Q4 2025 RBC Bearings Inc Earnings Call
[music].
Unknown Executive: Good morning, and thank you for joining us for RBC Bearings fiscal fourth quarter 2025 earnings call.
Good morning, and thank you for joining us for RBC bearings fiscal fourth quarter 2025 earnings call I'm, Rob Moffat director of corporate development and Investor Relations and with me on today's call are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer, Daniel Herz.
Robert Moffatt: 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. Daniel Bergeron, Director, Vice President, and Chief Operator.
Rector, Vice President and Chief operating Officer, and Rob <unk>, Vice President and Chief Financial Officer.
Unknown Executive: and Rob Sullivan, Vice President and Chief Financial.
Unknown Executive: 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.
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.
Unknown Executive: We refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial conditions. These factors are also listed in the press release, along with the reconciliation between GAAP and non-GAAP financial information.
We refer you to RBC bearings recent filings with the SEC for a more detailed discussion of the risks that could impact the company's future operating results and financial condition.
Factors are also listed in the press release, along with a reconciliation between GAAP and non-GAAP financial information with that I'll now turn the call over to Dr. Hartnett.
Michael Hartnett: With that, I'll now turn the call over to Dr. Thank you, Rob, and good morning. and thank you for joining us. I'm going to start today's call with a quick review of our financial results, and I'll finish with some high-level thoughts on the industry, our outlook for fiscal 2026, and then hand it over to Rob Sullivan for more detailed color on the numbers. Fourth quarter sales came in at $438 million, a 5.8% increase over last year, driven by continued strong performance in our A&D segment, and other very strong performance in the industrial businesses, particularly when viewed against the broader industrial trend.
Hum.
Dr. Hartnett: Thank you Robin good morning.
Speaker Change: And thank you for joining us I'm going to start today's call with a quick review of our financial results and I'll finish with some high level thoughts on the industry our outlook for fiscal.
Speaker Change: Fiscal 2026, and then hand, it over to Rob Sullivan for more detailed color on the numbers.
Speaker Change: Fourth quarter sales came in at 438 million five 8% increase over last year.
Speaker Change: Driven by continued strong performance in our A&D segment and other very strong performance in the industrial businesses.
Speaker Change: Particularly when viewed.
Against the broader industrial trends.
Michael Hartnett: Consolidated gross margin for the quarter was 44.2% versus 43.1% for the same period last year, and adjusted diluted EPS was $2.83 a share versus $2.47 a share of 14.6%. Clearly, we're thrilled to see the results. And this reflects the energy and commitment everyone invested to make this year successful. So a big thank you to Team RBC. Total A&D sales were up 10.6% year-over-year with 11.6% growth on the commercial aerospace and 8.2% on defense. On the industrial side, the segment grew 3.3% year over year, with distribution and aftermarket up 2.5% and OEM up an impressive 5.1%.
Speaker Change: Consolidated gross margin for the quarter was 44, 2% versus 43, 1% for the same period last year and.
Speaker Change: And adjusted diluted EPS was $2.83 a share versus $2.47 a share up 14, 6%.
Speaker Change: Clearly, we're thrilled to see the results.
Speaker Change: And.
Speaker Change: This reflects the energy and commitment everyone invested to make this year successful.
Speaker Change: So a big thank you to the team of RBC.
Speaker Change: Total A&D sales were up 10, 6% year over year with 11, 6% growth on the commercial aerospace and 8.2% on defense.
Speaker Change: Ryan.
Speaker Change: On the industrial side.
Speaker Change: This segment grew three 3% year over year.
Speaker Change: With distribution and aftermarket up 2.5% and OEM and.
Speaker Change: An impressive five 1%.
Michael Hartnett: In A&D, we saw broad strengths across the portfolio. Our leading sources of growth came from engine OEMs. Commercial Spare Parts, Commercial Fixed-Wing Aircraft, Missiles and Guided Munitions, and of course, space. For the full year, A&E sales grew at 14%, with commercial aero up 13.3% and defense up 15.9%. Although the FAA constrained production and a prolonged strike at our largest customer coupled with other challenges that the industry faced this past year, we still grew the business at 14% and expanded margins as planned. We clearly benefited from the breadth and diversity of RBC's portfolio, giving us exposure to many different customers, and many different parts of the supply chain.
Speaker Change: N a N D. We saw broad strength across the portfolio are leading sources of growth came from engine Oems.
Speaker Change: Commercial spare parts.
Speaker Change: Marshall fixed wing aircraft Mitch.
Speaker Change: Missiles, and guided munitions and of course space.
Speaker Change: For the full year A&D sales grew at 14% with commercial Aero up 13, 3% and defense up 15, 9%.
Speaker Change: Although the F N a S a a constrained production.
Speaker Change: And the prolonged strike at our largest customer our coupled with other challenges that the industry faced this past year.
Speaker Change: We still grew the business at 14% and expanded margins as planned.
Speaker Change: We clearly benefited from the breadth and diversity of Rbc's portfolio, giving us exposure to many different customers in many different parts of the supply chain. This.
Michael Hartnett: This includes a healthy balance between aftermarket and OEM, fixed wing and rotary craft, and commercial and defense. We also benefited from highly targeted organic growth initiatives focused on specific customers and programs that not only contributed to fiscal 2025. but should continue to benefit us in 2026 and well beyond. Moving over to industrial segment, we delivered a 3.3% growth this quarter. We were able to grow the business on a full year basis, even in an environment where the industrial economy has seen two consecutive years of contraction as measured by the manufacturing PMI. High service levels, lots of internal can-do and incremental progress on new product introductions were the reason.
Speaker Change: This includes a healthy balance between aftermarket and OEM fixed wing and rotary craft and commercial and defense.
Speaker Change: We also benefited from highly targeted organic growth initiatives focused on specific customers and programs that not only contributed to fiscal 2025.
Speaker Change: But should continue to benefit us in 2026 and well beyond.
Speaker Change: Yeah.
Speaker Change: Moving over to two industrial.
Speaker Change: Segment, we delivered.
Speaker Change: A three 3% growth this quarter.
Speaker Change: We were able to grow the business on a full year basis, even in an environment, where the industrial economy has seen two consecutive years of contraction as measured by the manufacturing PMI.
Speaker Change: Service levels lots of internal can do an incremental progress on new product introductions were the reasons.
Michael Hartnett: Our outgrowth relative to peers and the broader industrial economy has been notable, and I want to commend our teams for measuring up to the high bar they reached. Results like this don't happen by chance. They are the result of our relentless focus on our organic growth during our Ops meetings, and the ambitious goals of our managers that are willing and those goals that they're willing to take on. Coming into the year, we talked about how our focus at Dodge is in the early innings. of evolving from delivering cost synergies to driving revenue synergies. and that accelerating growth was the major priority for fiscal 2025.
Speaker Change: Our outgrowth relative to peers and the broader industrial economy has been notable.
And I want to commend our teams for measuring up to the high bar they reached.
Speaker Change: Results like this don't happen by chance. They are the result of our relentless focus on our organic growth during our ops meetings.
Speaker Change: And the ambitious goals of our managers that are willing and those goals that they are willing to take on.
Speaker Change: Coming into the year, we talked about our focus at <unk> is in the early innings.
That'd be bobbing from delivering cost synergies to driving <unk>.
Speaker Change: Revenue synergies.
Speaker Change: And that accelerating growth was the major priority for fiscal 2025.
Michael Hartnett: I'm proud to say that these early efforts appear to be paying off. year to year over year OEM sales growth in the Dodge business has been in in the double digits for the past three quarters, and in the very strong finish in the fourth quarter, and they enabled them to finish with a double digit OEM sales growth for the full year. Keep in mind OEM wins today, pay in the aftermarket and MRO dividends for years. to come.
Speaker Change: I'm proud to say that these early efforts appear to be.
Speaker Change: Got you.
Speaker Change: Year over year OEM sales growth in the Dutch business has been in the double digits for the past three quarters.
A very strong finish in the fourth quarter and it enabled them to finish with a double digit OEM sales growth for the full year.
Speaker Change: Keep in mind OEM wins today.
Speaker Change: Hey, after my pay in the aftermarket.
Speaker Change: MRO dividends for years.
Speaker Change: To come.
Speaker Change: Okay.
Michael Hartnett: With fiscal 2025 behind us, let's spend a little time talking about 2026. In terms of end markets, we believe commercial aero is poised for growth of at least 15%, driven primarily by the expected year-over-year production growth at Boeing and Airbus. Last year had its challenges for Boeing, but the company appears to be making substantial progress under its new CEO. and recent trends are very encouraging to the industry.
Speaker Change: With fiscal 2025 behind us, let's spend a little time talking about 2026.
Speaker Change: In terms of end markets, we believe commercial Aero is poised for growth of at least 15% driven primarily.
Speaker Change: By the expected euro year over year production growth at Boeing and Airbus.
Speaker Change: Last year, yes. It is.
Speaker Change: Challenges for Boeing but the company appears to be making substantial progress under its new CEO.
Speaker Change: And recent trends are very encouraging for the industry.
Michael Hartnett: On the defense side. We are comping against substantial growth of nearly 22% in fiscal 2024 and 16% in 2025. Even against this high bar, we believe we can grow the business at least in the mid to high single digits and likely more. We are adding additional capacity at several plants to accommodate very strong demand from a wide array of defense OEMs. Certainly this led by growth in submarines coupled with broader strength across RBC's portfolio in support of the government's proposed trillion dollar defense budget.
Speaker Change: On the defense side.
Speaker Change: We are comping against substantial growth of nearly 22% in fiscal 2024 and 16% in 2025.
Speaker Change: Even against this high bar, we believe we can grow the business at least in the mid to high single digits and likely more.
Speaker Change: We are adding additional capacity at several plants to accommodate very strong demand from a wide array array of defense Oems certainly this led by.
Speaker Change: By growth in Socal submarines, coupled with.
Speaker Change: Broader strength across Rbc's portfolio in support of the government's proposed trillion dollar defense budget.
Michael Hartnett: for the Industrial Businesses and Markets. are a little tougher to predict due to the short-term impact of interest rates, tariffs, consumer spending, and general GDP expansion or not. In any event, we feel the MRO side of the world that supports the staples of human life. such as food and beverage, grain, aggregate, mining, forest products, sewage treatment, provide a steady demand for our North American product offering. and are essential to keep the wheels of American industry turning and America's population fed.
Speaker Change: For the industrial businesses and markets.
Speaker Change: We are a little tougher to predict due to the short term impact of interest rates tariffs.
Speaker Change: Consumer spending in general GDP expansion or not.
Speaker Change: In any event, we feel the MRO side.
Speaker Change: The world that supports the staples of human life.
Speaker Change: Such as food and beverage grain aggregate mining forest products sewage treatment providers.
Speaker Change: Provide a steady demand for our.
Speaker Change: For our North American product offering.
Speaker Change: Okay and are essential to keep the wheels of American industry turning.
Speaker Change: And Americans America's population.
Michael Hartnett: The last topic I want to touch on before handing the call over to Rob is the balance sheet. Last quarter, we crossed the two turn mark from a net leverage perspective, and this quarter we pushed it even lower. In total, we allocated $275 million to debt repayment in fiscal 2025, taking our trailing net leverage to 1.7 turns exiting the year. We remain well-poised to pursue additional accretive M&A. And the team has been very active in keeping the pipeline full of ideas.
Speaker Change: The last topic I want to touch on beforehand, or handing the call over to Rob is the balance sheet.
Speaker Change: Last quarter, we crossed the two churn mark.
Rob Sullivan: From a net leverage perspective, and this quarter, we pushed it even lower.
Rob Sullivan: In total we allocated $275 million to debt repayment in fiscal 2025.
Rob Sullivan: Our trailing net leverage to one seven turns exiting the year.
Rob Sullivan: We remain well poised to pursue additional accretive M&A.
Rob Sullivan: And the team has been very active in keeping the pipeline full of ideas.
Michael Hartnett: Looking ahead, fiscal 2026 is poised to be another strong year for RBC. The backdrop for growth across all of our channels is substantial and our team is laser focused on executing at the highest level.
Rob Sullivan: Looking ahead fiscal 2026 is poised to be another strong year for RBC.
Rob Sullivan: The backdrop for growth across all of our channels is substantial and our team is laser focused on executing at the highest level.
Robert Sullivan: With that, I'd like to turn over the call to Rob Sullivan for more details. Thank you, Mike. As Dr. Hartnett indicated, this was another strong quarter for RBC. Net sales growth of 5.8% drove gross profit growth of 8.5%, with more than 110 basis points of expansion. The quarter benefited from strong manufacturing performance coupled with the structural drivers of our gross margin performance, including Dodge Synergies, increased utilization of our aerospace and defense manufacturing assets, and the continuous improvement focus on the RBC Ops management process. Industrial gross margins during the quarter were 45.7% and aerospace and defense margins were 41.5%.
Speaker Change: With that I'd like to turn over the call to Rob Sullivan for more details. Thank.
Speaker Change: Thank you Mike as Dr. <unk> indicated this was another strong quarter for RBC net.
Speaker Change: Net sales growth of five 8% drove gross profit growth of eight 5% with more than 110 basis points of expansion.
Speaker Change: The quarter benefited from strong manufacturing performance, coupled with the structural drivers of our gross margin performance, including Dodge synergies increased utilization of our aerospace and defense manufacturing assets and a continuous improvement focus on the RBC ops management process and.
Speaker Change: Industrial gross margins during the quarter were 45, 7% and aerospace and defense margins were 41, 5% on.
Robert Sullivan: On the SG&A line, we continued our investments in future growth. This included a combination of investments in personnel costs and back office support, including IT. This resulted in adjusted EBITDA of $139.8 million, up 7.4% year-over-year and an adjusted EBITDA margin of 31.9%, which is up 50 basis points year-over-year. Interest expense in the quarter was $12.8 million. This was down 31.8% year-over-year, reflecting the ongoing repayment of our term loan, as well as a lower rate on the loan as the SOFR base rate has moved lower. The tax rate in our adjusted EPS calculation was 21.7%, reasonably consistent versus last year's 21.2%.
Speaker Change: On the SG&A line, we continued our investments in future growth. This included a combination of investments in personnel costs back office support including.
Speaker Change: This resulted in adjusted EBITDA of $139 8 million up seven 4% year over year and an adjusted EBITDA margin of 31, 9%, which is up 50 basis points year over year.
Speaker Change: Interest expense in the quarter was $12 8 million. This was down 31, 8% year over year, reflecting the ongoing repayment of our term loan as well as a lower rate on the loan as the soccer base rate has moved lower.
Speaker Change: The tax rate and our adjusted EPS calculation was 21, 7% reasonably consistent versus last year's 21, 2% alter.
Robert Sullivan: All together, this led to adjusted diluted EPS of $2.83, representing growth of 14.6% year-over-year, an impressive result given the choppiness in commercial aerospace customer production schedules and the macroeconomic softness in the industrial economy. Pre-cash flow in the quarter came in at $55 million with conversion of 76% and compares to $70 million and 113% last year. The lower conversion rate this quarter was primarily the result of timing around accounts receivable driven by year-over-year increased sales. As usual, we used the cash generated to continue to deleverage the balance sheet. We repaid $82 million of the debt during the quarter, taking our total year-to-date debt reduction to $275 million.
Speaker Change: Altogether. This led to adjusted diluted EPS of $2 83, representing growth of 14, 6% year over year, an impressive result, given 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 $55 million with conversion of 76% and compares to $70 million and 113% last year. The lower conversion rate. This quarter was primarily the result of timing around accounts receivable driven by year over year increase sales as usual we use the cash generated to continue to deleverage the balance sheet, we repay.
Speaker Change: $82 million of debt during the quarter, taking our total year to date debt reduction to $275 million.
Robert Sullivan: All in, this is another strong year for free cash flow generation, and all of that cash flow is applied to debt reduction. This takes our trailing net leverage to 1.7 turns, leaving our balance sheet in an increasingly attractive position to pursue additional accretive M&A.
Speaker Change: All in this was another strong year for free cash flow generation and all of that cash flow is applied to debt reduction. This takes our trailing net leverage to one seven turns leaving our balance sheet and an increasingly attractive position to pursue additional accretive M&A.
Robert Sullivan: Looking into the first quarter, we are guiding to revenues of $424 to $434 million, representing year-over-year growth of 4.4 to 6.8%. That guidance embeds an operating environment that's fairly similar to the fiscal fourth quarter. On the margin side, we were projecting gross margins of 44.25 to 44.75 for the quarter, which at the midpoint would be up against the full year fiscal 2025 performance.
Speaker Change: Looking into the first quarter, we are guiding to revenues of $424 million to $434 million representing year over year growth of four 4% to six 8%.
Speaker Change: Guidance Embeds, an operating environment.
Speaker Change: Fairly similar to the fiscal fourth quarter.
Speaker Change: On the margin side, we are projecting gross margins of $44, two 5% to $44 75 for the quarter, which at the midpoint would be up against the full year fiscal 2025 requirements.
Robert Sullivan: Our focus on continuous improvement on the margin line marches on and can be seen in our outlook for full-year gross margin expansion of 50 to 100 basis points, which will likely be back half-weighted. This is inclusive of all tariffs at the current levels. We currently expect tariff pressure to be minimal and believe we can mitigate the expected headwinds and still deliver margin expansion on a pull year basis. Similar to prior years, we expect to reinvest some of this margin expansion into fueling future growth through investments in the SG&A line. We expect other factors to be normal as well, including free cash flow conversion of 100%.
Speaker Change: Our focus on continuous improvement on the margin line marches on and can be seen in our outlook for full year gross margin expansion of 50 to 100 basis points, which will likely be back half weighted.
Speaker Change: This is inclusive of all tariffs at the current levels. We currently expect tariff pressure to be minimal and believe we can mitigate the expected headwinds and still deliver margin expansion on a full year basis Sim.
Speaker Change: Similar to prior years, we expect to reinvest some of this margin expansion is fueling future growth through investments and yes. She SG&A line.
Speaker Change: We expect other factors to be normal as well, including free cash flow conversion of 100%.
Robert Sullivan: Adjusted taxes in the 22 to 23 percent range and CapEx in the range of three to three and a half percent of sales In closing, this was another strong quarter for RBC and we are poised for another strong year. We remain focused on leveraging our core strengths in engineering, manufacturing, and product development to drive both organic and inorganic growth, continuous improvement in operating efficiency, and high levels of free cash flow conversion.
Speaker Change: Adjusted taxes in the 22% to 23% range in Capex in the range of three to three 5% of sales.
Speaker Change: In closing this was another strong quarter for RBC and we are poised for another strong year, we remain focused on leveraging our core strengths in engineering manufacturing and product development to drive both organic and inorganic growth continuous improvement in operation operating efficiency and high levels of free cash flow conversion.
Unknown Executive: With that operator, please open the call for Q&A.
Speaker Change: With that operator, please open the call for Q&A.
Unknown Executive: Certainly, when I'll be conducting a question and answer session, if you'd like to be placed in the question queue, please press star 1 on your telephone keypad.
Speaker Change: Certainly, we'll now be conducting a question and answer session if you'd like to be placed the question queue. Please press star one on your telephone keypad.
Unknown Executive: You may press star 2 if you'd like to move yourself from the One moment please, Bobby Paul for questions.
Speaker Change: You May press star two if he likes to move yourself from the queue.
Speaker Change: Well woman, please while we poll for questions.
Kristine Liwag: Our first question is coming from Kristine Liwag from Morgan Stanley. Your line is now live.
Speaker Change: First question is coming from Christina Lee went from Morgan Stanley. Your line is now live.
Kristine Liwag: Good morning, everyone. Hi, Kristine. So, maybe first question on commercial aerospace. I mean, we're starting to finally see Boeing production rate move in that positive trajectory.
Christina Lee: Hey, good morning, everyone.
Speaker Change: Hi, Christine.
Speaker Change: So maybe first question on commercial aerospace, we're starting to finally see a Boeing production rate move and that positive trajectory. So I guess I wanted to level set can you remind us you know when we actually get to let's say.
Kristine Liwag: So, I guess I wanted to level set, can you remind us, you know, when we actually get to, let's say, 50 per month for the 737 MAX and 10 per month for the 787, I mean, how much bigger is your commercial aerospace OE business at that point? And then also, when we think about margins, you guys have done an incredible job holding on to margins even though production rates have been uncertain. When we get to that full run rate, how should we think about the margin opportunity?
Speaker Change: 50 per month for the 77 nine and.
Speaker Change: 10 per month for the 77, I mean, how much bigger is your commercial aerospace OE business at that point and then also when we think about margins you guys have done an incredible job holding onto margins, even though production rates have been uncertain. When we get to that full run rate how should we think about the margin opportunity.
Speaker Change: Okay.
Michael Hartnett: Well, Kristine, you ask some difficult questions. As usual.
Speaker Change: Well Christine you ask some difficult questions.
Speaker Change: As usual.
Unknown Speaker: Unknown Speaker .
Michael Hartnett: . And I'm hoping you're going to have some great... Yeah well we're you know I actually you you would be the person I would go to to ask when Boeing is going to get to the 50 a month so so right now we're we're hoping to see them get to the 38 number which I think they're going to get to very very soon with within a month or two and then apparently they're they're pretty far along with the FAA on approving the the what are their key metrics and which sort of turns on turns on the next 10 planes for them so you know we're thinking that it's going to be not too deep into calendar 26 before we start start seeing seeing plane builds in the in the upper 40s Um, you know, I'm there.
Speaker Change: Hum.
Speaker Change: And I'm, hoping you're going to have great.
Speaker Change: Yeah, well, we're you know I actually you you would be the person I would go to to ask when Boeing is going to get to the 50 a month.
Speaker Change: So right now, we're where we're hoping to see them get to the 38 number which I think they're going to get to vary.
Speaker Change: Very soon within a month or two and then.
Speaker Change: Apparently there they're pretty far along with the FAA on approving the.
Speaker Change: What are the key metrics.
Speaker Change: And which sort of turns on Oh it turns out in the next 10 planes for them. So I you know, we're we're thinking that it's going to be not too deep into.
Speaker Change: Calendar 'twenty six before we start our start seeing.
Speaker Change: Seeing a plain builds in the in the upper Forty's.
Speaker Change:
Speaker Change: Okay.
Kristine Liwag: Is that, is that how you see it? Yeah, I mean, I just looked at the May deliveries, and we're only in the halfway part of May, and they got to some pretty good production numbers. So I think I would agree with your assessment of the 38 is going to be very soon. But what I wanted to ask you is like, so when you do get to that, you know, 40 per month, or even, you know, eventually 50, I mean, how much bigger could your revenue be? Because you want a lot of ship set content for the max versus the NG, that we didn't really see the full benefit of, because of the disruption in production.
Speaker Change: Is that a is that how you see it.
Speaker Change: Yeah, I mean, I just looked at.
Speaker Change: And we're only in the halfway part of May and they got pretty good production numbers. So I think I would agree with your assessment of the 38 is gonna be very soon but.
Speaker Change: But what I wanted to ask you I think so when you do get to that 40 per month or even you know eventually I mean, how much bigger could your revenue be because you wanted a lot of ships that content for the rest of the engie. So we didn't really see the full benefit all because of the disruption in production. So I just wanted to understand.
Michael Hartnett: So I just wanted to understand, could your Boeing commercial OE revenue be, you know, at this point, you know, 2x versus, you know, 2019, just some sort of level setting on numbers around that. Okay, well.
Speaker Change: Can cause your Boeing commercial OE revenue would be at this point you know to act as you know.
Speaker Change: 2019, I, just some sort of level setting our numbers around that Mike.
Speaker Change: Okay well.
Michael Hartnett: You know, let me let me do a little math here and maybe come back at the other other end of the Q&A and I'll have my math done. Sounds good.
Speaker Change: You know, let me, let me do a little math here.
Speaker Change: And maybe come back at the other other end of the Q&A you know I have my math done.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Sounds good.
Michael Hartnett: And then in the meantime, in industrials, I was wondering, I mean, you guys are very clear that this, the growth that you're seeing is from the improvement of from the strategy of your team versus the end market. Can you give a little bit more color on exactly what kind of initiatives you took, and how much that provided you in terms of incremental growth versus end markets? And could you sustain your leadership in growth versus peers in this cycle?
Speaker Change: In the meantime.
Speaker Change: Industrials I was wondering I mean, you guys are very clear that the debit.
Speaker Change: So I think the growth that you saw was from <unk>.
Speaker Change: Uh huh.
Speaker Change: <unk> got as you have your team versus the end market can you give a little bit more color on exactly what kind of initiatives you took and how much that provided you in terms of incremental growth versus end market.
Speaker Change: Our leadership and growth.
Speaker Change: Sure.
Speaker Change: And the cycle.
Michael Hartnett: Yeah, on the industrial side. Yeah, yeah, I think I think, well, a couple of couple of things there. I think, first of all, there's there was some product lines that had service level problems that at Dodge that after we acquired the company, and we started working, working on and making it a priority with the Dodge folks to, to improve the service levels and the production capacity for certain products. And certainly they did that. And And the market responded very well to that. to that initiative. I mean, that's that's sort of the easiest thing to fix because of, you know, you have to worry about product development and testing and long cycle kind of kind of things.
Speaker Change: Yeah on the industrial side, Yeah, Yeah, I think I think well a couple of a couple of things there.
Speaker Change: First of all there's there was some product lines that had service level problems that.
Speaker Change: At Dodge that after we acquired the company, we started working on working on and making it a priority with the Dodge folks two to improve the.
Speaker Change: The service levels and the production capacity for certain products and.
Certainly they did that and.
Speaker Change: And the markets market responded.
Speaker Change: Very well to that.
Speaker Change: To that initiative I mean, that's that's sort of the easiest thing to fix because of.
Speaker Change: You don't have to worry about product development and testing and long cycle kind of kind of things.
Michael Hartnett: So you really want to, you really want to get at the service level problems first. And then on the longer cycle, they had, you know, Dodge had several products that were through the test cycle when we acquired the business, but weren't capitalized or I think it was just, you know, they were busy selling the business for a couple of years. So things, priorities change. And so we were the benefit, benefactors or beneficiaries of that, of that business, and we're able to turn on some of those new products pretty quickly. And, and so that's, that's certainly accruing to the overall benefit.
Speaker Change: So you really want to you you really wanted to get it at the service level problems first.
Speaker Change: And then on the on the longer cycle.
Speaker Change: Our heads.
Speaker Change: Dodge had several.
Speaker Change: Products that were through the through the test cycle, when we acquired the business, but werent capitalized or.
Speaker Change: Oh capitalization and.
Speaker Change: Well it wasn't encouraged.
Speaker Change: I think it was just.
Speaker Change: They were busy selling the business for a couple of years, so things priorities change.
Speaker Change: And and see where the benefit benefactors are beneficiaries of that of that business and we were able to turn on some of those new products.
Speaker Change: Pretty quickly and.
Speaker Change: So that's that's certainly accruing to to the overall benefit.
Michael Hartnett: And then I think the third thing there's there's longer term opportunities that Dodge has that sort of are in the in the pipeline right now that will take a little bit a little bit longer to mature but have you know some significant market market positions once matured. So, you know, it's it's overall a pretty healthy, healthy outlook for them.
Speaker Change: And then I think the third thing theres longer term opportunities that Dodge has.
That sort of are in the in the pipeline right now that will take a little bit.
Speaker Change: Little bit longer to mature but have.
Speaker Change: Some significant market.
Speaker Change:
Speaker Change: Market positions once matured so.
Speaker Change:
Speaker Change: It's overall, a pretty healthy healthy outlook for them.
Michael Hartnett: Great, thank you. Yep.
Speaker Change: Great. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question today is coming from Michael from Ali from Truest Securities. Your line is now live.
Michael Ciarmoli: Next question today is coming from Michael Ciarmoli from Truist Securities.
Michael Ciarmoli: Your line is now live. Hey, morning, guys. Nice results. Thanks for taking the question.
Michael: Hey, good morning, guys nice results, thanks for taking the questions.
Robert Sullivan: Hey Rob, do you happen to have, I know we'll get it in the queue, do you happen to have the gross margins by segment for the quarter? I did read them out in my script, but I will repeat them. The industrial gross margins were 45.7% this quarter and A&E was 41.5%.
Michael: Hey, Rob do you happen to I know, we'll get it in acute do you happen to have the gross margins.
Michael: By segment for the quarter.
Michael: I did read them out.
Michael: In my script, but I won't repeat them.
Michael: Industrial gross margins were 45, 7% this quarter and A&D was 41, 5%.
Robert Sullivan: Got it. And do we, how are we, I know you gave some color on 26. Any thoughts? I mean, I guess the gross margin expansion maybe seems a bit conservative assuming we get the volumes and I know that's, you know, still still a bit of a wildcard, everything from Boeing sounding better. But if we get more margin expansion, you know, I'm assuming it comes on the aerospace and defense side. Is it fair to say there's more runway there? Yeah, I think, you know, we certainly see a lot of runway, you can see the gap between A&D and industrial, and where A&D is today versus, you know, where it's demonstrated its ability in the past leaves us opportunity to expand with more throughput in the plants.
Speaker Change: Got it and do we how are we doing.
Michael: I know you gave some color on 2006.
Speaker Change: Any thoughts I mean.
Speaker Change: I guess, the gross margin expansion, maybe seems a bit conservative, but assuming we get the volumes and I know that.
Speaker Change: Still still a bit of a wildcard everything from Boeing sounding better.
Speaker Change: We get more margin expansion.
Speaker Change: I'm, assuming it comes on the aerospace and defense side is that fair to say, there's more runway there.
Speaker Change: Yeah, I think you know we've.
Speaker Change: We certainly see a lot of runway you can see the gap between A&D and industrial.
India is today versus where it has demonstrated its ability in the past leaves us opportunities to expand with more throughput in the plants.
Michael Ciarmoli: We've spoken about some of the contract renewals that will come up late in the year, and the increased volumes all kind of contributing. So we think that, you know, the gross margins in A&D certainly have some runway there. And as I mentioned, that expansion, you know, looks looks like it could be back back half weighted. Okay, 50 to 100 pips. Got it. And then you guys gave some pretty good detail on 26, with I'd say more of that contained to aero, and I get the industrial environments, you know, probably a little bit more fluid and harder to predict.
Speaker Change: <unk> spoken about some of the contract renewals that will come up later in the year and the <unk>.
Speaker Change: Increased volumes I'll, just kind of contributing so we think that the gross margin A&P you certainly have <unk>.
Speaker Change: Some runway there and as I mentioned that expansion looks looks like it could be back back half weighted.
Speaker Change: Okay 50 to 100 bps.
Speaker Change: Got it and then you guys gave some pretty good detail on 26 with I'd say more of that contained to arrow and I get the industrial environments.
A little bit more fluid and harder to predict but.
Michael Ciarmoli: But I mean, if we kind of mash it together, you know, it sounds like the aero side of the house can grow low teams. I mean, if you kind of imply low single, maybe mid single for Are you guys comfortable with, you know, a 1.7 to 1.8 billion revenue kind of bogey for next year?
Speaker Change: If we kind of mash it together it sounds like the Aero side of the house can grow low teens I mean, if you kind of implied low single maybe mid single for industrial are you guys comfortable with you know a one 7% to $1 8 billion in revenue kind of bogey for next year.
Robert Sullivan: You know, I think we're really stricking sticking to the, you know, the direct guidance for the next quarter, as we always do. Yeah, we've offered some color on the A&E for the full year. We'll go from there.
Speaker Change: I think we're really striking sticking to the you know the direct guidance for the next quarter as we always do we've offered some color.
Speaker Change: The full year.
Speaker Change: Go from there.
Speaker Change: Okay last last one and I'll jump back in the queue, you talked about minimal tariff impact I mean is there is there any change in your thought process around kind of your sentiment our views on tariffs I mean, the commentary last quarter. You know I think it was you know talking about adding space in fuel that would be strongly net.
Michael Ciarmoli: You talked about minimal tariff impact.
Michael Ciarmoli: I mean, is there any change in your thought process around kind of your sentiment or views on tariffs? I mean, the commentary the last quarter, I think it was talking about adding spice and fuel that would be strongly net good for the business. So has anything kind of changed around tariffs, ability to offset with pricing? Are you seeing any share gains? As customers potentially rethink their supply chains, looking for domestic sources?
Speaker Change: Good for the business. So is there anything kind of changed around tariffs ability to offset with pricing are you seeing any share gains.
Speaker Change: Customers potentially rethink their supply chains looking for domestic sources.
Michael Hartnett: Well, I, you know, I think short term, short term versus long term. I mean, short term. We have a certain supply chain and, and so on and so forth. So there's, there's a, you know, We've looked at it pretty, pretty closely. And we think short term, we're, you know, we're neutral on, for the most part on tariff impact. For the long term, I think it's You know, depending upon the extent of the tariffs. The larger the tariff, the more we're going to benefit. Um, just just because there's going to be there's going to be shortages everywhere and uh and uh you know, the right mix will find us.
Speaker Change: Well you know I think.
Speaker Change: The short term.
Short term versus long term.
Speaker Change: I mean short term.
Speaker Change: We have a certain supply chain and.
Speaker Change: So on and so forth. So there's there is a.
Speaker Change: No.
Speaker Change: We've looked at it pretty pretty closely and we think short term. We're you know we're neutral on for the most part on tariff impact.
Speaker Change: For the long term I think it's.
Speaker Change: Depending upon the extent of the tariffs.
Speaker Change: The larger the tariffs the more we're going to benefit.
Speaker Change: Just just because theres going to be there's going to be shortages everywhere.
Speaker Change: And.
Speaker Change: You know the right mix will find us we won't have to search for it.
Michael Hartnett: We won't have to search for it.
Speaker Change: Got it understood.
Michael Ciarmoli: All right, thanks guys, I'll turn it back to McHugh. Thank you.
Speaker Change: Alright, Thanks, guys I'll jump back in the queue.
Speaker Change: Thank you. Your next question today is coming from Steve Barger from Keybanc capital markets. Your line is now live.
Steve Barger: Next question today is coming from Steve Barger from KeyBank Capital Markets. Your line is now live. Thanks. Good morning. Mike. Morning. Talked about. We talked about organic growth initiatives targeted at specific customers and programs, but I know the team is always in front of people.
Steve Barger: Thanks, Good morning.
Mike: Mike Good morning talked about you.
Speaker Change: You talked about organic growth initiatives targeted at specific customers and programs, but I know the team is always in front of people. So is this an acceleration of existing programs or are you trying something new and what does that look like.
Michael Hartnett: So is this an acceleration of existing programs or are you trying something new and what does that look like? Well, it depends upon whether you're talking a A and D or industrial. I mean, obviously, the way the A and D works, you're always in front of people with new programs. I mean, it's just It's just the way the way the business is working, you know. Seems like it's always worked that way. Industrial, it's... It, you know, it's a little different. I think, I think Dodge has had pretty much over the years a pretty, pretty fixed mix and, and a well, well honed process.
Speaker Change: Well it depends on whether you're talking to a a N D or industrial I mean.
Speaker Change: Obviously, the way the a and D works.
Speaker Change: You're always in front of people with new programs I mean, there's just.
Speaker Change: It's just the way.
Speaker Change: The way the business is working.
It seems like it's always work that way.
Speaker Change: Industrial it's.
Speaker Change: You know, it's a little different I think I think.
Speaker Change: Dodge has had pretty much over the years, a pretty pretty fixed mix and.
Speaker Change: And in a well well.
Speaker Change: Owned a process and so Dodge, where we're taking a few additional steps to.
Michael Hartnett: And so, you know, Dodge, we're taking a few additional steps to, to invigorate, you know, their OEM business, and, and that's having modest, modest gain.
Speaker Change: To.
Speaker Change: Invigorate.
Speaker Change: You know their OEM business and <unk> and <unk>.
Speaker Change: Having modest the.
Michael Hartnett: For more information visit www.FEMA.gov Is that targeting more wallet share with existing customers or are you casting a broader net? Both, absolutely both. Um, you know, and, uh, and we're doing some, we're, we're doing some things to make it easier for, for new customers to do business with us. And we're opening up some geographic regions that have been where we really didn't have significant representation or customer reach in the past.
Speaker Change: Modest gains.
Speaker Change: Is that.
More wallet share with existing customers or are you casting a broader net for new customers.
Speaker Change: Oh, both absolutely absolutely both.
Speaker Change: You know.
Speaker Change: And we're doing some work we're doing some things to make it easier for four new customers to do business with us.
Speaker Change: And we're opening up some geographic regions that have been.
Speaker Change: Well, we really didnt have significant.
Speaker Change: <unk>.
Speaker Change: Representation or.
Speaker Change: Customer reach in the past.
Michael Hartnett: Guys, you may have talked about this in the past, but what are the new regions that you're really targeting? Well, I think there's, there's the most productive regions are in North America. Um The more exotic and higher risk regions are elsewhere in the world. you know, South America, India, Mexico, places like that. Got it.
Got it and then you may have talked about this in the past, but what are the new regions that youre really targeting.
Speaker Change: Oh, well I think there's there's the most productive regions are in the in North America.
Speaker Change:
Speaker Change: The more.
Speaker Change: Exotic and.
Speaker Change: And higher risk regions or elsewhere in the world.
Speaker Change: South America, India, Mexico.
Speaker Change: Places like that.
Speaker Change: Got it and then last question.
Michael Hartnett: And then last question. I know capacity utilization is always a tricky question because of productivity initiatives and your ability to run over time or add a shift.
Speaker Change: Capacity utilization is always a tricky question because of productivity initiatives and your ability to run over time or added shifts, but if youre going to post double digit growth in air and A&D and we also get a firmer industrial production cycle, how much flexibility do you have and the plans to support that higher growth right now.
Michael Hartnett: But if you're going to post double digit growth in A&D and we also get a firmer industrial production cycle, how much flexibility do you have in the plants to support that higher growth right now?
Speaker Change: Okay.
Michael Hartnett: Well, I'm glad you asked that question. Um, because, you know, You know, we've got a lot of plants and the demand on these plants isn't isn't the same on all the plants. I mean, some plants are overloaded with demand. Some plants are just well balanced. And so on the A&E side of it, it looks like about 70% of our are way over. Demand demand is in capacity or are not balanced. far more demand than there is capacity. Um, you know, that's. You know, we've had we've had what double digit growth for the last couple of years in those businesses.
Speaker Change: Well I'm glad you asked that question.
Speaker Change: Because you know.
Speaker Change: You know, we we've got a lot of plants and the demand on these plants isn't.
Speaker Change: Isn't the same on all of the plants I mean, some plants are overloaded with demand. Some plants are just are well balanced.
Speaker Change: So in the a and D side of it.
Speaker Change: It looks like about 70% of our.
Speaker Change: Of our revenues plants that make 70% of our revenues are way over.
Speaker Change: Demand demand is and capacity are not balanced.
Speaker Change: Far more demand than there is capacity so.
Speaker Change:
Speaker Change: That's.
Speaker Change: We've had we've had what double digit growth for the last couple of years in those businesses and <unk>.
Michael Hartnett: And inevitably, we kind of hit a capacity ceiling in some of those businesses. And we're working our way through that ceiling now. And And so that's. That's capital, machinery, labor. So we're adding labor, we're adding hours. And we're adding machinery. And actually, we're moving machinery from plants that are balanced and can do with less machinery to plants where demand and capacity is constrained. So all that has taken place as we speak. And so we're going to grow our throughput in those A&E plants through the through this year, and it's going to continue next year, it's going to be the same process at least for the next two years, we're just going to be chasing this for a while.
Speaker Change: Inevitably we kind of hit a capacity ceiling.
Speaker Change: Some of those businesses and we're working our way through that ceiling now and.
Speaker Change: And so that's.
Speaker Change: That's capital machinery.
Speaker Change: Labor.
So we're adding labor.
Speaker Change: We're adding hours.
Speaker Change: And we're adding machinery and actually we're making we're moving machinery from from plants that are balanced and can do with less machinery two plants that are or.
Speaker Change: Where demand is and capacity is constrained so.
Speaker Change: All that has taken place as we speak and so we're going to we're going to grow our throughput in those A&D plants.
Speaker Change: The.
Speaker Change: Through this year and it's going to continue next year.
Speaker Change: Going to be the same process at least through the next two years, we're just going to be we're just going to be chasing this for a while.
Michael Ciarmoli: Um, but that's, uh, that's. That's a great, that's a great thing to have to deal with. I mean, of all the problems I, I have, if you call this a problem, I'll take it. Yeah, for sure. That's a great problem to have. Did you maybe I missed it. Did you throw out a capex number for You'll be in the three to three and a half percent. Got it. Okay, thanks.
Speaker Change: But that's a that's.
Speaker Change: That's a great that's a great thing to have to deal with all the problems they.
Speaker Change: Have if you call. This a problem I'll take it.
Speaker Change: Yeah.
Speaker Change: Yes for sure that's a great problem to have did you maybe I missed it did you throw out a capex number for the year.
Speaker Change: It'll be in the three to three 5%.
Speaker Change: Got it okay. Thanks.
Speaker Change: Thank you as a reminder, Thats star one to be placed in the question queue and our first speaker phone may be necessary to pick up the speaker before pressing star one.
Unknown Executive: As a reminder, that's star 1 to be placed into question Q. And if you're on speakerphone, it may be necessary to pick up the speaker before pressing star 1.
Pete Skibitski: Our first question, our next question I should say is coming from Pete Skibitski from Olympic Global. Your line is now live. Hey, good morning, guys. Morning Pete.
Speaker Change: Our first question. Our next question is coming from Pes Kubicki from Alembic Global Your line is now live.
Pes Kubicki: Hey, good morning, guys.
Pete Skibitski: Maybe one for Rob. Hey Rob, I think you said the free cash conversion target for 26 is one times. You had this big receivables build here in the fourth quarter. I don't know how fast you expect to collect on that, but it seems to the extent you can collect on that, because it's pretty large, that maybe one times conversion is kind of conservative, unless you think as you grow here that fourth quarter will be kind of ongoing. you know, receivables, delays, but was wondering if you could have some color on that. Yeah, I mean, the one time is always our target.
Speaker Change: Good morning, Pete.
Speaker Change: Maybe one for Rob Hey, Rob I think you said the free cash conversion target for 'twenty.
Speaker Change: One time.
Speaker Change: You had this big receivables build here in the fourth corner I don't know how fast do you expect that collect on that.
Speaker Change: It seems to the extent you can collect on that pretty large that there may be one times conversion is kind of conservative.
Speaker Change: Unless you think as you grow.
Speaker Change: Fourth quarter will be kind of ongoing.
Speaker Change: You know receivables delays I was wondering if you'd give some color on that.
Speaker Change: Yes, I mean, the one times always are our target hopefully I'll hopefully we'll beat it.
Pete Skibitski: Hopefully, I'll hopefully we'll beat it. You know, we are continuing to grow sales. So this will always be some of that pressure, but we're gonna do what we can to exceed that. Okay, fair enough.
Speaker Change: We are continuing to grow sales. So that's what I'd always be some of that pressure, but we're going to do what we can to exceed that.
Speaker Change: Okay Fair enough and then just on the Capex profile.
Pete Skibitski: And just on the CapEx profile, I guess, maybe Mike, you know, if this reconciliation bill goes through and, you know, defense budgets grow, you know, well into the double digits, is that going to kind of set off another, you know, CapEx cycle for you guys? Just given that's a pretty, pretty big step up in potential demand there. I don't know what this current cycle, you know, kind of enables you for capacity wise.
Speaker Change: I guess, maybe Mike if this reconciliation bill goes through and you know what.
Speaker Change: Defense budgets grow well into the double digits is that going to kind of set off another.
Speaker Change: Capex cycle for you guys, just just given that's a pretty pretty big step up in potential demand. There I don't know what this current cycle kind of enabled before capacity wise.
Michael Hartnett: Um, yes, it will. And we actually are are planning. a five year kind of outlook for for a couple of our plants and, and sort of what do we what do we need for capital? And how do we how do we adjust? Because when you when you look at, you know, what what the growth is going to be in some of those plants over the next five years, given given sort of the A&D profile that we're looking at, you know, we have to act now to get ahead of it. Okay, okay, makes sense.
Speaker Change:
Speaker Change: Yes, it will and we actually are.
Speaker Change: Our planning.
Speaker Change:
Speaker Change: A five year kind of outlook through for a couple of our plants in <unk>.
Speaker Change: Sort of what do we what do we need for capital and how do we how do we adjust.
Speaker Change: Because when you when you look at you know.
Speaker Change: With the growth is going to be in some of those plants over the next five years.
Speaker Change: Given given sort of the A&D profile that we're looking at.
Speaker Change: Hum.
Speaker Change: We have to act now to get ahead of it.
Speaker Change: Okay, Okay makes sense and last one for me just on them.
Pete Skibitski: Last one for me just on I think Steve kind of asked about the SG&A investments. I think I might have missed some of it.
Speaker Change: I think Steve kind of asked about the SG&A investments I think I might have missed some of that.
Robert Sullivan: Could you just update us on the timeline in terms of, you know, have you reached kind of peak incremental spend on some of the incremental IT investments and the India investments that you guys wanted to do? And so I don't know if we should expect some operating leverage at this point going forward? Or are you still kind of growing that investment? And, you know, maybe what's the return timeline on that? Yeah, so we're, you know, continuing to invest in the growth. Obviously, we're trying to grow the company at a healthy rate. But the key takeaway would be, you know, of that margin expansion that, you know, we're seeking, we're always aiming to see a good amount of that fall down to the EBITDA line.
Speaker Change: Could you just update us on the timeline in terms of have you reached kind of peak incremental spend on some of the incremental investments in the <unk>.
Speaker Change: The investments that you guys wanted to do and so I don't know if we should expect some operating leverage at this point going forward or are you still kind of growing that investment and you know.
Speaker Change: Maybe what's the return timeline on that.
Speaker Change: Yes, so we're continuing to invest in the growth obviously, we're trying to grow the company at a healthy rate, but the key takeaway would be you know of that margin expansion.
Speaker Change: We're seeking we're always aiming to see a good amount of that fall down to the EBITDA line, that's the best way Ed.
Robert Sullivan: That's the best way I'd frame it.
Speaker Change: Okay fair enough thanks, guys.
Pete Skibitski: Fair enough. Thanks, guys.
Speaker Change: Thank you next question is coming from Ross sparing back from William Blair. Your line is now live.
Ross Sparenblek: Next question is coming from Ross Sparenblek from William Blair. Your line is now live. Good afternoon, guys. Hey, on the defense guidance, I believe you guys said, you know, mid to high seal digit plus for 2026 seems like a, you know, generally broad range there. So it'd be great to just gauge the sensitivity and what's informing, you know, the lower end versus the high end. Is it more just ramping capacity? Or is it kind of just customer timing?
Ross Sparing: Hey, good afternoon guys.
Speaker Change: Sure Ross.
Speaker Change: Hey on the defense guidance I believe you guys said you know mid to high single digit plus for 2026 seems like are generally broad range. There. So it'd be great day, she's gauge the sense of Kennedy and what's informing I and lower in versus the high end is it more just ramping capacity or is it kind of just customer.
Speaker Change: Tiny.
Michael Hartnett: It's probably ramping capacity, Ross. It's You know, we've We are working our way through some pretty substantial contracts with made MAJORs. Those planned builders and the defense agencies or the defense OEMs, and so A lot of them are already booked. are in process or late to book. because of Administrative delay on the other side. But it's It's definitely going to be a capacity challenge. Okay, understood.
Ross Sparing: It's probably ramping capacity Ross it's.
Speaker Change: You know we've.
Speaker Change: We are working our way through some pretty substantial.
Speaker Change: Contracts with with the majors.
Speaker Change: Most claim but builders and the defense agencies.
Speaker Change: The defense Oems and.
Speaker Change: So.
Speaker Change: A lot of them are already booked.
Speaker Change: Or in process or late to book.
Speaker Change: Because of the administrative delay on.
Speaker Change: On the other side.
Speaker Change: Yes.
Speaker Change: It's a it's definitely it's definitely going to be a capacity challenge for us.
Speaker Change: Okay understood.
Ross Sparenblek: And then maybe just on industrial, can you just elaborate on some of the dynamics there, on the strength on the OEM side, you noted Dodge being strong, maybe just on the RBC Classic.
Speaker Change: And then maybe insulin industrial can you just elaborate on some of the end market dynamics there.
Speaker Change: Strength on the OEM side.
No the Dodge being strong, but maybe just on the RBC classic.
Robert Moffatt: Hey Ross, it's Rob Moffatt. Just looking at the end markets, mining metals was our strongest. We've had a couple decent quarters there. Aggregate and cement was number two. And warehousing and logistics is an end market that has turned very nicely positive for us. Those are those are our top three contributors.
Speaker Change: Hey, Ross, it's Rob Moffat, just looking at the end markets mining metals was our strongest.
Speaker Change: We've had a couple of decent quarters their aggregate and cement was number two and.
Speaker Change: Warehousing and logistics as an end market that has turned very nicely positive for us. Those are those are our top three contributors for us.
Robert Moffatt: Okay, so I mean, you get the sense that the other worst is kind of in the rear view here, oil and gas is still expected, second half 25. So maybe it's more just a mix when we think about the first quarter gross margin step down. to just strengthen the OEM for RBC Classic. When you talk about the Q1 versus Q1 last year, I think I would just point to the fact that, you know, Q1 last year was an exceptionally strong margin quarter. We had a nice product mix there, coupled with some expedites that were flowing through, if you recall.
Speaker Change: Okay. So I mean, you can get the sense that the worst is kind of in the rearview here oil and gas is still expected second half 'twenty five.
Speaker Change: So maybe it's more just a mix when we think about the first quarter margin and gross margin step down.
Speaker Change: They just strength in the OEM for RBC classic.
Speaker Change: You're talking about the you're talking about the Q1 versus Q1 last year I think I would just point to the fact that.
Speaker Change: Q1 last year was an exceptionally strong margin quarter.
Speaker Change: We have a nice product mix there coupled with some expedite that were flowing through if you recall so.
Robert Moffatt: So, you know, I just kind of remind you that the overall implication for the Q1 margin is above the full year FY25 performance.
You know just kind of remind you that the overall implication for the Q1 margin is above our full year FY 'twenty fives performance.
Michael Hartnett: Ross, if you're thinking in terms of growth, I mean, we do still have headwinds in the oil and gas segment, the semi semiconductor and markets still think that those are going to turn. If you look at the the strong performance that we had in industrial, it's a lot of the things that Dr. Hartnett talked about earlier, organic growth initiatives, really strong performance at Dodge, you know, picking up pockets of market share in different places. It's the things that we focus on during ops that are driving more so than Margaret. Awesome.
Speaker Change: Ross if youre thinking in terms of growth and we do still have headwinds in the oil and gas segment and the semi semiconductor end markets.
Speaker Change: Still think that those are going to turn if you look at the strong performance that we had in industrial it's a lot of things that Doctor had talked about earlier organic growth initiatives really strong performance Dodge.
Speaker Change: Picking up pockets of market share in different places, it's the things that we focus on doing ochsner driving that.
Speaker Change: More so than markets.
Speaker Change: Awesome. Thanks, guys.
Michael Hartnett: Thanks, guys.
Speaker Change: Thanks.
Jordan Lyonnais: Thank you. Next question is coming from Jordan Lyonnais from Bank of America. Your line is now live. Hey, good morning. Thanks for taking the question. I appreciate the comments on the debt repayment. But could you guys give a sense of what you're seeing for M&A pipeline? Has anything changed in the market for you? what's coming up that you'd be interested in.
Speaker Change: Thank you. Your next question is coming from George <unk>.
Speaker Change: From Bank of America. Your line is now live.
Speaker Change: Hey, good morning, Thanks for taking the question.
Speaker Change: I appreciate the comments on the debt repayment.
Speaker Change: But could you guys give a sense of what you're seeing.
Speaker Change: For M&A pipeline has anything changed in the market for you or.
Speaker Change: What's coming up that you'd be interested in.
Michael Hartnett: Well, on M&A, you know... I would say that, first of all, we've been working hard looking at alternatives. and lots of alternatives. And so we've been busy. Um Fit and synergy is important to us in our aspects of selection, and we're very selective. But we're spending a considerable amount of time here on candidates and it does, it does, it does burden, it's a big burden for the staff, let's put it that way. We think progress is being made. We think the balance sheet's in good position to do something if we need to act. And if we do see something we like, we'll act quickly.
Speaker Change: Well on.
Speaker Change: On M&A.
Speaker Change: I would say that first of all we've been working hard looking at alternatives.
Speaker Change: Lots of alternatives.
Speaker Change: And and so we've been busy.
Speaker Change:
Speaker Change: Hit in synergy is important to us.
Speaker Change: And our aspects of selection and we're very selective.
Speaker Change: But we're spending considerable amount of time.
Speaker Change: Here.
Speaker Change: On candidates.
Speaker Change:
Speaker Change: And it does it does it does burden, it's a big burden for the staff, but let's put it that way.
Speaker Change: We think progress is being made.
Speaker Change: We think the balance sheets in good position to do something if we need to act.
Speaker Change: And if we do see something we like we will act quickly.
Jordan Lyonnais: Great. Thank you so much.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you. Your next question today is coming from Christina Lee Wang from Morgan Stanley. Please proceed with your question.
Kristine Liwag: Next question today is coming from Kristine Liwag from Morgan Stanley. Please proceed with your follow-up.
Kristine Liwag: If I wanted to get back in queue, Mike, you know, to check on your math, I know you're really good at it. So I just want to make sure you didn't forget. I was hoping you'd forget, this is the way my math came out. And I'll let you do it by by I did it by 10 plane built rate for this 737. Okay.
Speaker Change: Thank you I wanted to get back in queue, Mike to check on your math I know you're really good at it. So I just want to make sure you're getting forget [laughter].
Speaker Change: [laughter] Kristina so I always hope it you'd forget.
Matt: This is the way Matt This is the way my math came out.
Speaker Change: And I'll, let you do it by pipe I did it by 10 plane build rate for the 737.
Matt: Okay.
Kristine Liwag: A 10-plane rate annually would add about $24 million. for the 777. A five plane rate would add $24 million. And for the 320. A 10-plane rate would add $12 million. Great. Wow, these are good numbers. And then so thank you.
Matt: Attend play in rate.
Matt: Annually would add about $24 million.
Matt: Mhm.
Matt: For the Triple seven.
Matt: Ah Ah five clean rate would add $24 million.
Matt: And for the 320.
Matt: A 10 plain rate would add $12 million.
Matt: Great.
Matt: Well these are good numbers.
Matt: And then.
Kristine Liwag: So I'll do some number crunching and follow up with you offline.
Matt: So thank you so I'll do some number crunching and follow up with you offline.
Kristine Liwag: Um, but I was wondering, maybe, since I'm back in queue, another follow up on the previous question on M&A, you know, speaking to some industry folks, um, I actually think that a lot of people are really surprised what you're able to do with a Dodge. right? I mean, who would have thought but by now, you know, industrial, your industrial business would be a few hundred basis points higher on gross margin than your aerospace defense business. So I guess, you know, looking at you've always had faith in your team, and you've had a pretty structured way of training all your employees.
Speaker Change: But I was wondering maybe since I'm back in queue.
Speaker Change: Follow up on the previous question on M&A.
Speaker Change: Speaking to some industry folks.
Speaker Change: I actually think that a lot of people are really surprised what youre able to do with the Dodge asset.
Speaker Change: Right.
Speaker Change: I mean, who would've thought but.
Speaker Change: Now you know industrial your industrial business would be a few hundred basis points higher in gross margin than your aerospace defense business. So I guess you know looking at you you've always had faith in your team and you've had a pretty structured way of training.
Speaker Change: All your employees.
Michael Hartnett: But I think, you know, that that kind of performance really surprised the industry and Dodge. So I was wondering, now that you have seen the size, I mean, doubling your revenue and getting over a thousand basis points in margin with an 18 month of ownership, these are all pretty. to spectacular accomplishments really on operations. I was wondering, does that give you more confidence? Does that widen your aperture regarding deals you could look at, assets that you think you could turn around or extract more value from? And also, when you look at your priorities for that balance sheet at 1.7 times that EBITDA, you do have a lot of runway and with your organic visits, you don't need to acquire, but can you give us some sort of guidance regarding what kind of assets would be interesting to you?
Speaker Change: But I think that that kind of performance really surprised that the industry and Dodge. So I was wondering now that you have seen.
Speaker Change: The size I mean, doubling your revenue and getting over 1000 basis points of margin within 18 months of ownership. These are all pretty.
Speaker Change: The spectacular accomplishments really honor on operation.
Speaker Change: I was wondering does that give you more confidence does that widen your average for regarding <unk>. If you could look at assets that you think you could turn around or extract more value from and also are you know when you look at your priorities for off with the balance sheet at one seven times net debt EBITDA you do have a.
Speaker Change: A lot of runway and you know with your organic visits you don't need to acquire but can you give us some sort of a.
Speaker Change: Our guidance regarding what kind of assets would be interesting to you is it more industrial or is it more.
Michael Hartnett: Is it more industrial? Is it more aerospace defense? Like, are there some sort of milestones or markers either in size or proprietary content that we can kind of follow? Thanks.
Speaker Change: Aerospace defense like are there some sort of milestones or markers either in size our proprietary content.
Speaker Change: That's all we can kind of.
Speaker Change: Hello. Thanks.
Michael Hartnett: Sure. Well, certainly on the aerospace defense side, we you know, we like we like companies that that sell to our customers because You know, the customers in that in that sphere are very sophisticated. The terms and conditions are very difficult and time consuming to negotiate. And so if you if you have a customer where you've negotiated your terms, and you, you have, you understand how the company customer makes decisions. And you, you know, you know, the people at the account and and how they think and, and you have the account covered with, with marketing people.
Speaker Change: Sure.
Speaker Change: Well certainly on the aerospace defense side side, we you know, we we like we like companies that.
Speaker Change: That sell sell to our customers because.
Speaker Change: The customers in that.
Speaker Change: In that sphere are very sophisticated.
Speaker Change: The terms and conditions are very difficult.
Speaker Change: Difficult and time consuming to negotiate.
Speaker Change: So if you if you have a customer where you negotiated your terms and you're you have you understood you understand how the company customer makes decisions.
Speaker Change: And you know the people with the account and how they think and and you have the account covered with.
Speaker Change: Marketing people.
Michael Hartnett: They're, they're have been servicing the account for a decade, you feel pretty comfortable in in a company that that looking at a company that services that account too. So you can quickly identify you know what the company's position is. what you know what its reputation is, you know, how it goes to market, how it prices its product, so on and so forth. So that's part of the profile that we really, we really like. And that also would add scale at that account to us, which, which overall helps in in your statement of work. So, so that checks a big box.
Speaker Change: That are.
Speaker Change: There.
Speaker Change: Have been servicing the account for a decade.
Speaker Change: Feel pretty comfortable in.
Speaker Change: In a company that they're looking at a company that services that are coming too. So you can quickly identify what the company's position is.
Speaker Change: What you know what its reputation is.
Speaker Change: You know how it goes to market our prices its products.
So on and so forth. So that's part of the profile that we really we really like.
Speaker Change: And then also it adds scale at that account.
Speaker Change: To us.
Speaker Change: Which which overall helps in the in your statement of work so.
Speaker Change: So that checks a big box and we like that box checked.
Michael Hartnett: And we like that box check. And when it comes to making things, you know, we have I don't know. I'm probably more than a thousand engineers that know how to make stuff. And and they're, you know, they're very good at manufacturing processes. So our ability to absorb the manufacturing world for the target is very, very high ability. And so if they're And we can we can bring in the right specialist that deals with that particular aspect of manufacturing. And sort of off we go. And, and so there's nothing for us, there's nothing scary about it.
Speaker Change: And when it comes to making things.
Speaker Change: You know we have.
Speaker Change: I don't know I'm, probably more than a thousand engineers that know how to make stuff.
Speaker Change: <unk>.
Speaker Change: And they.
Speaker Change: They're very good at manufacturing processes. So.
Speaker Change: Our ability to absorb.
Speaker Change: The manufacturing.
Speaker Change: Hum World.
Speaker Change: So the target is very very high ability and.
Speaker Change: So if they're doing something that we can improve we can identify it right away.
Speaker Change: And we can we can bring in the right specialist that deals with that particular aspect of manufacturing.
Speaker Change: And sort of off we go in and so.
Speaker Change:
Speaker Change: There is nothing for us there's nothing scary about it and.
Michael Hartnett: And, and it's, and it takes a lot of risk, you know, off the table at the same time, you know, you know, the account, you know, the manufacturing, you know, you know, the, you know, plant efficiencies, you know, what you can do to improve the plant efficiencies. you know, maybe what, what, what the pricing mechanism is different than maybe you would want to you would price. So You know, you can, you can see a long way when when there's candidates that have that kind of a program.
Speaker Change: It's a it takes a lot of risk.
Speaker Change: Off the table at the same time, you know the account the manufacturing.
Speaker Change: The plant efficiencies you know what you can do to improve the plant efficiencies.
Speaker Change: Maybe what what what.
Speaker Change: What the pricing mechanism is different than maybe you would want to you you would price so.
Speaker Change:
Speaker Change: You know you can you can see a long way.
Speaker Change: When.
Speaker Change: When theres candidates that have that kind of a profile.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you we've reached end of our question and answer session I like to turn the floor back over for any further closing comments.
Unknown Executive: We've reached the end of our question and answer session.
Michael Hartnett: I'd like to turn the floor back over for any further closing comments. Okay, well, I have no, no more comments. I think I'm pretty much commented out. But I appreciate everybody participating today. And, and there was a lot of good questions. I hope we gave you good answers.
Speaker Change: Okay, well I have no no more comments I think I'm.
Speaker Change: Pretty much commented out, but I appreciate everybody participating today and.
Speaker Change: And there was a lot of good questions I Hope we gave you good answers.
Unknown Executive: And we look forward to talking to you later in the summer.
Speaker Change: And we look forward to talking to you later in the summer.
Thank you David.
Unknown Executive: That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day.
Speaker Change: <unk> you for your participation today.