter was just a little bit of weakness in the top line. But that said, I mean, you know, with a 45% gross margin for the business, that's still pretty incredible performance. Yeah, well, I, you know, when we're looking at the industry.
Cristina: With industrial end market kind of starting to decline here can you provide more content and detail about what youre seeing in the different end markets.
Speaker Change: And exactly how how far away, we are from a trough and what we'd have to see to see improvement because it seems like you know whether the issue in the quarter was just a little bit of weakness in the top line, but that said I mean with a 45% gross margin for the business, that's still pretty incredible performance.
Dr. Michael Hartnett: Yeah, well, I, you know, when we're looking at the industrial markets, Christine, there are a few things that we saw, you know, a substantial amount of softness, and we've seen that continued for almost 12 months now. And that's in Semiconductors in oil and gas, and on the Semiconductor.
Cristina: Yes.
Cristina: When we're looking at the industrial markets Christine.
Speaker Change: There's a few things that.
Cristina: Where we saw.
Cristina: A substantial amount of softness that we've seen that continued for almost 12 months now.
Michael Hartnett: And we've seen that continued for almost 12 months now. And that's in semi-con in oil and gas. And on the Semi-Con...
Cristina: And that's in Semicon and oil and gas.
Cristina: And then the semi con.
Operator: Hello, I think the line dropped.
Operator: Hello, I think the line dropped. All right, gentlemen, for you, gentlemen.
Speaker Change: Hello, I think the line dropped.
Operator: Hi, gentlemen. This is William General, and this is the operator. Please stand by.
Speaker Change: Hi, gentlemen.
Operator: All right, gentlemen. Ladies and gentlemen, this is the operator. Please stand by.
Speaker Change: Ladies and gentlemen, the CFO or please standby, we're experiencing technical difficulties or zoom momentarily.
Operator: We're experiencing technical difficulties. We'll resume momentarily. Please remain on the line, ladies and gentlemen. Our call will resume momentarily. Please remain on the line. Our call will resume momentarily. Please remain on the line. Ladies and gentlemen, please continue to stand by. The event will resume momentarily.
Operator: We're experiencing technical difficulties. We'll resume momentarily. Please remain on the line, ladies and gentlemen, and our call will resume momentarily. Our conference will resume momentarily.
Speaker Change: Please remain on the line, ladies and gentlemen, our call will resume momentarily.
Speaker Change: Hey, Joanne line, our conference will resume momentarily.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, please continue to standby the event will resume momentarily again please.
Speaker Change: To standby the event will resume momentarily.
Cristina: [music].
Operator: . Once again, ladies and gentlemen, we thank you for your patience. Please continue to stand by. The event will resume momentarily.
Cristina:
Cristina: Oh.
Cristina: Mhm.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Uh-huh.
Speaker Change: Hello.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Once again, ladies and gentlemen, we thank you for your patience. Please continue to standby Stephen will resume momentarily. Thank you.
Operator: Thank you. Please, and gentlemen, thank you for standing by.
Speaker Change: Yeah.
Speaker Change: Okay.
unknown: [inaudible]
Speaker Change: Ladies and gentlemen, thank you for standing by.
Operator: Ladies and gentlemen, thank you for standing by. Gentlemen, you may continue. Christine, please continue with your questions.
Michael Hartnett: Gentlemen, you may continue. Kristine. Please continue with your questions. Where did I lose you, Kristine? Great. Mike, you were talking about semiconductors is where you've seen the weakness, and oil and gas. And that's where the line dropped off. Yeah. Okay. So those are the two majors. The oil and gas is sort of a, we have a major customer. We had a planning problem. And what too much a year ago and now is sort of liquidating that position. We expect him to get better over the year progresses. And the rest of the business, you know, there's a slight downward bias on the rest of the market.
Speaker Change: Gentlemen, you May continue Christine please continue with your questions.
Dr. Michael Hartnett: Where did I lose you, Christine?
Speaker Change: Where does that leave <unk>.
Christine: <unk> Christine.
Christine LeLac: Great. Mike, you were talking about semiconductors where you've seen the weakness in oil and gas, and that's where the line dropped off.
Christine: I'll make you were talking about semiconductors is where you've seen the weakness in oil and gas and Thats, where the line dropped off.
Dr. Michael Hartnett: Yeah, okay, so those are the two two majors: oil and gas. We have a major customer. We had a planning problem and What was too much a year ago and now it is sort of liquidating that position. We expect it to get better over the year. And the rest of the business, you know. There's a slight downward bias on the rest of the market, some positive, some negative, but overall a bias down.
Christine: Yes, okay. So those are that those are the two majors in the oil and gas.
Speaker Change: We have a major customer we had a planning problem and.
Christine: About two months a year ago and now is.
Speaker Change: Sort of liquidating that position, we expect him to get better over the as the year progresses and the rest of the business.
Speaker Change: A slight downward bias on the rest of the market.
Michael Hartnett: Some positive, some negative, but overall, overall, a bias down.
Speaker Change: Some positive some negative but overall, Paul overall bias down.
Christine LeLac: Great, and just to follow up on terms of where we're seeing the weakness. Are these mostly on new builds, or was the slowdown in buying also in the aftermarket if there was a little bit of an overage in buying before?
Kristine Liwag: Great. And just to follow up in terms of, you know, where we're seeing the weakness. Are these mostly on new builds, or was the slow down and buying also in the aftermarket? If there was a little bit of an overigent and buying before.
Speaker Change: Great and just a follow up in terms of where we're seeing the weakness are these mostly on new builds or what was the slowdown in buying also in the aftermarket if there was a little bit of an overage and buying before.
Dr. Michael Hartnett: Yeah, I think it's by and large just a slowdown in the epidemic in the various industrial sectors that support the effort.
Kristine Liwag: Yeah, I think it's, it's, it's a violent largest low down in the aftermarket. So, in the very industrial sectors that support the aftermarket. I see. And then, as you can, as you look at these recovery for each of these end markets, it's much quarter of you think industrial revenue could potentially trust. And do you have any visibility into that?
Speaker Change: Yes, I think it's <unk>.
Speaker Change: <unk> largest slowdown in the aftermarket.
Speaker Change: So in the various industrial sectors.
Speaker Change: Support the aftermarket.
Christine LeLac: I see. And then, as you look at the recovery for each of these end markets, which quarter do you think industrial revenue could potentially peak? And do you have any visibility into that?
Speaker Change: And then as you kind of as you look at the recovery for each of these end markets.
Speaker Change: Quarter do you think industrial revenue could potentially trough and do you have any visibility into that.
Speaker Change: Yeah.
Speaker Change: Okay.
Michael Hartnett: If I had the visibility, I would probably know, you know, what stocks to buy and which stocks to sell, right. I don't have that kind of visibility. What we do have is, is economic models to sort of give us general overall direction. And, and those economic models are saying have been telling us that, you know, it's flat for our third quarter and very strong in our last quarter. And that's sort of how we're, you know, piloting the piloting the ship today.
Dr. Michael Hartnett: If I had the visibility, I would probably know, you know, what stocks to buy and which stocks to sell, right? I don't have that kind of visibility.
Speaker Change: If I had the visibility I would probably know whats backs to buy and which stocks to sell right.
Speaker Change: Don't have that kind of visibility what we do have as is economic models that sort of give us general overall direction.
Christine LeLac: What we do have is economic models that sort of give us a general overall direction, and those economic models are saying, have been telling us that, you know, it's flat through our third quarter and very strong in our last quarter. And that's sort of... how we're, you know, piloting the piloting the script today.
Speaker Change: And those economic models are saying.
Speaker Change: Had been telling us that.
Speaker Change: It's flat to our third quarter and.
Speaker Change: Very strong in our last quarter.
Speaker Change: And that's sort of.
Speaker Change: Our.
Speaker Change: Piloting the.
Speaker Change: Piloting with today.
Speaker Change: Yes.
Kristine Liwag: Well, great. Thank you for the color. I'll get back into you.
Christine LeLac: Well, great. Thank you for the color. I'll get back in queue. Thanks.
Speaker Change: Well great. Thank you for the color I'll get back in queue. Thanks.
Michael Hartnett: Thanks.
Michael Ciarmoli: Thank you. Our next question. This is from the line of Michael, similar only with truest securities.
Speaker Change: Thank you.
Operator: Thank you. Our next question is from the line of Michael Cimarroni with Truist Securities. Please proceed with your question.
Michael <unk>: Next question is from the line of Michael <unk> with <unk> Securities. Please proceed with your question.
Michael Ciarmoli: Please just give your question. Hey, good morning, guys. Thanks for taking the questions. Maybe just to stay on industrial. I can't. The quarterly results on revenue came up short of your guidance was was the industrial weakness. The biggest driver of that delta, or did anything else kind of materialize? No, that was the biggest drive around. It's all about consumption rates and industrial consumption rates. Our estimates of those rates at the beginning of the quarter and the actual consumption that we feed during the quarter creates that are in. Got it, got it. Do you have, you know, that I guess ever since the acquisition of Dodge and, you know, the amount of industrial revenues that go through aftermarket distribution now is pretty sizeable at the company level.
Michael Cimarroni: Hey, good morning guys. Thanks for taking the question. Maybe just to stay on industrial, I guess the quarterly results on revenue came up short of your guidance. Was that, was the industrial weakness the biggest driver of that delta, or did anything else kind of materialize?
Michael <unk>: Hey, good morning, guys. Thanks for taking the questions.
Speaker Change: Maybe just to stay on industrial.
Michael <unk>: Quarterly results on revenue came up short of your guidance was was that what's the industrial weakness the biggest driver of that delta or did anything else kind of materialize.
Dr. Michael Hartnett: No, that was the biggest driver. It's just, you know, it's all about consumption rates and industrial consumption rates. Our estimates of those rates at the beginning of the quarter and the actual consumption that we see during the quarter create a variance.
Speaker Change: No that was the biggest driver is just it's.
Speaker Change: It's all about <unk>.
Speaker Change: Option rates in industrial consumption rates.
Speaker Change: Our estimate for those rates at the beginning of the quarter and the actual consumption.
Speaker Change: We see during the quarter create severe.
Michael Cimarroni: Got it, got it. Do you have any idea why, ever since the acquisition of Dodge, and you know the amount of industrial revenues that go through aftermarket distribution now is pretty, pretty sizable at the company level? I mean, do you have the level of visibility into the distributors to know if there's really going to be a more pronounced D stock in any of these industrial sectors, or do you even have sort of minimum-max thresholds where you have, you know, a certain base level of demand that you're shipping to in the industrial panel?
Speaker Change: Got it got it do you have.
Michael <unk>: I guess ever since the acquisition of Dodge and.
Speaker Change: The amount of industrial revenues that go through aftermarket distribution now is pretty pretty sizable at the company level. I mean do you have the level of visibility into distributors to know if there's really going to be a more pronounced destocking in any of these industrial sectors or do you even pattern.
Michael Hartnett: I mean, do you have the level of visibility into the descriptors to know if there's really going to be a more pronounced destock in any of these industrial sectors, or, you know, do you even have sort of min max thresholds? Do you have, you know, a certain base level of demand that you're shipping to in the industrial panels? Well, we have, you know, we have probably the same information that you have. I mean, you know, some of these are public companies, and the public quite detailed information on what their situation is. And basically I didn't, I don't think there's any, you know, much destocking going on.
Speaker Change: Im sort of Min Max thresholds.
Speaker Change: Have.
Michael <unk>: A certain base level of demand that you're shipping to and in the industrial channels.
Dr. Michael Hartnett: Well, we probably have the same information that you do. I mean, some of these are public companies, and they publish quite detailed information on what their situation is. And basically, I don't think there's much destocking going on. I think part of the year-to-year come, uh... [inaudible] living on the, you know, economic consumption rate. Got it. As do our distributors. I mean, I don't think there's any serious feedback going on anywhere.
Speaker Change: Well, we have we have probably the same information that you have I mean.
Speaker Change: Some of these are public companies.
Speaker Change: The public.
Speaker Change: Detailed information on.
Speaker Change: And what their situation.
Speaker Change: And basically I Didnt I don't think Theres any.
Speaker Change: Much destocking going on.
Michael Hartnett: I think, I think part of the year-to-year comp delta there was that a year ago, we were still benefiting from a recovering supply thing. And cleaning up backlog, you know, those are products that have been on the order book for an extended period of time, but as a result of supply chain difficulties, we couldn't complete those orders. And so last year, we probably benefited from some number that it might be as high as $10 million of that backlog reduction. And this year, we, you know, supply chain is normal. And so we're just, you know, living on the, you know, economic consumption rate.
Michael <unk>: I think.
Speaker Change: Part of the year.
Michael <unk>: Year to year comp.
Michael <unk>: Delta there was that.
Speaker Change: A year ago, we were still benefiting from.
Michael <unk>: A recovering supply thing.
Michael <unk>: And and cleaning up backlog.
Michael <unk>: Our products that have been on.
Michael <unk>: On the order book for an extended period of time, but as a result of the supply chain difficulties, we couldn't complete those orders and so.
Michael <unk>: Last year, we probably benefited from.
Michael <unk>: Some number.
Michael <unk>: It might be as high as $10 million of debt.
Michael <unk>: Reductions in <unk>.
Michael <unk>: Fly chain as normal and.
Michael <unk>: And so we're just.
Michael <unk>: Living on the economic consumption rate.
Michael Hartnett: Got it. As is our distributors. I mean, I don't think there's any serious defect going on anywhere.
Michael <unk>: Got it.
Michael <unk>: As is our distributors.
Michael <unk>: I don't think theres any serious destocking.
Michael Cimarroni: Okay, okay. Do you think as you look out for the remainder of 25, I mean you had a tough comp year-over-year in the first quarter for industrial, but they certainly did better. Do you think industrial growth is for fiscal 25, or do you think it's going to be, you know, sort of single-digit kind of pressure all year?
Michael <unk>: Yes.
Michael Hartnett: Okay. Do you think as you look out for the remainder of 25? I mean, you had a tough comp year over year in the first quarter for industrial, but they certainly did easier. Do you think industrial grows for fiscal 25? Or do you think it's going to be, you know, sort of single-digit kind of pressure all year? You know, our plan, our plan today has a growing. Okay. And that, you know, that works. We're expecting, as I said, a recovery and the coming recovery in semi-con, expecting a milder recovery in oil and gas. And, and, and then the rest of it is about, you know, but I asked for some industrial economic consumption rate.
Speaker Change: Okay. Okay.
Speaker Change: As you look out for the remainder 25, I mean, you had a tough comp.
Speaker Change: Year over year in the first quarter for industrial, but they certainly get easier do you think industrial grows for fiscal 'twenty five.
Michael <unk>: Or do you think it's going to be.
Speaker Change: Sort of low single digit kind of pressure all year.
Dr. Michael Hartnett: You know, I Our plan today has it growing. Okay. And, you know, that's, you know, that's OK. We're expecting, as I said, a recovery in Semicon, a milder recovery in Bearings, in oil and gas. And then the rest of it is about, you know, industrial economic consumption.
Speaker Change: Our plan our plan today.
Speaker Change: Is it growing.
Speaker Change: Okay.
Speaker Change: That's.
Speaker Change: We're expecting as I said.
Speaker Change: Recovery in gum recovery Semicon, we expecting.
Speaker Change: Milder recovery.
Speaker Change: And oil and gas.
Speaker Change: And.
Speaker Change: And then the rest of it is about.
Speaker Change: As for industrial economic consumption rate.
Michael Hartnett: Okay. Got it.
Michael Cimarroni: Okay, okay, got it. And then just real quick, and then I'll jump off here.
Speaker Change: Okay. Okay got it and then just real quickly and then I'll jump off here.
Rob Sullivan: And then just real quickly, and then I'll jump off here. Any, any more detail on the year over your growth rates by, by channel and aerospace, arrow OEM, aftermarket distribution, I think you've called out defense already. Yeah, I think Rob can give you those. He's looking at it now, so I'll turn the call over to Rob. Yeah, they were very consistent. They were both, you know, right around that, 23-7 points for OED at 23-9, so very consistent. Okay. Perfect. All right, guys. I'll jump back in the queue.
Speaker Change: Any more detail on the.
Michael Cimarroni: Any more detail on the year-over-year growth rates by channel and aerospace, Aero OEM, and aftermarket distribution? I think you've called out defense already.
Speaker Change: The year over year growth rates by channel in aerospace.
Speaker Change: The OEM aftermarket distribution I think you called out defense already.
Dr. Michael Hartnett: Yeah, I think Rob can give you those. He's looking at them now, so I'll turn the call over to Rob.
Speaker Change: Yes, I think I think Rob can give you those.
Speaker Change: He is looking at it now so I will turn the call over to Rob Yes. They were very consistent Mike David There were both.
Rob: Yeah, they were very consistent. Like, they were both, you know, right around that 23,720 per OEM, 23,950.
Rob: Right around that 20.
Speaker Change: <unk> revenue.
Rob: For Oems.
Rob: So, very consistent.
Speaker Change: So very consistent okay.
Michael Cimarroni: Okay, perfect. All right, guys, I'll jump.
Speaker Change: Okay, perfect Alright, guys I'll jump back in the queue. Thanks.
Michael Cimarroni: All right, guys. I'll jump back in the queue, thanks.
Pete Skibitski: Thanks. Our next question is from the line of Pete Skibitski with Olympic Global. Please see with your questions. Hey, good morning, guys. Nice performance. Hey, Mike, just on, you know, the torrid growth and defense, I think you said 38%. It was there, you know, a few programs that are helping to drive that, or, you know, because you're just growing just so much above the market, above all the OEM. So I'm just wondering if you can give us more color on what's driving that. It's like the fourth quarter of a row of that type of really strong growth.
Operator: Our next question is from the line of Pete Skibitzky with Olympic Global. Please proceed with your questions.
Peter <unk>: Our next question is from the line of Peter <unk> with Alembic Global. Please proceed with your questions.
Pete Skibitzky: Hey, good morning guys. Nice performance. Um, Hey, Mike, just on, you know, the TOR and growth and defense, I think you said 38%. Are there, you know, a few programs that are helping to drive that or, you know, because you're just growing just so much above the market, above all the OEMs? So I'm just wondering if you could give us more color on what's driving that. It's like the fourth quarter in a row of that type of really strong growth.
Peter: Hey, good morning, guys nice performance.
Peter: Hey, Mike just on the torrid growth in defense I think you said, 38%.
Peter <unk>: It was there a few programs that are helping to drive that or.
Speaker Change: Could you just growing just so much above the market above all the OEM. So I'm just wondering if you could give us more color on what's driving that for the fourth quarter in a row that type of really strong growth.
Pete Skibitzky: And I don't know if you talk about pricing at all in terms of, you know, pricing, maybe finally catching up with past inflation, because I know you're on a lot of LTAs as well. So just if you could comment.
Pete Skibitski: And I don't know if you can talk about pricing at all in terms of, you know, pricing may be finally catching up with past inflation, because I know you're on a lot of LTA as well. So just if you could comment there.
Speaker Change: I don't know if you can talk about pricing at all in terms of pricing, maybe finally catching up with past inflation, because I know youre on a lot of LTA as well. So just if you could comment there.
Dr. Michael Hartnett: Yeah, just to get the pricing thing out of the way, I don't think we're seeing any benefit from that right now. A lot of our contracts roll over in 2025 and 2026, so we're really still living with prices that we're probably set at, in 21, maybe 20, maybe 19.
Michael Hartnett: Yeah, just to get the pricing thing out of the way, you know, we're not thinking, I don't think we're seeing any benefit from that right now. You know, a lot of our contracts roll over in 25 and 26. So, you know, we're really still living with prices that were probably set in 21, maybe 20, maybe 19. So that's basically that's headwind for us. But there are there are several major programs that that we're involved with right now that are going to continue to drive that kind of that kind of expansion. And it's a, I think the year to year comes will become more difficult because it started about a year, though.
Speaker Change: Yes.
Speaker Change: Just to get the pricing thing out of the way.
Speaker Change: Dan I don't think were seeing any benefit from that right now and a lot of our contracts rollover in 'twenty, five and 26, though.
Speaker Change: Yes, we're really still living with prices that were.
Speaker Change: He said.
Dan: In 'twenty, one maybe 'twenty maybe 19.
Dr. Michael Hartnett: So, um... So that's basically a headwind for us. But there are several major programs that we're involved with right now that are going to continue to drive that kind of... It's a...
Speaker Change: So.
Speaker Change: So thats thats basically.
Speaker Change: <unk> for us.
Speaker Change: But is there are there are several major programs that.
Speaker Change: That we're involved with right now.
Speaker Change: Yes.
Speaker Change: Are going to continue to drive.
Speaker Change: That kind of that kind of.
Speaker Change: Expansion.
Speaker Change: It's a.
Speaker Change: Okay.
Dr. Michael Hartnett: I think the year-to-year comparisons will become more difficult because it started about a year ago. But when you talk about, you know, the need to build submarines, that's not going away for, you know, five or ten years, probably ten years.
Speaker Change: I think the year to year comps will become more difficult because.
Speaker Change: It started about a year ago.
Michael Hartnett: But when you talk about, you know, the need to build up marine. That's not going away for, you know, five or 10 years, probably 10 years. That's going to be very demanding on us. Missile, the ending joint strike fighter demanding long range bomber demanding. So there's just a lot of really big programs that we're working on. And also the cancellation of the borrow program for the scout helicopter that impacted the court and Lockheed as a result benefited the other shifts that were on tremendously because, you know, the other, the other shifts were sort of in some extent, a hiatus, like the 47, the 47, the Apache.
Speaker Change: But when you talk about.
Speaker Change: The need to build submarine.
Speaker Change: That's not going away for.
Speaker Change: Five or 10 years, probably 10 years.
Dr. Michael Hartnett: That's going to be very demanding on us. Missile Demanding, Joint Strike Fighter Demanding, Long Range Bomber Demanding. So there's just a lot of really big programs that we're working on, and also the cancellation of the FARA program for the Scout Helicopter that impacted the Corky and Lockheed as a result benefited the other ships that were on tremendously because, you know, the other ships were sort of, to some extent, a hiatus like the CH-47 and the Apache.
Speaker Change: That's going to be very demanding on.
Speaker Change: On us.
Speaker Change: Missiles.
Speaker Change: Demanding joined.
Speaker Change: Joint strike fighter demanding long range bomber demanding so theres, just a lot of really big programs that.
Speaker Change: That we're working on and also the cancellation of the <unk> program.
Speaker Change: For the Scout helicopter.
Speaker Change: That impacted the core fee and Lockheed as a result.
Speaker Change: Benefited the other ship that we're on tremendously because.
Speaker Change: The other the other work sort of in.
Speaker Change: To some extent on hiatus.
Speaker Change: 47.
Speaker Change: Seven the Apache.
Dr. Michael Hartnett: The Blackhawk, those are, you know, major important platforms for us, and the rest of the world didn't know whether they could buy those platforms or not based upon whether, yeah, where the DOD money was heading. And that environment has cleared, and there's a lot of interest, foreign interest, in those platforms. So, you know, it's kind of a perfect storm for us on the defense side.
Michael Hartnett: The Black Hawk, those are, you know, major important platform for us. And the rest of the world didn't know whether they could buy those platforms or not based upon where the, yeah, where they do money with that. And that seemed to that environment has cleared and there's a lot of, there's a lot of interest for an interest in those platforms. So, you know, we're just, it's kind of a perfect one for us on the defense.
Speaker Change: The Blackhawk those are major important platform for us.
Speaker Change: And the rest of the world didn't know what to buy those platforms that are not based upon where the year.
Speaker Change: Where the Doj remind me with that one.
Speaker Change: And that environment is cleared and.
Speaker Change: There's a lot of there's a lot of interest for an interest in those and those platform. So.
Speaker Change: It's kind of a perfect long career.
Speaker Change: The defense side.
Pete Skibitzky: Yeah, okay. That makes sense.
Pete Skibitski: Yeah, okay. It makes sense.
Speaker Change: Yes, Okay. It makes sense just one follow up for me maybe on the commercial side.
Pete Skibitski: Just one follow-up for me, maybe on the commercial side. It sounds like Boeing is at about on the max. They're at about 25 per month now in June and July. Can you guys just remind us where you were over the past couple of quarters? I think they've been maintaining you like in the 30s or so. Is that sound about right? Yeah, that sounds about right. I think that I think our planning now is probably at a 33 degree. Although they've indicated there'll be at 38 by the end of the year, and the new CEO has agreed with that.
Pete Skibitzky: Just one follow-up for me, maybe on the commercial side. It sounds like Boeing is at about, on the max, they're at about 25 per month now in June and July. Can you guys just remind us where you were over the past couple of quarters? I think they've been maintaining you in the 30s or so. Does that sound about right?
Speaker Change: It sounds like Boeing is at about.
Speaker Change: The Max there at about 25 per month now in June and July.
Speaker Change: Can you guys just remind us where you were over the past couple of quarters I think David maintaining you like in the Thirty's or so is that sound about right.
Dr. Michael Hartnett: Yeah, that sounds about right. I think... Our planning now is probably... at a 33 degree angle. Although they've indicated they'll be at 38 by the end of the year, and the new CEO has agreed with that. I hope when he goes up to his office, he agrees with it even further. Um, but... You know, so, yeah, I think we have a very modest expectation built into our planning with regard to Boeing demand and that seems to be. That seems to be the way it's playing now.
Speaker Change: Yes that sounds about right I think.
Speaker Change: Thank you.
Speaker Change: Our planning now is probably.
Speaker Change: At a at a 33.
Speaker Change: Although they.
Speaker Change: Indicated there'll be at 38 by the end of the year.
Speaker Change: And the <unk>.
Speaker Change: No.
Speaker Change: As agreed with that.
Michael Hartnett: I hope when he goes up at his office, he agrees with it even further. But you know it's so, yeah, I think we think we have a very modest expectation built into our planning with regard to Boeing demand, and that seems to be, that seems to be the way it's playing out. Yeah, and if they make that 38 array by the end of the year, I imagine your potential you could accelerate.
Speaker Change: I hope.
Speaker Change: It goes up it is office.
Speaker Change: <unk> with it even further.
Speaker Change: But.
Speaker Change: So so yes, I think we think we have a very modest.
Speaker Change: Yes.
Speaker Change: Spectation built into our planning with regard to Boeing demand.
Speaker Change: And that seems to be.
Speaker Change: That seems to be the way, it's playing out.
Pete Skibitzky: Yeah, and if they make that 38 a rate by the end of the year, I imagine, potentially, you could accelerate, I guess, you know, into fiscal 26, it sounds like.
Speaker Change: Yes, and if they make that 38 of rate by the end of the year I imagine youre potentially you could accelerate I guess.
Michael Hartnett: I guess you know in the fiscal 26, it sounds like. Yeah, well, you know, I think I think they've got to get, you know, the FAA to approve of, you know, a step up beyond 38, assuming they can get to 38. And so, you know, obviously our parts for the most part have to be available for six months ahead of the year. That's our planning cycle ahead of the aircraft assembly rates. So, you know, that's kind of moved that move April into October on the 38 way. So we should be really, really conservative using a certain food planning way.
Speaker Change: In fiscal 2006, it sounds like.
Dr. Michael Hartnett: Yeah, well, I think they've got to get the FAA to approve a step up on 38, assuming they can get to 38. You know, obviously, our parts, for the most part, have to be available six months ahead of time. That's our planning cycle ahead of the aircraft assembly rates. So, you know, that's kind of moved. That moved April into October on the 38 ring. So we should be really, really... conservative using a 30-foot planning length.
Speaker Change: Yes.
Speaker Change: I think I think they have got to get the FAA to accrue.
Speaker Change: Step up 38, assuming they can get to 38.
Speaker Change: <unk>.
Speaker Change: And so.
Speaker Change: Obviously our parts.
Speaker Change: For the most part have to be available for six months ahead of.
Speaker Change: That's our planning cycle ahead of the aircraft.
Speaker Change: Assembly rates.
Speaker Change: So.
Speaker Change: That's kind of move.
Speaker Change: That move April into October.
Speaker Change: On the 38, so we should be really really.
Speaker Change: Conservative using a 32 planning.
Michael Hartnett: Right, right.
Pete Skibitzky: Right, right. Okay. Appreciate it. Thank you. Our next question is from the line of Jordan Leonace with Bank of America. Hey, good morning. On M&A...
Speaker Change: Right right. Okay I appreciate it thank you.
Pete Skibitski: Okay, appreciate it. Thank you.
Jordan Lyonnais: Our next question is from the line of Jordan Leonies with Bank of America. Please excuse your questions. Hey, good morning. On a minute, did you guys give any color on deals in the type what you're seeing? Any changes in size or scope into if you're looking at anything to get more capacity, I see Andy side keeps going at this rate. Well, I think we're seeing A&D-like companies coming to market, and we're investigating the fit with RBC. We have really nothing to report at this point. Obviously, if one of those companies does come to market, they'll likely come to market with their own capacity.
Operator: Our next question is from the line of Jordan Leonace with Bank of America. Hey, good morning. About M&A...
Jordan <unk>: Our next question is from the line of Jordan <unk> with Bank of America. Please proceed with your question.
Jordan <unk>: Hey, good morning on M&A could you guys give any color on deals in the pipe what youre seeing.
Speaker Change: Any changes in size.
Speaker Change: <unk>.
Speaker Change: And two if you are looking at anything too.
Speaker Change: You have more capacity.
Speaker Change: A&D side keeps growing at this rate.
Speaker Change: Yes.
Jordan Leonace: Well, I, you know, I think so. We're seeing A and D, like companies coming to market, and we're, We're investigating the fit with RBC. We really have nothing to report at this point.
Speaker Change: Well.
Speaker Change: I think it.
Speaker Change: Okay.
Speaker Change: We're seeing A&D.
Speaker Change: Like companies coming to market.
Speaker Change: And we are.
Speaker Change: We are investigating that fit with RBC, we havent really nothing to report at this point.
Dr. Michael Hartnett: Obviously, if one of those companies does come to market, they'll likely come to market with their own capacity, so they probably won't tax ours. But there's just a lot going on in the A&D world, and we can either... And we're very pleased with our growth in that sector and the outlook for that sector for the next several years. So we're being cautious and conservative about what we take on.
Speaker Change: Obviously, one of those companies does come to market, though likely come to market with their own capacity.
Michael Hartnett: So, probably won't tax ours. But there's just a lot going on in the A&D world. And we can either, and we're very pleased with our growth in that sector and the outlook in that sector for the next several years. So we're being cautious and conservative about what we take on.
Speaker Change: Probably won't tax ours.
Speaker Change: But.
Speaker Change: Theres just a lot going on in the A&D World and we can either.
Speaker Change: We can.
Speaker Change: We're very pleased with our growth in that sector and the outlook in that sector for the next several years. So we're being we're being cautious and conservative about what we take on.
Jordan Lyonnais: Got it. Thank you.
Speaker Change: Got it thank you.
Steve Barger: Our next question is from the line of Steve Barger with Key Bank Capital Markets. Please excuse your questions. Thanks. Hey Mike, seeing growth margin above 45% with industrial down three and a half is great performance. Thank you. Was that all mixed in aerospace yet? Sure, you earned it.
Operator: Our next question is from the line of Steve Barger with KeyBank Capital Markets. Please proceed with your question.
Speaker Change: Our next question is from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.
Steve Barger: Thanks. Hey Mike, seeing gross margin above 45% with industrial down three and a half is a great performance. Thank you.
Steve Barger: Thanks, Hey, Mike seeing gross margin above 45% with industrial down three and a half is great performance.
Steve Barger: That all makes and Eric Smith, yes.
Eric Smith: Sure you earned what.
Michael Hartnett: What was that all mixed in aerospace, or was there something unusual in there? Now, you know, aerospace contributed, you know, its margin is improving. I think it's, as I said, that we have a lot of contracts that we're working our way through that we're, that we're inked in 19, 20 and 21 that are a little bit of a headwind. We're becoming more efficient in the execution of those contracts, just because there's more volume and more adoption is a result of that. We have also, you know, better methods and a little better capitalization here and there to execute some of those designs.
Eric Smith: Was that all mix in aerospace or was there something unusual in there.
Dr. Michael Hartnett: Um, no, you know, aerospace... Um, contributed. You know, its margin is improving. I think it's As I said, we have a lot of contracts that we're working our way through that were inked in 1920 and 21 that are a little bit of a headwind. We're becoming more efficient in the execution of those contracts just because there's more volume and there's more absorption as a result of that. We also have better methods and a little better capitalization here and there to execute some of those designs. I would say it was a very solid performance on the industrial side that really, really carried the day.
Steve Barger: No.
Speaker Change: Aerospace.
Speaker Change: Contributed.
Speaker Change: Okay.
Speaker Change: Its margin is improving I think its.
Speaker Change: As I said, we have a lot of contracts that we're working our way through that.
Speaker Change: There were inked to 19, 2020 one.
Speaker Change: Debt.
Speaker Change: A little bit of a headwind.
Speaker Change: We're becoming more efficient in the execution of those contracts just because there's more volume and more absorption as a result of that we have also better message a little better capitalization here in there too.
To execute some of those design so.
Michael Hartnett: So I would say it was a very solid performance on the industrial side that really, really carried today. So industrial margins were up, even against negative three and a half percent organic. Yes, that's right.
Speaker Change: I would say very solid performance on the industrial side that really really carry the day.
Steve Barger: So industrial margins were up even against the negative 3.5% organic.
Speaker Change: So industrial margins were up even against negative three 5% organic yes.
Dr. Michael Hartnett: Yes, that's right.
Speaker Change: Yes, that's correct.
Steve Barger: And what in industrial drove that? Because that's a pretty big absorption headwind to overcome, isn't it? Like what was in the mix that made that so rich?
Michael Hartnett: And what in industrial drove that because that's a pretty big absorption headwind over, isn't it? Like what, what was in mix that made that so rich? Well, you know, we've been talking about synergies for a long time. And we're starting to see it. You know, they did have a favorable mix this quarter. I can't say that we're going to see margins like that forever, but we saw it in the first quarter. You know, I think the neighborhood that will probably end up living in is more like 44% when the year’s all done. But we'll see that's hard to predict.
Speaker Change: And what in industrial drove that because.
Speaker Change: That's a pretty big absorption headwind over.
Speaker Change: Like what was it mix that made that so rich.
Dr. Michael Hartnett: Well, you know, we've been talking about synergies for a long time, and we're starting to see it. They did have a favorable mix this quarter. I can't say that we're going to see margins like that forever, but we saw it in the first quarter. I think the neighborhood that we'll probably end up living in is more like 44% when the year's all done. But we'll see; that's hard to predict.
Speaker Change: Well.
Speaker Change: We've been talking about synergies for a long time.
Speaker Change: Turning to see it.
Speaker Change: They did have a favorable mix this quarter I can't say that we're going to see margins like that forever, but.
Speaker Change: We saw it.
Speaker Change: In the first quarter.
Speaker Change: The neighborhood that will probably end up living in.
Speaker Change: Like 44% when the year is all done but.
Speaker Change: But we'll see.
Speaker Change: Hard to predict.
Michael Hartnett: So, you know, there's a lot of synergies that we went on, mixed with favorable plant efficiencies, were absolutely better. There's no question about that. I mean, they're operating in their sweet spot. And we've had methods improvements, and we've had improvement in supply chain cost structure. So, you know, everybody, you know, everybody sort of has the has a role when they come to work in the morning and a little piece of each. Each one of these issues, and, you know, they can do it differently. It makes a difference.
Steve Barger: So, you know, there's a lot of synergies that went on. The outcome was favorable, plant efficiencies were absolutely better. There's no question about that. I mean, they're operating in their sweet spot. And we've had methods improvement. And we've had improvement in the supply chain cost structure. So, you know. Everybody sort of has a role when they come to work in the morning, and a little piece of each one of these issues, and cumulatively, it makes a difference.
Speaker Change: So there's a lot of things.
Speaker Change: Mix was favorable.
Speaker Change: Plant efficiencies were absolutely better Theres no question about that I mean, they're they're operating in their sweet spot.
Speaker Change: And we've had methods improvements.
Speaker Change: And we've had.
Speaker Change: We've had improvement.
Speaker Change: And supply chain cost structure so.
Speaker Change: Everybody everybody sort of has to.
Speaker Change: It has.
Speaker Change: Our role when they come to work in the morning, and a little piece of each each one of these issues and.
Speaker Change: Cumulative Lee.
Speaker Change: Make the difference.
Dr. Michael Hartnett: So, I guess you're guiding fiscal 2Q gross margin down 1 or 200 basis points against what is obviously a tough comp, but is there any specific thing causing that sequential decrease?
Michael Hartnett: So, so I guess you're guiding fiscal two key growth margin down one or 200 basis points against what is obviously a tough comp. But is there any specific thing causing that sequential decrease? Yeah, I think you have fewer production days than Q two and Q three. You know, that's been pretty consistent over time. So, you have a little bit of a headwind there. And then you couple that with the favorable mix we had in the first quarter. It just adds up to, you know, this is where we're seeing things in the Q2. And the right way to look at it, it's probably more on a near-over-year basis, right?
Speaker Change: So.
Speaker Change: I guess, you're guiding fiscal <unk> gross margin down one or 200 basis points against what is obviously a tough comp but is there any specific thing, causing that sequential decrease.
Dr. Michael Hartnett: I mean, I think you have fewer production days in Q2 and Q3. You know, that's been pretty consistent over time, so you have a little bit of a headwind there. And then you couple that with the favorable mix we had in the first quarter, it just adds...
Speaker Change: Yes. Thank you fewer production days in Q2 and Q3.
Speaker Change: That's been pretty consistent over time, so you have a little bit of a headwind there and then you couple that with the favorable mix we had in the first quarter.
Dr. Michael Hartnett: It just adds up to, you know. This is where we're seeing things in the Q2.
Speaker Change: You just add up to.
Speaker Change: This is where we're seeing.
Speaker Change: In Q2.
Steve Barger: And the right way to look at it is probably more on a year-over-year basis, right, and you'll notice that the range is catching up.
Speaker Change: And the right way to look at it probably more on a year over year basis right.
Steve Barger: And do you want to set the range to calculate some expansion coming up here? Understood. And then on the revenue side, you know, aerospace is up 24% against the 21% comp. You talked about all the things that are going right there. Do you expect 20% plus growth again in 2Q? You know, we're not planning for it, but I can't say that it won't happen.
Speaker Change: The range casually.
Speaker Change: Thank you.
Steve Barger: And then on the revenue side, you know, aerospace is up 24% against the 21% comp. You talked about all the things that are going right there. Do you expect 20% plus growth again in 2Q?
Speaker Change: Understood.
Speaker Change: And then on the revenue side aerospace was up 24% against the 21% comp you talked about all the things that are going right. There do you expect 20% plus growth again in <unk>.
Speaker Change: Okay.
Dr. Michael Hartnett: Um, you know. We're not planning for it, but I can't say that it won't happen.
Speaker Change: No.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We're not planning for it.
Speaker Change: But I can't say that it won't happen.
Steve Barger: Well, I guess the question then is, you know, you expect industrial to recover in the back half. Do you think that's up sequentially from a revenue standpoint, or is that more likely down given some of the softens that you're seeing right now? Yeah, that's more that's more likely down. Understood.
Steve Barger: Well, I guess the question then is, you know, you expect industrial to recover in the back half. Do you think that's up sequentially from a revenue standpoint, or is that more likely down given some of the softness that you're seeing right now? Yeah.
Speaker Change: Well I guess the question that is.
Speaker Change: Do you expect industrial to recover in the back half do you think that's up sequentially from a revenue standpoint or is that more likely down given some of the softness that youre seeing right now.
Dr. Michael Hartnett: Yeah, that's more like it.
Speaker Change: More likely down.
Steve Barger: Understandable. All right. Thanks very much. Yes.
Speaker Change: Understood Alright, thanks very much.
Steve Barger: All right. Thanks very much.
Steve Barger: Yep.
Vivek Srivastava: Our next questions from the line of Joe Rite with Goldman Sachs. Let's just use your questions. Thanks. This is Vivek Srivastava on for Joe. I just want to start with a more long term question. Your EBITDA margin is quarter 32.9%, the highest we've seen. If previously talked about mid 30s, long term EBITDA margin, which is not far away from where you are today. So just wondering what kind of updated long-term margins you have your eyes set on and just how to think about the margin improvement part from here. Once the industrial businesses do start in collecting positively.
Operator: Our next question is from the line of Joe Ritchie with Goldman Sachs. Please proceed with your question.
Speaker Change: Our next question is from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions.
Vivek Srivastava: Thanks, this is Vivek Srivastava on behalf of Joe. I just want to start with a more long-term question. Your EBITDA margin this quarter, 32.9%, is the highest we've seen. You've previously talked about the mid-30s long-term EBITDA margin, which is not far away from where you are today. So I was wondering what kind of updated long-term margins you have your eyes set on and just how to think about the margin improvement path from here once the industrial businesses do start inflecting positively.
Speaker Change: Thanks.
Sure Ross on for Joe I, just wanted to start with a more long term question.
Speaker Change: Your EBITDA margin this quarter by 9% the highest we have seen.
Speaker Change: You previously talked about mid <unk> long term EBITDA margin, which is not far away from where you are today. So just wondering what kind of updated long term margins you have your eyes set on and just how to think about the margin improvement bought from here one thing Thats channel business is dual start inflicting positively.
Michael Hartnett: You know, we're thrilled with 33% that we achieved this year. You know, we are far ahead coming out of the gate of what we talked about into one. We talked about, you know, where we're seeing gross margins and accused you. So, you know, our mission is to continue to increase the lemon to expand margin every quarter is best for our ability. So we're not, you know, we're not looking to put out long-term guidance, but we are telling you that we're continuing to thrive. You know that EBITDA margin, and I think, you know, we have opportunities in different parts.
Dr. Michael Hartnett: You know, we're thrilled with the 33% that we achieved this year.
Speaker Change: We're thrilled with a 33% that we achieved this year.
Speaker Change: We were far ahead coming out of the gate, what we talked about in Q1, we talked about we're seeing gross margins into Q2.
Dr. Michael Hartnett: Far ahead, coming out of the gate of what we talked about in Q1, we talked about where we're seeing gross margins in Q2. Our mission is to continue to squeeze the lemon, to expand margin every quarter as best we can to our ability. So we're not, you know... We're not looking to put out long-term guidance, but we are telling you that we're continuing to strive to seek out that IBIDA margin, and I think, you know, we have opportunities in different areas.
Speaker Change: Our mission is to continue to squeeze the lemon to expand margin every quarter.
Speaker Change: So our ability.
Speaker Change: So we're not.
Speaker Change: We're not looking to put out long term guidance, but we are telling you that were.
Speaker Change: Right.
Speaker Change: EBITDA margin and I think we.
Speaker Change: We have opportunities in different pockets.
Vivek Srivastava: That's helpful, and maybe just to follow up on that as your margin continues to improve, industrial growth. Your long term target probably close to two times GDP is reinvesting within the industrial business. Something that could potentially accelerate a bit more from here to return to that two times GDP growth target. I can clarify.
Vivek Srivastava: And maybe just to follow up on that, as your margin continues to improve on industrial growth, your long-term target, probably close to two times GDP, is reinvesting within the industrial business something that could potentially accelerate a bit more from here to return to that two times GDP growth target?
Speaker Change: That's helpful. And then maybe just a follow up on that margin continues to improve.
Speaker Change: Industrial grow what's your long term target probably close to two times GDP is investing within the industrial business something that could potentially excavator based more from air to return to that two times GDP growth target.
Vivek Srivastava: Can you clarify? I'm sorry.
Speaker Change: Can you clarify im sorry.
Michael Hartnett: I'm sorry. Yeah, just given you're getting such strong margins right now, we'll reinvesting back in the business for growth. Be something that could potentially accelerate from here on. Well, I think those are two different things that we're reinvesting in the industrial business. Um, for, um, crossed reasons. In other words, we're trying to reduce our cost of sales by putting in capital equipment that will make our plants more efficient and incorporate manufacturing processes that we don't have in-house today and are very expensive to buy in the outhouse. So that's ongoing, and we're making not in substantial investments in those kinds of machinery.
Vivek Srivastava: Yeah, just given you're getting such strong margins right now, will reinvesting back in the business for growth be something that could potentially accelerate from here on? Well, I think that would be
Jeff: Yes, Jeff.
Jeff: Given youre getting such strong margin side now with reinvesting back into the business.
Speaker Change: Be something that could potentially accelerate from here on.
Dr. Michael Hartnett: Well, I think those are two different things that we're reinvesting in the industrial business for cost reasons. In other words, we're trying to reduce our cost of sales by putting in capital equipment that will make our plants more efficient and incorporate manufacturing processes that we don't have in-house today and are very expensive to buy in the outside world. So that's ongoing, and we're making not insubstantial investments in those kinds of machinery. Um, and so that's why we're reasonably confident that that'll accrue to gross margin over time.
Speaker Change: Well I think those are two different things that we're reinvesting in the industrial business.
Jeff: Yeah.
Four.
Speaker Change: Cost reasons in other words, we're trying to we're trying to reduce our cost of sales by putting in capital equipment that will make.
Jeff: Our plants more efficient and incorporate.
Jeff: Manufacturing processes that we don't have in house.
Speaker Change: <unk> today.
Speaker Change: Are very expensive to buy in the outhouse.
Speaker Change: <unk>.
Speaker Change: That's that's ongoing and we're making.
Speaker Change: Substantial investments and those kinds of machinery.
Michael Hartnett: So that's where we're reasonably confident that that'll accrue to gross margin over time. In terms of growth, you know, the industrial business on an annual rate now is probably running over a billion dollars. So in order to really, you know, impact that kind of number to get the internal growth mechanism performing at a measurable level, requires some pretty big project. And ultimately, and so we have our eye on some pretty big projects, but ultimately those bigger projects take time to implement. And so we've just got to work through that. And that's, that's sort of ongoing right now.
Speaker Change: That's why we're reasonably confident that that will that will accrue to gross margin over time.
Dr. Michael Hartnett: In terms of growth, you know, the industrial business is probably running over a billion dollars per year now. So in order to really impact that kind of number, to get the internal growth mechanism performing at a measurable level requires some pretty big projects. And ultimately, and so we have our eye on some pretty big projects, but ultimately, those bigger projects take time to implement. And so we've just got to work through that. And that's sort of ongoing.
Speaker Change: In terms of in terms of growth.
Speaker Change: The industrial.
Speaker Change: Real business on an annual basis.
Speaker Change: Right now, it's probably running over $1 billion.
Speaker Change: So in order to really impact that kind of number.
Speaker Change: To get.
Speaker Change: To get the internal growth mechanism.
Speaker Change: Performing Ed.
Speaker Change: And ultimately and so we have our eye on some pretty big projects, but ultimately those bigger projects take time to implement and so we've just got to work through that.
Speaker Change: And that's sort of ongoing right now.
Michael Hartnett: That's that's very helpful. Thanks for that. Maybe one last question from me. Just on the backlog notice that in the facilities, you provided backlog beyond 12 months, but we didn't see backlog due within 12 months. Just wanted to understand the rationale behind that and just any color on the backlog due within 12 months. Yeah, we, you know, we made a strategic decision and communicated last quarter that from here on out, we were just going to be presenting the full on backlog because that is such a significant part of our business, especially on the defense side of its point.
Vivek Srivastava: That's very helpful, Karar. Thanks for that. Maybe one last question from me. Just on the backlog, notice that in the press release, you provided backlog beyond 12 months, but we didn't see backlog due within 12 months. Just wanted to understand the rationale behind that.
Speaker Change: That's that's very helpful color. Thanks for that maybe one last question from me just on the backlog notice that in the press release.
Speaker Change: You provided backlog beyond 12 months, but.
Speaker Change: We didn't see backlog deal within 12 months, just wanted to understand the rationale behind that and just any color on the backlog due within 12 months.
Dr. Michael Hartnett: Yeah, we made a strategic decision and communicated last quarter that from here on out, we were just going to be presenting the full-on backlog because that's such a significant part of our business.
Speaker Change: Yes.
Speaker Change: We made a strategic decision and communicated last quarter that from here on out we were just going to be presenting to full on backlog because that.
Speaker Change: It's such a significant part of our business, especially on the defense side at this point, we think that's the more appropriate way to look at our overall backlog position.
Dr. Michael Hartnett: At this point, we think that's the more appropriate way to look at our overall backlog.
Vivek Srivastava: We think that's the more appropriate way to look at our overall backlog condition. Very helpful.
Vivek Srivastava: Very helpful. I'll pass it on. Thanks.
Speaker Change: Very helpful I'll pass it on thanks.
Vivek Srivastava: I'll pause it on thanks. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Timothy Thein: Our next question is from one of Tim's things with Raymond James. Could you see with your questions? Yeah, thanks.
Operator: Our next question is from the line of Tim Thain with Raymond James. Please proceed with your question.
Speaker Change: Our next question is from the line of Tim Thein with Raymond James. Please proceed with your questions.
Tim Thain: Yeah, thanks. Good morning.
Tim Thain: Just, I guess, one for me is on gross margins and a lot, obviously, discussed here in terms of the outlook for the second quarter, but I was thinking, you know, in terms of, I believe, the expectation coming into the year was that you may see more of a lift in the back half of the year as you better absorb some of that aerospace fixed capacity and the Dodge synergies, you know, kick in even more. But, you know, A, the industrial economy obviously being weaker, does that change the outlook in terms of, you know, on the dodge side?
Tim Thein: Yeah. Thanks, Good morning, just one for me.
Timothy Thein: Good morning. Just one for me is on the gross margins, and a lot obviously discussed here in terms of the outlook for the second quarter. But thinking, in terms of, I believe the expectation coming into the year was that you may see more of a lift in the back half of the year as you better absorb some of that aerospace fixed capacity and the Dodge synergies kick in even more. But as the industrial economy obviously being weaker, does that change the outlook in terms of, you know, on the Dodge side? And then I guess related to that, was there some maybe pull ahead that maybe some of those benefits that would work, you're expecting more in the later part of the year?
Tim Thein: On the gross margins and.
Speaker Change: A lot obviously you discussed here in terms of the outlook for the second quarter, but in terms of.
Speaker Change: Believe the expectation coming into the year was that.
Speaker Change: You may see more of a lift in the back half of the year as you.
Speaker Change: Better absorption of that aerospace fixed capacity.
Don: And then Don synergies.
Don: And even more but.
Don: Yes.
Speaker Change: The industrial economy, obviously being being weaker does that.
Don: Is that.
Speaker Change: Change the outlook in terms of.
Speaker Change: No.
Speaker Change: On the Dod side, and then I guess.
Tim Thain: And then, I guess, related to that. Was there some maybe pull ahead that maybe some of those benefits that we're expecting more in the later part of the year, maybe they came earlier as a contributor in the first quarter. So I guess, simply stated, is the expectation still that there's room for even more kind of a second half lift from some of these drivers?
Speaker Change: <unk> to that is was there some maybe pull ahead that maybe some of those benefits that.
Speaker Change: Works irrespective more in the later part of the year, maybe they came earlier.
Michael Hartnett: Maybe they came earlier as a contributor in the first quarter. So I guess simply stated, as the expectation still that there's room for more, even more kind of a second half, lift from some of these drivers. You know, right now we continue to expect the second half to have lift. You know, one of the things that attracted us to Dodd, who we bought Dodd, is when you look at the revenue performance at Dodd's over a series of years, you know, through various economic cycles, it's a very so integrated into the U.S. infrastructure that, you know, when you're pouring your cereal in the morning, we actually had come to do with that.
Speaker Change: As a contributor in the first quarter, so I guess simply.
Speaker Change: Simply stated.
Speaker Change: Bill is the expectation still that there is room for more even more kind of a second half lift from some of these drivers.
Dr. Michael Hartnett: Yeah, well, right now, we continue to expect the second half, half lift. One of the things that attracted us to Dodge when we bought it was when you look at the revenue performance at Dodge over a series of years, you know, through various economic cycles, it's a very low beta company.
Speaker Change: Well right now.
Speaker Change: We continue to expect the second half half lift.
Speaker Change: One of the things that attracted us to that when we bought that.
Speaker Change: When you're looking at.
The revenue performance at <unk>.
Speaker Change: It's over a series of years.
Speaker Change: True.
Speaker Change: Various economic cycles.
Speaker Change: Severely low beta company.
Dr. Michael Hartnett: You know, it's so integrated into U.S. infrastructure that, you know, when you're pouring your cereal in the morning, we actually have something to do with that. You know, when you drive your car over a street or a bridge to get to work, we actually have something to do with that road. So you know, we are, and whatever we supplied only lasted a few years before nature had its way with it, and we had to replace it.
Speaker Change: So.
<unk> integrated into the U S infrastructure.
Speaker Change: Debt.
Speaker Change: When you're when you're Corning your scenario in the morning, we actually had something to do with that.
Michael Hartnett: You know, when you're driving your car over a street or a bridge to get to work, we actually had something to do with that road. So, you know, whatever we supplied only lasted a few years before nature had its way with it, and we had to replace it. So, you know, Dodd's has a very strong recurring revenue driven by human consumption in North America. And so, you know, whether the economy is expanding or it's contracting slightly, Dodd's business is probably going to perform well through those cycles. In terms of what we expect for the rest of the year, you know, we expect the semiconductor pick-up, and we expect oil and gas to recover, and if there's more tension in the Middle East, it interferes with the production of oil, it will definitely feel the acceleration in our business.
Speaker Change: When you're driving your car over over a street or a bridge.
To get to work, we actually had something to do with that road. So.
Speaker Change: We are and whatever whatever we used a glide only lasted a few years before nature and its way with it and we had to replace it so.
Dr. Michael Hartnett: So you know, Dodge's got a very strong... recurring revenue driven by human consumption in North America. And so, you know, whether the economy is expanding or... or it's contracting slightly. Dodge's business is probably going to perform well through those cycles. In terms of what we expect for the rest of the year, you know, we expect the semiconductor industry to pick up, and we expect oil and gas to... to recover. And if there's more tension in the Middle East, it interferes with the production of oil, we will definitely feel the acceleration in our business, so that's it. That's sort of one of the things that's right.
Speaker Change: So.
Speaker Change: Dodge is.
Speaker Change: Very strong.
Speaker Change: Recurring revenue driven by.
Speaker Change: Human consumption.
Speaker Change: In North America.
Speaker Change: And so.
Speaker Change: Whether whether the economy is.
Speaker Change: Banding or.
Speaker Change: Or contracting.
Speaker Change: Slightly.
Speaker Change: <unk> business is probably going to perform well.
Those cycle.
Speaker Change: In terms of what we expect for the rest of the year.
Speaker Change: We expect the semicon to pick up and we expect.
Speaker Change: Oil and gas too.
Speaker Change: To recover.
And if there is.
Speaker Change: If theres more tension in the middle East it interferes with the production of.
Speaker Change: Oil and oil.
Speaker Change: It will we will definitely feel the acceleration.
Speaker Change: And our business so.
Timothy Thein: So, that's sort of what the thing fits right now. Got it. Okay. All right. Thanks a lot. Appreciate it. Thank you.
Speaker Change: That's sort of what are the things right now.
Tim Thain: Got it. Got it. Okay. All right. Thanks a lot. I appreciate it.
Dr. Michael Hartnett: Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the call over to Dr. Hartnett for any closing remarks.
Operator: Ladies and gentlemen, there were no further questions at this time.
Michael Hartnett: I would like to turn the call over to Dr. Hartnett for any closing remarks. Okay. Yeah. Well, I'd like to thank everyone for participating today, and we look forward to speaking again to you in the fall.
Dr. Michael Hartnett: Okay, well, I'd like to thank everyone for participating today, and we look forward to speaking with you again in the fall.
Speaker Change: Okay, well I'd like to thank everyone for participating today.
Michael Hartnett: So, good day.
Operator: Okay.
Speaker Change: Good day.
Operator: This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.
Operator: This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.