RBC Bearings Incorporated

Greetings and welcome to the RBC Barron's Fiscal 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll, with Investor Relations. Please go ahead.

Good morning, and thank you for joining us for RBC Behring's fiscal 2024 second quarter earnings conference call. With me on the call today are Dr. Michael Hartnett, Chairman, President, and Chief Executive Officer, Daniel Bergeron, Director, Vice President, and Chief Operating Officer, and Robert Sullivan, Vice President and Chief Financial Officer. Before beginning today's call, let me remind you that some of the statements made today before looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to RBC Barron's recent filings with the SEC for a more detailed discussion of the risk that could impact the company's future operating results and financial condition. These factors are also described in greater detail in the press release and on the company's website. In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the company's website. With that, I would now like to turn the call over to Dr. Harding.

Thank you, Josh, and good morning, and welcome to everyone. I'm pleased to report that our net sales for the second quarter of fiscal 2024 were $385.6 million. And this represents a 4.4% increase from last year. For the second quarter of 2024, our industrial products represented 67% of our sales, and aerospace products, 33%. As a footnote, over the past five years, revenue growth at RBC has been compounded at a rate of 16.8%. Gross margin for the quarter was $166.3 million. or 43.1% of net sales. This compares to 151.1 million or 40.9% for the same period last year, a 220 basis point improvement from last year. Clearly, we are tremendously pleased with this performance. The gross margin expansion is derived from increased volumes in our aerospace products plants, thereby improving our absorption rates coupled with synergy achievements from the Dodge acquisition and price improvement overall on my most lines. Our profitability, we are ahead of plan in making good progress and expect to finish the year with gross margins in the low to mid 40% range. Again, many thanks to the RBC teams for this performance. We all understand well that excellence in customer care is the cornerstone of our success. Adjusted operating income for the period was $88.4 million, 22.9% of net sales compared to last year's $76 million and 20.6% respectively, a 16.3% improvement. Free cash flow was $45.6 million. Debt reduction continues to be a priority. We have achieved a $490 million decrease in debt since the acquisition of of Dodge in November of 2021, 24 months ago. We now have achieved a net debt to EBITDA ratio of 2.71 over the trailing 12 months, down from 5.65 from fiscal 22. RBC's record of EBITDA growth over the last five years now stands at 19.9%. Adjusted EPS was $2.17 a share. Adjusted EBITDA was 122.1 million, 31.7% of net sales compared to 108.8 million, 29.5% of net sales last year, a 12.2% increase. Overall, we are proud of the continual improvements made in the execution of our business and are excited to see the robust acceleration in demand for our products from industry leaders in the aircraft, marine, and space industries. We look forward to a March year end with revenues finishing between $155 and $1.6 billion range. On the industrial businesses, during the quarter, the industrial growth was a negative 2.8% overall against some pretty strong comps last year. At that time, improved supply chain performance allowed us to ship orders which were late to customers, creating a bulge in revenues. Dodge revenues were down 4.4% year-to-date, and we expect to be up in Q3 a few percentage points on this measure. RBC classic industrial sales were up 1.7% during the same period. And we had very little supply chain impact on the classic side of our industrial business. On aerospace and defense, commercial aerospace was up 24.9%. The aerospace and defense sector was up 22.9% overall. OEM defense includes components and assemblies for jets, missiles, helicopters, marine valves, satellites, and rockets. Aftermarket was up 26.1%. The main drivers here, jets, helicopters, and jet engines. The aerospace market is now strongly accelerating with volumes increasing quarterly. The demand drivers here are, of course, the large plane builders and their supply chain, all in support of production for Boeing and Airbus ships. Also, the private aircraft builders and, of course, the many subcontractors who support the industry. Currently, the OEM is building 737 ships at a 38 per month rate. New orders to RBC are inbound at about a 42 ship per month rate and moving to a 47 per month rate soon. On the 787, our current build rate numbers are approximately four per month. And moving to seven per month order rate by October, by April. This has a substantial impact to us. Airbus is pursuing the build rate on the 320 ships at about 70 ships per month as they exit 2024. As is typical of these products today, RBC generates approximately 70% of its sales from sole source or primary sourced positions. Our customers trust us. In summary, let's go over the highlight reel. For Q2, sales were up 4.4% for the period. Give it the A, 122.1, up 12.2%. Adjusted net income, 68.9, up 11.3%. Full year guidance, revenues 1.55 to $1.6 billion. Gross margins expected to be in the low to mid 40s. Debt pay down since November 2021 is 490 million. Trailing EBITDA to net debt today is 2.71. And over half of our revenues are to replace products that are consumed and used. Regarding our third quarter for 2024, we are expecting sales to be somewhere between $370 and $380 million range. I'll now turn the meeting over to Rob Sullivan, our CFO, for some details on the financials.

Thank you, Mike. SG&A for the second quarter of fiscal 24 was $60.5 million compared to $57.5 million for the same period last year. As a percentage of net sales, SG&A was 15.7% for the second quarter of fiscal 24 compared to 15.6% for the same period last year. Other operating expenses for the second quarter of fiscal 24 totaled $18 million compared to $21.6 million for the same period last year. For the second quarter of fiscal 2024, other operating expenses included $17.6 million of amortization of intangible assets, $0.3 million of restructuring costs, and $0.1 million of other items. For the second quarter of fiscal 2023, other operating expenses consisted primarily of $16.8 million of amortization of intangible assets, $4.0 million of costs associated with the Dodge acquisition, and $0.8 million of other items. Operating income was $87.8 million for the second quarter of fiscal 2024 compared to operating income of $72 million for the same period in fiscal 2023. Excluding approximately 0.6 million of restructuring costs, adjusted operating income was 88.4 million or 22.9% of sales for the second quarter of fiscal 24. Excluding approximately 4 million of acquisition costs, adjusted operating income for the second quarter of fiscal 2023 was 76 million or 20.6% of sales. Interest expense for the second quarter of fiscal 2024 was 20.1 million compared to 18.3 million for the same period last year. For the second quarter of fiscal 2024, the company reported net income of $51.7 million compared to $43.8 million for the same period last year. On an adjusted basis, net income was $68.9 million for the second quarter of fiscal 2024 compared to $61.9 million for the same period last year. Net income attributable to common stockholders for the second quarter of fiscal 2024 was $45.9 million compared to $38.1 million for the same period last year. On an adjusted basis, that income attributable to common stockholders for the second quarter of fiscal 2024 was $63.2 million compared to $56.2 million for the same period last year. Diluted earnings per share attributable to common stockholders was $1.58 per share for the second quarter of fiscal 2024 compared to $1.31 per share for the same period last year. On an adjusted basis, diluted earnings per share attributable to common stockholders for the second quarter of fiscal 2024 with $2.17 per share compared to $1.93 for the same period last year. Turning to cash flow, the company generated $53.1 million in cash from operating activities in the second quarter of fiscal 2024 compared to $29.4 million for the same period last year. Capital expenditures were $7.5 million in the second quarter of fiscal 2024 compared to $15.2 million for the same period last year. We paid down $40 million on the term loan during the period. which was partially offset by drawing $18 million on the revolver for the acquisition of spec line, leaving total debt of $1.32 billion as of September 30th, and cash on hand was $56.6 million. I would now like to turn the call back to the operator for the question and answer session.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question is from Christine Lewig with Morgan Stanley. Please proceed with your question.

Hey, good morning, guys. How are you?

Good morning, Christine.

Maybe focusing on the industrial end market, we saw a year-over-year decline in revenue and a sequential decline as well. Can you give more color regarding what you're seeing regarding demand signals from your customers by the different end markets you're serving and how you expect the rest of the year to shape up?

Well, we'll try. Let's see. So when we look at it, well, when we look at our industrial end markets, you know, overall, they're steady. You know, when I look at, you know, Dodge's second quarter, you know, year to date on Dodge, they're up 2.2%. So when I look at Dodge's second quarter, I mean, there's basically, it's a 50-50 split between between international and supply chain, the supply chain catch-up that happened last year that affects the comps in a negative way. And when I look at the international piece, most of that is timing based upon big orders that were received, but product wasn't completed in the quarter. So I think that should normalize itself. And the supply chain has pretty much normalized. And now those industrial end markets, some are up and some are down. But overall, they're pretty steady. And the ones that are up are oil and gas, aggregate, food and beverage, to give you three. And the ones that are down are Semicon, warehousing, and construction and mining equipment makers. So, you know, one is offsetting the other and the whole thing seems to be steady. We expect the industrial business to be up a few percentage points in the third quarter on a quarter-to-quarter comp basis and to be, you know, pretty much steady in the fourth quarter with last year maybe up a few percent. It's just, you know, it's hard to project that given, you know, what the Fed is doing and what you hear for GDP growth and what you see for employment figures, and then all that has to be sort of put into the stool and stirred around and comes up with some sort of an industrial projection on what your business is going to do. And I don't think anybody really does that well.

Great. It's really helpful context. And looking at the margins, is there a margin differential between oil and gas, aggregate and food, beverage that are doing well? versus the ones under some pressure like semiconductors, warehousing, construction, and mining equipment? Like, is there one that's more profitable than the others in terms of an overall bucket perspective?

Yeah, well, the ones that are down, Semicon is fine, and construction and mining is okay. It's not a barn burner. But warehousing is pretty weak profitability-wise. So the ones that are up are stronger than the ones that are – some of the markets that are off a little bit. To some extent, you know, we're rationalizing our offering in some of those markets where the margins are compressed. And so, you know, over a longer period, that will affect our revenue line too. It will be a second-order effect, but it will be in effect.

Great. Thank you for the color. And if I could sneak a third one in, if we look at gross margin, I mean, gross margin at 43.1% in the quarter, 43.2% adjusted is a pretty high bar for you guys. That's great performance. Can you talk about the drivers of this regarding the synergies you're able to extract from Dodge? And I know, you know, the first two years of the transaction is generally more plant-focused, but are you starting to do more of the shifting to low-cost manufacturing and and trying to get more of the next step of the synergy plan from the deals?

Yeah, Christine, this is Dan. For the six-month period, we're up about 1,100 basis points on EBITDA margin for Dodge, driven a lot by the synergies. That puts us at about, you know, 70 to 80 million a synergy based on a run rate of 700 million in sales done pretty quickly and get in place um i think the ones that we're working on that are longer holes in the tent that are going to contribute over the next two to three years um is cross zone with our sales teams which is starting to really pick up nicely on the industrial side. We're starting to see a lot of good activity there, so we should start seeing that come in the next 24 to 36 months and have an impact on our growth on the top line. We continue to work on insourcing product into our U.S. plants and into our Mexican facilities, and that's more of a long-term goal for us, so that's going to to get the benefit from those activities, it's going to take two to three years. So we'll see a lot more of that impact in year four and year five for us on our projections here. So I think we're a lot further ahead in the process than we thought we would be. And I still think we have some really good activity to come along. And we're just starting now to try to take advantage of the size of our company and our buying opportunities and leverage in the SG&A section of the P&L. So we're going to start seeing some nice activity there over the next 12 to 24 months from everything from insurance to different services that we have to acquire. We're just a bigger company now and we have a little more leverage in negotiating contracts. So So we're pretty happy where we are in the process right now.

Yeah, I might add one other thing, Christine, is that the Dodge plants in the US are pretty full with production, which makes it a little bit difficult for us to expand production for new products and to expand our lines. And so in February, our production Our new plant for Dodge will be completed in Tecate, where we're adding 100,000 square feet and moving some of the Dodge operations into Tecate to open up floor space in the United States for new product lines. And so we're pretty excited about that. It not only opens up floor space in the United States for new product growth, which has been constrained by supply chain support, But it also allows us to, you know, achieve economic benefits in labor costs and on products that have been under stress. So, yeah, I think there's – we have big hopes for that new plant.

Great. Thank you for the color, guys.

Yep. Thank you. Our next question is from Pete Skibitsky with Alembic Global. Please proceed with your question.

Hey, good morning, guys. Nice performance. Thank you, Pete. Hey, Mike, I was wondering if I could ask you a big picture question just because in industry you do touch so many end markets. You know, obviously we've seen kind of ISMs be below 50 here in the U.S. for about a year now and people think Europe is already in a recession. Um, but things are, you know, things have slowed a bit in industrial organically, it seems like, but, but not, you know, so your factories were full still. So just wonder, what does that feel like to you? Does it feel like we're kind of in the, in the late part of a cycle or do you think all the federal spending is kind of offsetting it for you guys? How does it feel like to you? You know, are we, are we deep in a recession? I'm just wondering, uh, given all the end markets that you touch and the visibility that you have, just kind of your gut feel?

Well, I think right now we're kind of drifting with the tide in terms of, you know, economic demand and the industrial. I don't think we're, you know, we're gaining great, great, in any great way. And we're not losing. We're staying about even. I mean, you can grow industrial if you, grow your market share and if you have some interesting new products to introduce um so to some extent you have to make your own wind and uh and so you know we're building wind machines and uh so that's that's how that's how we see it that's how we see it um that that's fair no it makes sense to me it makes sense to me and i guess um

to the extent you have new, I imagine maybe you guys are lightening up on pricing in certain areas because we, it's a little bit of a disinflationary environment, but I guess to the extent that you have new product introductions, um, I don't know how widespread they are, but maybe that gives you an opportunity on price. Is that the way to think about it?

Um, yeah, well, you know, we're, you know, when we, when we, we bought Dodge two years ago, you know, we, we, uh, I think the first order of business is to kind of get your fingernails into the business and figure out how to improve it and how to synergize it with RVC and all that sort of thing. And I would say that took an endless amount of meetings. So your product development isn't on the forefront. And so... After the first year, we started pulling out what new products they've been developing for the last five years that are ready for commercialization and found some very, very promising ones. And we also found that in some of their product cases, their sales were constrained by the ability of their supply chain to increase production. And the supply chain was unwilling to increase production because they were happy with whatever they were getting for the production they were making. So based on that, we decided that, hey, listen, these are well-accepted products in the marketplace. And if we produced more, there is a market for them. And so how do we produce more? And the answer to that question came that we need to open up floor space for production equipment for these particular items. And so hence a new plant in Tecate is constructed. And off we go. And so let's kind of, you know, I mean, we'll get Dodge cooking, but it's, you know, it wasn't the first order of priority. And it usually never is with a new acquisition. You know, it takes some time to, you know, to go through the, go through the motions and integrate. And so we've, you know, we're beyond that now and we're into the growth mode.

That's great. And I appreciate the call. I'll get back in queue.

Thank you. Our next question is from Steve Barger with KeyBank Capital Markets. Please proceed with your question.

Morning, guys. Morning to you. Your industrial segment outperforms some of the other public bearing companies on the top line this quarter. Do you think that's all in market exposure, or are there some other structural differences between Dodge and the public competitors that make your platform more resilient?

We're just better than everybody. You know, we service the same end markets. You know, it's – In many cases, there's great overlap with some of our end markets and, to some extent, some of our products. So, you know, I think we do an exceptional job at Dodge in customer service and customer support. And it's really well recognized. So we don't test anybody's loyalty. And in times like this where you're sort of drifting with the industrial tide, you definitely want to be a leader in a company that the customers can trust. And that's kind of where we are. And I think that's accruing to our benefit.

Yeah. And it certainly seems to be accruing to the margins. You know, incremental margin in 1Q is 52%. Industrial margin was up 570 basis points to almost 27%. As I look at this quarter, consolidated incremental was 75%, which is pretty amazing. Did you see a similar result in the industrial and segment in 2Q, margin-wise?

Yeah. Yeah, the Q2 margins in industrial look very similar to what you saw in Q1. sustained strength there.

And we're saying all this is primarily Dodge Synergy?

I think that Dodge Synergy is absolutely driving their growth at the 1,100 basis points that Dan talked about earlier, 1,100%. But the RBC industrial products margins have done well as well. So it's really been across the entire segment that we've seen a lot of strength in industrial.

Got it. And just, you know, with the industrial environment becoming increasingly dynamic, and Mike, you referenced that we're kind of drifting along, is there any chance that you'll give us segment margins in the release so we can have more informed conversations on the earnings calls?

Yeah, we can certainly look at that. You know, it's obviously in the queue every quarter, but we can look at breaking it out and future releases for you. But the story is that the industrial margins are still, you know, around the 45% mark. Aerospace margins ticked up this quarter, you know, less than a point, but they're definitely up, which is the trend that we were looking for as the plans continue to, you know, pick up the capacity with the increased build rates. And I suspect we'll continue to see that as well. we should see the aerospace gross margins. At this quarter, on an adjusted basis, we were at 40, and I think we'll continue to see that grow from there in the future periods. Got it.

Yeah, it would be great to get that data in real time with the rest of the release, just so we can update our models before the call. Thanks.

Thank you. Our next question is from Seth Weber with Wells Fargo. Please proceed with your question.

Hey, good morning, guys. This is Larry on for Seth this morning. I was wondering about the spec line acquisition, if you could give a little bit more color on that and what your expectations are for spec line going forward.

Sure. Well, just to kind of reframe the spec line, spec line produces lines, spherical plane bearings, and rod ends for aerospace customers. That's their business. They basically have the same customer base as RBC. Very similar products. In some cases, identical. So we're comfortable with their markets, their manufacturing methods. We're very aligned here with Specline and how they ran the business. So the acquisition gave us more plant capacity in a very high demand environment. And it gave us a trained workforce and made our lines more important to our largest customers. So this really hit all of the must-haves for an acquisition for us. That's our acquisition checklist right there. And so the owners decided to retire and And we're looking for a home for their business. We learned about it. And so that's sort of the background story behind the acquisition.

Gotcha. Appreciate that, Colin. And, you know, you mentioned your net debt now down to about 2.7 times. And I know you guys had a bent towards aerospace and defense looking to bolster that business. Are you guys still looking? And what does the pipeline look like for you guys in terms of the acquisition pipeline?

Well, we're certainly still looking. We don't have anything in the immediate crosshairs. We have concepts and ideas and theories. And we're, you know, we're studying the current candidates, but we, you know, there's nothing immediately actionable.

Okay, gotcha. And then just turning to aerospace and defense, you know, you guys, you know, the first quarter growth rates, you know, about above 22%. And, you know, you guys mentioned, you know, the increased build rates. Are you expecting growth to accelerate in the back half of the year, or should we kind of think about, you know, tapping the brakes here a little bit and, you know, not getting too overzealous?

Well, I'll tell you, right now we're going through a process with all of the companies, but we're particularly paying attention to the aerospace and defense companies on a five-year plan. and what their content is per ship and how many ships and so on and so forth. And do we have enough floor space? Because if your business in aerospace is going to jump 25% next year, you can't put everything in place to support that kind of a jump if you don't have it already. And right now we're exceeding where we are where we were in 2019 before the pandemic. And so we know we're good to go in terms of what our current steady state demand is. But to tell you the truth, we're standing on our tippy toes in terms of the capacity that we have, the number of people that we have, so on and so forth, to support what we see coming into our order book. Yeah, I'd say that we're going to be – next year looks like a very strong year for us in the aerospace defense segment. Unless some world event happens that throws the whole thing into a tailspin, we're going to be substantially strong next year in those markets.

Okay, great. Really appreciate the call there, guys. Thanks.

Thank you. Our next question is from Joe Ritchie from Goldman Sachs. Please proceed with your question.

Hi, thanks. This is Vivek Srivastava on for Joe. My first question is on your SG&A as a percentage of sales. It definitely came in much better than the previous guidance. Just curious what caused the upside surprise and how much of it was driven by synergy specifically. And then just very quickly, the stock comp also stepped down. So going forward, any indication on what should be a more reasonable stock comp expectation?

Yeah, absolutely. So there was some favorability that we experienced in certain fringe costs and timing of different items that had come in in Q1 that weren't repeating in Q2, so that offered some improvement on the estimated percentage of sales. There was the temporary, you know, reduction in stock comp expense. I expect Q3 stock comp to be 4.3 million compared to the 3.7 we saw this quarter. So, you know, we had favorability in some of the variable costs that came in, which really drove the nice quarter. But as we discuss or as we put out there in the release as a percentage of sales next quarter, we're thinking somewhere between 17 and 17 and a half. That's helpful.

And maybe just on the new plant, great to hear that you're freeing up more floor space. But just maybe in the medium term as this new plant comes through, how should we think about maybe some productivity headwinds or any elevated cost you would point out because of the plant coming up?

Yeah, for the Ducati plant that Dr. Hartnaut was talking about, we don't expect to see a real disruption there or a big cost impact. to capitalize that plan and the floor space over the next 12 to 24 months. It should fall in our normal capex.

Great, that's helpful. And maybe just a bit more medium to long-term question. Just mega projects, we are seeing a lot of activity in the projects which are breaking ground right now. Just any color you can provide on what is your content as a percentage of total plant cost, when do you see some of the benefits start to flow in your order, especially on the industrial side, would be helpful.

Sorry, can you clarify the question?

Yeah, absolutely. So the large projects, like over 1 billion projects, we have about 900 billion of such projects being announced now. A lot of semiconductor production, a lot of EV battery, LNG plants. I'm just curious if you have some color you can provide on when you should start seeing orders from these projects targeting your P&L.

Well, I think the industry is still waiting to see orders from the infrastructure bill, which would be substantially important to our business. And I think that's the oldest of the bills that has been approved. And I would say it's the impact that that bill has had on the economic environment so far for everybody seems to be very minimal. So we do expect that once that spending does hit the markets and when we look around at, for example, the aggregate market, we see that For the most part, much of the U.S. is running at full capacity today. So new plants will have to be built to produce cement and asphalt and aggregate in order to absorb that capital and produce the end items that improve the roads, improve the dams, and improve the infrastructure that that that spending is meant for. So we're really at the beginning of that entire phase. This is what it must have felt. It must have felt this way in 1958 when Eisenhower announced the building of the interstate highway system.

I'm sure everybody.

Thank you. Everybody was waiting for that money to be spent.

Great.

Thank you. Our next question is from Ron Epstein with Bank of America. Please proceed with your question.

Hi, good morning. This is Jordan Lainez on for Ron. Could you guys give more detail on what you're seeing for labor, talent acquisition, are attrition rates still high and where that's at?

We're not seeing – it's dependent upon where you are in the country. I mean, we're in, you know, heavy on the East Coast, light in the Midwest, heavy on the West Coast. heavy in the southeast in terms of production facilities, we're not seeing any problem that's unusual relative to labor. We're probably seeing more problems that are unusual in California with regard to ridiculous legislations, but we're not seeing the problem with labor. Typically, year to year, we'll bring in close to 100 new engineers from his college graduates and train them into bearing makers and assembly makers and valve makers and so on and so forth. And we're having no problem recruiting at that level today.

Great. Thank you. And then just one other one. Could you give an update on what you're seeing so far for the marine exposure, how that's going. Are you guys expecting to see any of the benefits from the supplemental AUKUS funding?

Yeah, right now we're very busy working with Newport News and Electric Boat on quoting new boats and new Virginias and new Columbias. There's a lot of activity. That business is growing at double-digit force, and we expect it to for the next 12 months.

Great. Thank you so much.

Thank you. Our next question is from Steve Barger with KeyBank Capital Markets. Please proceed with your question.

Hey, thanks for taking the follow-up. Rob, I just want to make sure I understand your commentary on margin sustainability relative to the 3Q guide. At the midpoint, I'm getting consolidated up margin in kind of the mid-20% range, like at historical levels, versus the 22% plus in the first half. Is the guide conservative, or is one of the segments going to have a seasonal step down or some headwind in the quarter?

The third quarter is always a tricky one, right, because we lose a number of production days. It's not unusual to see a little bit of headwind on that front. But, you know, as I alluded to last year from a gross margin – or last quarter, from a gross margin perspective, we felt 43 was a good target, and I still believe that. So, you know, it's a challenging quarter with the holidays, you know, which just reduces our margin profile, but Q4 – look strong on that front. So that's kind of where we're looking to shape up for the year. Yeah.

Does one segment or the other take an outsized hit from fewer days in 3Q?

I mean, it depends on the location, so no, not really. It's pretty much across the organization. Yeah, Steve just did.

I think it would be more impact on classic RBC because we actually closed down a lot around the holidays. And so if you look at the six months, it will be right on track to where we were probably on the first six months of the year.

Got it. Thank you.

Thank you. Our next question is from Tim Thien with Citi. Please proceed with your question.

Great. Thank you. Good morning. The first one is, Just in terms of going back to the aerospace discussion, can you just give us maybe a little bit more color in terms of your expectations back half of the year and into 24? A lot of discussion just in terms of the EOEM production ramp, which is clear, but maybe just some discussion on aftermarket, what you're seeing there. Is the supply chain issue has been a constraint for you at all, or just what are you seeing there? And then Again, kind of your expectations into the back half of the year and into 24.

Well, 24 on the aerospace and defense side is going to be extremely strong for us. And we have eight to 10 plants that are servicing that business with different products. And, you know, when we look at right now, we're going through our FY25 budget review, and we're in the process of establishing what our revenue outlook is per unit, per business unit. And we usually start that process in October. and then refine it in November and December so that we can put plant budgets together by January. And then we know how much we can spend on SG&A by February. So that's the sequence of events. And so we're in our second turn on revenue outlooks by plant based upon driven by content and driven by normal in and out business to establish, you know, what the 25 baseline is for the aerospace and defense units. And, you know, it looks to me like everybody's up 20%. And with rare exception, where they're up maybe a little bit more. So it's really going to depend on, to some extent, how much we're able to produce. Can we get the labor? In some places of the country, that's not so difficult. In other places, it's very difficult. There's a lot of operational ether to pass through in order to put it all together, but it's going to be a very strong year. Some of our businesses right now If we could double the capacity, we would double the sales. I mean, you just can't turn that up that fast.

Yeah, got it, got it. Okay, and then this is probably, you know, licensing is way too finely, but in terms of just the full year net sales expectation, was there any change from, The language changed a little bit from last quarter. Subsequent to that, you acquired Specline, which obviously doesn't give you a whole lot for the remaining months of the year, but have your full-year net sales expectations changed at all from last quarter?

Well, I mean, we're 90 days deeper into the year, so we have 90 days more information on how the economy is treating our industrial businesses. We pretty much know how it's treating the aerospace and defense businesses. So, you know, we adjusted accordingly.

Got it. So maybe industrial is a bit softer, which is certainly not shocking, but maybe that's taken out a little bit of the guidance 90 days ago. That's a fair, and that's more than offset maybe a little stronger aero environment.

Yeah, that's right.

Okay. All right. Thank you. Yep.

Thank you. There are no further questions at this time. I would now like to turn the call over to Dr. Hartnett for any closing remarks.

Okay. Well, that concludes our conference call for our second quarter, and I appreciate everybody participating. Appreciate all the good questions, and look forward to speaking to you again probably early February. Good day.

This concludes today's conference. We may disconnect our lines at this time. Thank you for your participation.