Q3 2025 RBC Bearings Inc Earnings Call
Speaker Change: Good morning. Thank you for joining us for RBC Bearing's fiscal third quarter 2025 earnings call. I'm Rob Moffatt, Director of Corporate Development and Investor Relations, and with me on today's call are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Dan Bergeron, Director, Vice President and Chief Operating Officer, and Rob Sullivan, Vice President and Chief Financial Officer.
Speaker Change: As a reminder, some of the statements made today may be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors.
Rob Moffatt: We refer you to RBC Bearing's recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. These factors are also listed in the press release along with the reconciliation between GAAP and non-GAAP financial information. With that, I'll now turn the call over to Dr. Hartnett.
Thank you, Rob, and good morning.
Dr. Hartnett: I'm going to start today's call with a quick review of our financial results.
Dr. Hartnett: And I'll finish with some high-level thoughts on the industry and the outlook for the remainder of fiscal 25.
Speaker Change: and I'll hand it over to Rob Sullivan for some more detail on the numbers. Third quarter net sales came in at $394 million, a 5.5 percent increase over last year.
Dr. Hartnett: driven by continued strong performance in our aerospace and defense segment.
Dr. Hartnett: Total aerospace and defense sales were up 10.7% year over year, with a 14.6% growth on the commercial aerospace side, and a 3% growth in defense.
Dr. Hartnett: On the industrial side, the segment grew 2.7% year over year, with distribution and aftermarket up 8% and OEM down 8.2%. Altogether, it was a solid quarter.
So I'm going to talk about some underlying trends.
Dr. Hartnett: In aerospace and defense, we did a good job mitigating the impact from the strikes of Boeing and Textron during the quarter.
quarter-by-quarter cadence across commercial aerospace has been lumpy.
Dr. Hartnett: Through our fiscal 2025 and I'm sure that's no surprise to anyone on this call.
Dr. Hartnett: I would encourage you to focus on the total segment trend, which is 10.7% growth for the quarter.
and a 15.5% growth.
year to date. And these are solid performance numbers.
growth in the case of defense.
who is limited by capacity and not demand.
In fact, demand is extraordinary.
Adding capacity, we are adding capacity as we speak.
And adding capacity means hiring and training staff.
expanding supply chain and we are currently building plants.
Dr. Hartnett: I want to take a second to commend the teams managing our customers, plants, people and production schedules.
Dr. Hartnett: There's a lot of work put into rebalancing our production cadence in order to smooth some of the customer volatility over the past two quarters.
Dr. Hartnett: Maintaining level operating loads in our plant that is balancing load against cost is a critical part of RBC's performance and continues to be a key contributor to our long-term gross margin expansion.
Dr. Hartnett: On the industrial side, we were excited to see the segment return to growth. While our OEM business was down for the period, the bulk of the contraction came from the oil and gas category.
Dr. Hartnett: Additionally, headwinds were also seen, but to a lesser extent, in the construction and semiconductor machinery manufacturing.
Dr. Hartnett: We saw encouraging signs in the aftermarket of an aggregate and cement, mining and metals, food and beverage, and grain.
Dr. Hartnett: Several markets were up well into the double digits, yielding a net gain of 8% over the period.
Dr. Hartnett: Evidence of how even a modest USA GDP expansion can be very impactful to this sector.
Dr. Hartnett: Excluding the oil and gas influence, our industrial sector expanded at a 4.4% rate.
Dr. Hartnett: Overall the continued tailwinds of industry-leading service levels, organic growth, synergies, and favorable end market mix.
Dr. Hartnett: came together and put us well into the green on revenues, margins, cash flow for the quarter, which
Dr. Hartnett: was a quarter that's the most challenging of the four to navigate.
Dr. Hartnett: Gross margin for the quarter came in at $175 million, or 44.3% of sales, a 205 basis point increase year over year.
Dr. Hartnett: The biggest drivers of our margin expansion continue to be increased absorption of our aerospace and defense capacity.
Dr. Hartnett: ongoing synergies with with Dodge and a wide range of smaller continuous improvement projects plant-by-plant basis we continue to identify to our RBC ops management process
Unknown Speaker.
Speaker Change: Adjusted net income of $73 million was up 34.7% year over year.
Speaker Change: And that translated to an adjusted EPS of 2.34 per share, compared to last year's 185, for a growth of 26.5%.
Speaker Change: And free cash flow of 74 million was up nicely versus the $71 million last year.
Speaker Change: We use our cash to continue to deleverage the balance sheet with an impressive $100 million reduction in the quarter.
Speaker Change: Our trailing net leverage to one eight.
Speaker Change: It's many.
Speaker Change: If you know RBC is a cash flow rich business.
Speaker Change: Since we acquired gosh week immediate.
Speaker Change: Nearly all of our cash generation.
Speaker Change: Bridging the balance sheet.
Speaker Change: The 2.0 Mark.
Speaker Change: Debt divided by EBITDA was an important milestone.
Speaker Change: And I am excited too.
Speaker Change: So how do we were able to achieve it in just three years.
Speaker Change: Also with our preferred dividend now gone we are excited to recapture 23 million in annual expense back into our cash flow.
Speaker Change: Further accelerate additional debt repayment going forward.
Speaker Change: Yeah.
Speaker Change: In terms of our outlook, our A&D business remains on a path towards mid teens growth for the full year.
Speaker Change: The industrial business should finish the year roughly flat with a heavy.
Speaker Change: Healthy seven second half exit to the year.
Speaker Change: With the new calendar year the election behind US many of you asked for my thoughts on it.
Speaker Change: New administration, and what it might mean for RPC.
Speaker Change: I've I've done a little bit of thinking on the topic.
Speaker Change: And this is where I come out.
Speaker Change: In terms of our end markets I don't think it changes much for commercial aerospace.
Speaker Change: The drivers here has been supply chain challenges in the broader issues at Boeing.
Speaker Change: But from what I can see there appears to be a nice progress.
Speaker Change: In addressing some of these issues and I'm optimistic that it continue.
Speaker Change: If that happens we should stand to benefit from some wonderful counts.
Speaker Change: Aerospace business as well.
Speaker Change: We progressed through calendar 'twenty 2025, our fiscal 2026.
Speaker Change: We continue to expect strong secular growth.
Speaker Change: Beyond 25.
Speaker Change: Fueled by record bookings backlogs at Boeing and Airbus.
Speaker Change: Cooper, who together have 12 years of demand sitting on their order books and build rates that need to move higher.
Speaker Change: Okay.
Speaker Change: On the defense side.
Speaker Change: With the current geopolitical backdrop.
Speaker Change: And with the Republicans in charge of the house.
Speaker Change: Senate and executive branch, it seems likely that the U S defendant.
Speaker Change: Spending will accelerate over the next four years.
Speaker Change: And in terms of international defense spending.
Speaker Change: <unk> members are increasingly investing.
Speaker Change: 2% of GDP level.
Speaker Change: Now debating if it needs to be 3%.
Speaker Change: With Trump, arguing that it should be 5%.
Speaker Change: I can't tell you exactly where things are going to shake out, but I suspect.
Speaker Change: It will eventually be higher than it's been.
Speaker Change: And at any time and post Cold War history.
Speaker Change: Yeah.
Speaker Change: In the industrial business, we continue to hear from customers and distributor partners.
Speaker Change: The following since the election, there has been a brisk step up and quoting for new projects.
Speaker Change: Clearly theres no mistake, we are moving into a drill baby drill period.
Speaker Change: Renewable energy sources are out of favor worldwide.
Speaker Change: Array for common sense.
Speaker Change: Or has it been.
Speaker Change: Competent seems to have returned in a future lowing lowering of interest rates appears to be inevitable.
Speaker Change: Our third quarter is a good indicator of the impact.
Speaker Change: GDP growth on a desk or on our industrial aftermarket.
Speaker Change: Terrorists prudently add both spice and fuel to our business outlook.
Speaker Change: Which.
Speaker Change: Are strongly and net good for RBC.
Speaker Change: The last area worth touching on is M&A.
Speaker Change: With our net leverage down to one eight times, we are well prepared for the next opportunity and remain busy assessing candidates.
Speaker Change: Yeah.
Speaker Change: With just one more quarter left in two in fiscal in our fiscal 2025.
Speaker Change: Our attention is beginning.
Speaker Change: Two.
Speaker Change: Focus on next year.
Speaker Change: If the current trend holds its likely that fiscal 2026 could offer an environment, where all three of our end markets are growing in units.
Speaker Change: It's too early to provide a concrete outlook right.
Speaker Change: But that is the back up I, which we are putting budgets together.
Speaker Change: Fiscal 2026.
Speaker Change: Yeah.
Speaker Change: With that I'll now turn the call over to Rob Sullivan for more details on our financial performance. Thank.
Speaker Change: Thank you Mike and thank you hurting our indicated this was another strong quarter for RBC.
Speaker Change: Net sales growth of five 5% drove gross margin growth and 6% with more than 200 basis points of <unk>.
Speaker Change: Manage expansion.
Speaker Change: <unk> benefited from some favorable product mix and strong manufacturing performance in the industrial side.
Speaker Change: Those factors were in addition to the more structural drivers of our gross margin performance, including ongoing synergies and increased utilization of our aerospace and defense manufacturing assets.
Speaker Change: On the SG&A line, we continued our investments in future growth. This includes a combination.
Speaker Change: Personnel costs, and back office, or including ICP licenses and infrastructure.
Speaker Change: This resulted in an adjusted EBITDA of $122 6 million up 12% year over year and an adjusted EBITDA margin of 31, 1%, which was up 180 basis points year over year.
Interest expense in the quarter was $14 2 million. This was down 26, 4% year over year, reflecting the ongoing repayment of our term loan as well as the lower rate alone silver base rate is lower.
Speaker Change: Tax rate and our adjusted EPS calculation was 22, 2%.
Speaker Change: Reasonably reasonably consistent versus last year's 21, 3%.
Speaker Change: Altogether. This led to an adjusted diluted EPS of $2.34 representing growth of 26, 5% year over year, an impressive result, given some of the choppiness in commercial aerospace customer production schedules and the macroeconomic softness in the industrial economy.
Speaker Change: Free cash flow in the quarter came in at $73 6 million with conversion of 127% and compares to $70 9, million% to 152% last year.
As usual, we used a meaningful portion of the cash generated to continue to deleverage the balance sheet, we repaid $100 million of debt during the quarter, taking our total year to date debt reduction.
Speaker Change: 295.
Speaker Change: In terms of our free cash flow generation going forward. The October 15th automatic conversion of our mandatory convertible preferred stock the move the cash dividend payment reducing.
Speaker Change: Reducing our future total cash outlays by approximately $23 million.
Speaker Change: Jesus.
Speaker Change: This is roughly nine 5% for fiscal 'twenty quarters total free cash flow.
Speaker Change: Well, they're trailing net leverage now at one eight turns and heading even lower going forward, our balance sheet as an increasingly attractive position to pursue additional accretive M&A and our team remains busy growing our funnel of potential deal flow looking.
Speaker Change: Looking into the fourth quarter, we are guiding to revenues of 434 to 444 million representing year over year growth or 97, 3%.
Speaker Change: <unk> Embeds, an operating environment its fairly similar to the fiscal third quarter.
Speaker Change: On the gross margin side, we are projecting gross margin to 44 to 44, 5%, which would be an increase of roughly 115 basis points year over year at the midpoint.
SG&A, we expect SG&A as a percentage of sales to be between 16, and 16, 5% range during the fourth quarter.
Speaker Change: In closing this was another strong quarter for RBC.
Speaker Change: <unk> focused on leveraging our core strength engineering manufacturing and product development to drive both organic and inorganic growth continued margin excellence high levels of free cash flow conversion.
Speaker Change: With that operator, please open the call for Q&A.
Speaker Change: Yeah.
Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Q1 moment. Please while we poll for questions.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question is from Pizza Kubicki with Alembic Global. Please proceed with your question.
Pizza Kubicki: Hey, good morning, guys nice performance.
Speaker Change: Pete Mike Mike I'll Echo you did it was good to see industrial returned to growth can you talk more about oil and gas kind of what you saw in the quarter that was it.
Pizza Kubicki: It was it was it lack of spending because of the election and then when you talk about increased quote activity.
Pizza Kubicki: Industrial does that does that include oil and gas.
Pizza Kubicki: Yeah.
Pizza Kubicki: On the oil and gas side side of things.
Pizza Kubicki: Okay, that's a boom or bust industry.
Pizza Kubicki: And when it's booming.
Pizza Kubicki: They want materials faster than you can.
Pizza Kubicki: Make materials.
Pizza Kubicki: And.
Pizza Kubicki: Ultimately.
Pizza Kubicki: Over order.
Pizza Kubicki: <unk> because.
Pizza Kubicki: The trees never stopped growing.
Pizza Kubicki: And so.
Speaker Change: Trees stopped growing and they had too many materials. So it's really an inventory correction.
Pizza Kubicki: We're we're we're studying it and.
Speaker Change: It's.
Speaker Change: It'll it'll blend down over the next.
Speaker Change: You know nine months.
Speaker Change: Get back to a more normal level.
Speaker Change: You know basically we had a few customers.
Speaker Change: Who over ordered.
Speaker Change: Got it Okay, and I guess I'll give you a little more color on that this is Rob moffitt ex the oil and gas headwind that OEM business not too.
Speaker Change: So that's a big chunk of that Delta in the industrial yes.
Speaker Change: Gotcha. That's helpful guys I appreciate it and then just.
Speaker Change: And what he is going to be where are you going into the weekend about this tariff issue. Mike you don't sound too worried can you can you give us more color in terms of you know what what.
Speaker Change: Allows you to retain confidence that that won't be a major roadblock for ya.
Mike: Yeah, sure well I mean, there's.
Speaker Change: It's it's Mexico, and China really right.
Mike: Okay.
Mike: It was it was too.
Mike: Issues.
Speaker Change: First of all first of all our our Mexico plants, we have three plants in Mexico.
Mike: The materials.
Mike: Our shipped in from the U S.
<unk> added is minimal.
Mike: And then they're shipped back out so any tariff is applied to Mexico will be easily absorbed.
Mike: It's just not it's not that big a number.
Mike: You easily be absorbed in our cost structure and ask the longest.
Mike: Yes, it's a non issue.
Mike: Okay.
Mike: So the other.
Mike: The other part of Mexico is is our.
Mike: Commercial contracts, where we saw where we actually sell product.
Mike: Out of Mexico directly to customers.
Mike: Or contracts have triggers in them.
Mike: With which we anticipate.
Mike: Or or yeah.
Mike: I anticipate some government.
Mike: Action that's unforeseen.
Mike: And it allows us to negotiate renegotiate a contract.
Mike: And.
Mike: How do we learn that well we learned that during the pandemic when they.
Mike: It showed up at the plant with guns.
Mike: Guns drawn.
Mike: Shut down our plants.
Mike: So we decided you know what it would be nice to have a clause in these contracts going forward.
Mike: Crazy like that.
Mike: And between the governance.
Mike: It's a way to.
Mike: Litigator.
Mike: Mitigate.
Mike: Uh huh.
Mike: Our business business model so.
Mike: Yeah, that's that's kind of baked into our contracts and also for.
Mike: For the most part our contracts for commercial items or F O B plant.
Mike: And I'm.
Speaker Change: Oh I'm sure.
Mike: We have belt and suspenders.
Mike: As far as that's concerned.
Mike: Yeah.
Mike: No no that's.
Mike: Okay got it.
Mike: Right now, it's the China isn't changing it's another issue.
Mike: And.
Mike: If trump dose is 10%.
Mike: Tariff on China.
Mike: That will be incredibly disappointed.
Mike: Yeah.
Mike: I mean, all the huffing and puffing he did and he's going to do 10% first of all 10%.
Mike: We won't even feel it in our numbers.
Mike: It's just it will be insignificant.
Mike: If he does 50%.
Mike: And he puts the same program in place he is putting in place for the steel industry the bearing industry.
Mike: What do you think is going to happen to <unk>.
Mike: Probably a shortfall right.
Shortfall, what happens you know supply and demand how about that that equation that balance.
Mike: So at least you know he's going to follow the same path as the steel industry. If there's a very strong Kara.
Mike: I'm praying for a strong parent.
Mike: Got it.
Mike: Got it okay.
Mike: Okay. That's very helpful. I appreciate that the whole con.
Mike: Contacts.
Mike: And I think one other thing.
Mike: There's uh huh.
Mike: You know RBC as they made in the USA company or the most.
Speaker Change: You know, we we make our products here I mean, theres some augmentation by other by foreign export sources, but not a lot and nothing that we can't recover with our own plants. So we make it here.
Mike: And for the most part more or less we sell 90% of our sales are here.
Mike: It's a big distinction between us and what what other people consider as our peers.
Mike: Very helpful very helpful. I'll end on a defense note.
Mike: And maybe a less controversial one.
Mike: You've talked about the need to increase submarine capacity I think you've hinted that you need to increase munitions capacity as well.
Mike: I'm just wondering if you could update us on the Capex impact and the schedules for our for your capacity expansion in defense.
Mike: Yeah, well you won't.
Mike: The capex will be.
It won't be extraordinary.
Mike: You know we are at as far as the submarine business is concerned where.
Mike: Or.
Mike: Yeah.
Mike: Building out a.
Mike: 100 <unk>.
Mike: Plus plant in Tucson.
Mike: It's a leased building so there's no no.
Mike: Brick and mortar there.
Mike:
Mike: We'll move machinery from.
Mike: One of the Tucson plants into this third plant.
Mike: Over the over the course of the year and allow more manufacturing capacity inside the.
Phase two sand plant for.
Mike: The submarine business so that's ongoing.
Mike: The capital impact is.
Mike: He is well within our normal capital budget.
Mike: Okay.
Mike: It sounds like.
Mike: No that's something that would take a long time I guess is the first point the second point is it I guess.
Mike: Free cash flow dropdown should be pretty pretty strong I would say.
Mike: Yeah.
Mike: It's gonna be.
Mike: Same as the same as it's been.
Speaker Change: Great. Thanks for the color I appreciate it guys.
Mike: Yep.
Speaker Change: Thank you. Our next question is from Steve Barger with Keybanc capital markets. Please proceed with your question.
Thanks, Good morning.
Mike: One six.
Speaker Change: Mike I know, it's early to talk about fiscal 'twenty six but you did mention how comps and condition should allow for strong growth in aerospace just based on what you know now about demand and capacity are you thinking mid teen growth against the mid teens comp or does the growth rate to actually accelerate I guess just trying to fill.
Mike: You're out how good do you think this could be.
Speaker Change: Now, we're talking about commercial aerospace right.
Speaker Change: Well I guess the segment of aerospace yeah, Okay, it's going to be very good.
Speaker Change: It's it's it's a when.
Speaker Change: But let's put it this way where we're at 15% all in really hasn't been building here.
Speaker Change: Right. So we have later on.
Speaker Change: Nothing else changes it just accelerates the growth rate yeah, nothing else changes it just accelerates and we have a lot of content on those plants.
Speaker Change: No.
Speaker Change: Yeah. It's.
Speaker Change: 15% for commercial aerospace.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Should be a a.
Speaker Change: I don't I don't want to say, it's a floor because we think it should be higher.
Speaker Change: It's going to be.
Speaker Change: Yeah.
Speaker Change: And presumably and I'm not trying to nail you down to anything but just based on the conditions. The 12 year backlog that you talked about like this shouldn't and anytime soon you should have.
Speaker Change: Not to put words in your mouth, but like you you you must have as good a visibility right now in aerospace that you've had in a long time.
Speaker Change: Yeah, I mean, our visibility in the aerospace business.
Speaker Change: It's the same as everybody else's when you look at Boeing Skyline in yeah.
We say a little north of Vienna.
Speaker Change: They make it.
Speaker Change: And that all happens for us that that's where the risk is I mean are.
Speaker Change: We have contracts in place with Boeing through 2030.
Speaker Change: For all of our stuff. So all they have to do is make the plane and we'll send them, we'll send them the components they need.
Speaker Change: It's it's.
Speaker Change: Really in there yeah.
Speaker Change: Understood and similar question for industrial.
Speaker Change: I heard you right you said it.
Speaker Change: 4% growth ex oil and gas this quarter, if we assume oil and gas gets back to growth does this feel like we're heading back to a mid single digit kind of growth environment for industrial just as you think about the sentiment the quoting activity that you've talked about the you know.
Speaker Change: How do you think the administration is going to proceed.
Speaker Change: Yes, I would say that's right.
Speaker Change: I think were oil and gas from what we know about inventories and absorption rates, it's going to take a little bit longer.
Speaker Change: And at the end of the year.
Speaker Change: Yeah.
Speaker Change: Understood Thanks very much.
Speaker Change: Yep.
Yeah.
Speaker Change: Thank you. Our next question is from Michael Karmali with true Securities. Please proceed with your question.
Speaker Change: Michael is your line on mute.
Speaker Change: Oh, sorry can you guys hear me now.
Speaker Change: Oh, yes, yes.
Mike: Thanks for taking my question Nice job Nice result, Hey, Mike just to maybe stay on.
Speaker Change: Stay on that line I guess first with oil and gas I mean, you mentioned the drill baby drill are you are you kind of seeing any tangible evidence of more planned spending I mean, if we do see a pretty steep reduction in oil prices I mean, our energy prices. These these companies you should learn incentivize Ted.
Mike: They spend they want to continue to deploy <unk>.
Mike: Capital to shareholders. So you really think you see.
Mike: Large scale projects pick up and that kind of environment.
Mike: Oh well.
Mike: Hard to say I mean, you got to do.
Mike: Horses imbalance there right.
Mike: Consumption and.
Mike: And supply and.
Mike: Yeah.
Mike: Oh.
Mike: It's all there always seems to be a problem with supply.
Mike: Yes, whether it's a floor or its embargo or it's something else. There's always there's always seems to be in it.
Mike: Interruption.
Mike: It's unpredictable changes that changes the game for a year or two.
Mike: So I think it needs something like that.
Mike: Due to accelerated.
Mike: I wouldn't rule something like that.
Mike: Okay sure.
Mike: And then just a follow up on out where she was going with that with arrow.
Mike: Now put words in your mouth, if 15% is a floor next year, how do we think about your your contract contract renewals.
Mike: That had been coming due.
Mike: You kind of maybe juice that juice any growth rate a bit with with some pricing on top of the volume assuming Boeing Airbus and the supply chain kind of start to normalize here.
Mike:
Mike: You know our current contracts.
Mike: Term out.
Mike: At the end of 'twenty six.
Mike: Right.
Mike: Airbus too.
Mike: I'm sure Airbus.
Mike: So the new contracts.
Mike: The new pricing and the new mix.
Mike: It takes effect.
Mike: January of 'twenty.
Thanks.
Mike: So yeah and it's.
Mike: It's better.
Mike: Okay since the old let's put it this way since the old contracts were signed.
Mike: Producer price index has probably gone up somewhere between 30 and 35%.
Mike: Okay.
Mike: That's helpful.
Mike: Got it and then just you know.
Speaker Change: Further back on tariffs you know maybe with that the China topic I think when you guys. When we saw this years ago. In 2018. You commented you know I guess, you don't really have a lot of direct competition in China, a lot of Commoditized markets does that really then move the needle for you guys. If if the tariffs into.
Mike: China are pretty significant.
Mike: Just given that you didn't have a lot of the Commoditized tomorrow.
Mike: You don't have a lot of Chinese competition right.
Mike: The customers you're dealing with or are looking for.
Mike: More ruggedized high quality differentiated bearings like you provide versus the commoditized market. So I.
Mike: I mean, but it doesn't really move the needle.
Mike: Well are you you're talking about <unk>.
Mike: Exports into China.
Mike: I guess I guess in both cases right I mean do you sell directly that much into China right now and you know presumably would there be a lot of substitute.
Mike: You know if if those tariffs on products coming out of China or material do you think you'll get a lot of business from that.
Mike: We sell yeah, we sell into China, now, but it's not material.
Okay.
Mike: It isn't it isn't worth isn't worth talking about.
Mike: Okay.
Mike: Okay.
Mike: Got it and then.
Mike: I guess.
Mike: Last one for me any anything else you can say on kind of M&A I know you talked about the leverage you know being down you've got more cash here with the preferreds rolling off I mean.
Mike: Just any anything close to the finish line any specific ads, whether it's market youre looking to expand any any kind of color you can maybe tell us.
Mike: Sure Yeah, well certainly we have the balance sheet now.
Mike: Support expansion.
Mike: On the other hand, we have are unprecedented.
Mike: Projects internal projects underway that we're developing or organic growth or.
Mike: That are either in production or close to production.
Mike: So our first order of business is to look internally and make sure that these these projects and products are.
Mike: Well, well managed and we don't disappoint our customers.
Mike: So that's that's our first order of priority.
And acquisitions.
Mike: We we we continue to review candidates.
Mike:
Mike: They.
Mike: How many are half a dozen.
Mike: Come over the transom every month.
Mike: Kind of a rate.
Speaker Change: Okay, and we're looking at we look at it.
Mike: Fit with our markets.
Mike: With our.
Our ability to sell our ability to understand those markets.
Mike: For scale.
Mike: Scale is important.
Mike:
Mike: And Oh, we got we've gotten to the point, where we will accept no.
Mike: No less.
Mike: They are top tier management.
Mike: So you know.
Mike: Dodge completely spoiled us.
Mike: Yeah, so right.
Mike: When we look at every one of them when we say is it as good as that.
Mike: And.
Mike: Is it a yea or nay in terms of.
Mike: Instrument team so.
Mike: We're looking for another day.
Mike: So that rules out should we should we think about ruling out kind of fixer uppers or you know a company with maybe.
Mike: Inferior margin you know it just.
Mike: We looked at those who are saying you could deploy your toolkit and there'd be a tremendous opportunity for accretion, but if you're accepting no less than top tier management, presumably the financials would be pretty good.
Mike: Well you know we were able to we were able to help guide you out with their margins.
Mike: Uh huh.
Mike: Okay, all worked out well for everybody so.
Mike: You know.
I think we went to management team basically that's it.
Mike: Hum.
Mike: The game is there's a lot of experience in the industry and the business and is willing to work with us and that's what we found was that.
Mike: Got it so that's that's all kind of gray stuff when you're doing your diligence.
Mike: You have to make a call though exactly that.
Mike:
Mike: And.
Mike: And that's that's that's where we are I mean, we've we've made bids on some of the candidates we've seen over the last quarter.
Mike: And I can only say that there is.
Mike: Way too much private equity.
Speaker Change: Hello, it's flowing around.
Mike: And.
Mike: So.
Mike: Whatever we do will be expensive.
Mike: Got it that's helpful.
Rob Moffett: Thanks, Scott I'll just add onto that this is Rob Moffett I mean, yeah.
Rob Moffett: Dr aren't necessarily a point when we look at fiscal 2026, and the amount of organic growth. That's out there we don't need to take risks on M&A number one focus is heads down and capturing the organic growth. That's there and we can wait till the right pitch to come across the play whether it's products that management team et cetera, but there's there's a lot of opportunity that works.
Rob Moffett: Focus on organically, where we don't feel pressure to take risk.
Rob Moffett: Yeah. It makes sense got it helpful.
Rob Moffett: Good stuff thanks, guys.
Rob Moffett: [noise].
Speaker Change: Our next question is from Ross <unk> Black with William Blair. Please proceed with your question.
Hey, good morning, gentlemen.
Rob Moffett: Russ.
Speaker Change: Hey, guys apologies, if I missed it but did you provide the gross margins by segment between Aero and industrial.
Rob Moffett: That'll be in the queue.
Speaker Change: Okay Alright.
Speaker Change: I guess the implied here, though is that era was the heavy lift this quarter.
Speaker Change: Uh huh.
Speaker Change: Can you just give me a SEC roswell.
Speaker Change: Pull it out for your industrial margins were exceptional.
Speaker Change: You would expect aerospace margins. This quarter were over 40, there are 45, new industrial margins were $46 five.
Speaker Change: Oh Wow.
Speaker Change: That implies that you guys really aren't seeing much from the wide body ramped and or contract renewals as I guess you previously noted so there's still a pretty significant leg up here.
Speaker Change: On the industrial side, you get the sense of you're towards the end of a Dodge synergies then.
Speaker Change: I think we'll have dodged synergies for the next 10 years.
Speaker Change: It just doesn't seem to and it doesn't seem to end.
Speaker Change: Okay.
Speaker Change: Maybe on the on the warehouse business could you provide us with the growth wasn't according between aftermarket and narrow I know, that's a or an OEM I know that's stepping up here.
Speaker Change: Yeah, those warranties lap.
Speaker Change: Yeah.
Speaker Change: Ross you asked me for aftermarket versus OEM Aero.
Speaker Change: No sorry, the Dodge the Dodge warehouse.
Speaker Change: Oh.
Speaker Change: Yeah that was up.
Speaker Change: I got it right here in at a solid solid performance across OEM and aftermarket was up about 7% on a year over year.
Speaker Change: Okay.
Speaker Change: I guess can you just kind of OEM and aftermarket.
Speaker Change: Yeah, So maybe just to kind of frame the industrial runway in that end of the year in 2026, roughly 70% of industrial is stable and modest growth.
Speaker Change: Warehouses coming back and then you know semiconductor at oil and gas are still.
Speaker Change: Round trough levels.
Speaker Change: Any sense on kind of where that stands on peak to trough or maybe just chomping normalized levels for OEM and semiconductor is mostly going to come back.
Speaker Change: Yeah.
Speaker Change: Starting to see semiconductor work its way back.
We're seeing we're seeing orders from customers.
Speaker Change:
Speaker Change:
Speaker Change: We're not existent.
Speaker Change: A year ago.
Speaker Change: These are old customers for us.
Speaker Change: Know, who they are and what they use.
Speaker Change: And so on so yeah, we're starting to see that trickle back it's a it hasn't it hasn't reached the Gallup, yet, but just with that.
Speaker Change: Okay.
Speaker Change: I'm trying to assess your expectations on maybe if there is a yeah lift above 4% growth in the near term. It does did meaningfully accelerate but it sounds like you guys are have a lot still ahead of yourself, yeah, congrats on the quarter and I'll leave it there.
Speaker Change: Thanks Ross.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question is from Jordan <unk> with Bank of America. Please proceed with your question.
Jordan: Hey, good morning.
Good morning.
Speaker Change: Hello could you guys give a little more detail on what the growth was for space.
Jordan: And which end markets are defense you guys saw the most growth for it and.
Jordan: Expectations for going forward.
Jordan: Yeah.
Jordan: Yeah.
Jordan: Okay.
Jordan: Pulling up space for you hold on one second.
Jordan: Thanks.
Jordan: Uh huh.
Jordan: The spaces was solid again, it was another quarter with a ballpark call it 40% year over year growth.
Jordan: Defense was pretty balanced.
Speaker Change: Okay. So a couple of categories that missiles and guided munitions are strong fixed wing military strong on the defense side.
Jordan: It's a pretty balanced across the board.
Speaker Change: Great. Thank you guys so much.
Speaker Change: Got it.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I'd like to turn the floor back over to Dr. Hartnett for any closing comments.
Speaker Change: Okay, well this concludes our conference call for the third quarter.
Speaker Change: And I appreciate everybody's participation.
Speaker Change: Good questions.
Speaker Change: We look forward to talking to you again I think that's in May.
Speaker Change: End of May.
Speaker Change: Good day.
Speaker Change: Yes.
Speaker Change: Thank you that's supposed to conclude today's conference.
Speaker Change: Thank you for your participation you may disconnect your lines at this time.