RBC FY2027 Q2 Earnings Call Transcript
Date: 2026-10-30
Source: Financial Modeling Prep

Operator: Good morning. Thank you for joining us for RBC Bearings Fiscal Second Quarter 2027 Earnings Call. I am Joshua Carroll with the Investor Relations team. With me on today's call are Dr. Hartnett, Chairman, President, and Chief Executive Officer Daniel A. Bergeron, director, vice president, and chief operating officer and Robert Sullivan, vice president and chief financial officer. As a reminder, some of the statements made today may be forward looking and under the Private Securities Litigation Reform Act of 2000. Actual results may differ materially from those projected or implied due to a variety of 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. These factors are also listed in the press release along with a reconciliation between GAAP and non GAAP financial information. With all that said, now turn the call over to Dr. Hartnett.
Michael J. Hartnett: Thank you, Joshua, and good morning to everyone. And thank you for joining us. Again, as normal, I will-- Begin today's call with a brief review of our second quarter results and discuss some trends. we are seeing across the end markets before turning the call over to Robert, who will provide additional details. We delivered a strong second quarter with net sales increasing 15.2% year over year to $525 million This was driven by continued demand in our aerospace and defense environment and a 14.8% growth from our industrial business. Consolidated gross margin for the quarter was 45.6%. Adjusted EPS increased 29.9% year over year to $3.74, compared to $2.84 in the prior year. Adjusted EBITDA rose 20.4% to $175 million to $175 million versus $145 million last year. that is 33.4% of revenues. Free cash flow remained strong at $85.2 million and that was net of a $24 million acquisition. And we retired $96 million of debt during the period. Turning now to our 2 business segments. Approximately 56% of our revenue during the quarter came from our industrial segment. and aerospace and defense, which was 44% of sales, continues to expand Segment revenue increased 15.8%. The components were commercial aerospace was up 17.4%, Defense 13.6%. Both were constrained by production capacity, which is easing. As new equipment comes online. Across the A and D business, including space, we are seeing record order activity increasing inquiries, customer-- for customer requests for a dip act, accelerated deliveries and long term commitments. On space, this sector continues to shine. In the first half, revenues expanded 78% showing a continuous demand for components from an ever-expanding stream of new and old customers. Of course, this business is still early in the early stages of maturity, We recognize the long term growth prospects it represents to RBC and are planning future expansions accordingly. On marine, we continue to boost production of components for submarines and are working to triple our output on these products from our baseline. We are now about 30% complete 70% to go to reach our goal. We are planning continued expansion through FY 28. Turning now to our industrial business. Performance remained strong during the period. With OEM revenues increasing 24.2% and distribution revenues increasing 10.6%. Overall, the sector was up 14.8%. During the quarter, we saw growth across aggregates, metals, food and beverage, warehousing, semiconductors, grain, and power generation. No significant contraction was seen in any of the core industrial markets. Overall, we remain invigorated by the strength, breadth, and outlook of the total RBC business. To the RBC team listening to today, thank you for always going the extra mile in support of our customers. We believe and continue to believe our differentiators that make the difference are outstanding service levels strong brands, unique certified products, leading market positions, technical expertise, most of all, our dedicated employees. With that, I will turn the call over to Robert, who will walk us through the financials.
Robert Sullivan: Thank you, Mike. We delivered another strong quarter ahead of our expectations, with net sales growing 15.2% led to a 19.1% increase in our reported gross margin. Gross margins of 45.6% on both the reported and adjusted basis compared to 44.1% reported and 44.9 adjusted in the same period last year. The gross margins this quarter reflect the benefits of increased volumes running through our production facilities, along with the impacts of contract renewals and favorable mix. Second quarter A and D sales increased 15.8% year over year. Net sales from our industrial business increased 14.8% during the period or approximately 14% excluding $2 million of sales from PSC, which was acquired in August. A and D reported gross margins during the quarter were 42.2%, and industrial margins were 48.2%. Compared to 38.7%, 48.2% in the prior year period, respectively. On the SG&A line, we had total costs of $83.4 million or 15.9% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $175 million or 33.4% of net sales for the quarter, That represents a 20.4% increase in adjusted EBITDA dollars during the quarter compared to the same period last year. Interest expense for the quarter was $9.3 million This was down 30.6% year over year reflecting the improved leverage position achieved over the last 12 months coupled with lower interest rates. We paid off $96 million of debt during the quarter, which included repaying the remaining balance of our term loan ahead of the November 2026 target we set a year ago. The tax rate in our adjusted EPS calculation was 22.0% compared to last year's 22.0%. This led to an adjusted diluted earnings per share of $3.74, representing growth of 29.9% year over year. Free cash flow in the quarter came in at $85.7 million with conversion of 91.4% of net income compared to $71.7 million and 119.5% last year. Conversion through 6 months stands at 119% of net income. Our strong balance sheet and improved financial flexibility provides us opportunities to pursue a balanced capital allocation strategy as we continue to deleverage. Looking into the third quarter of fiscal 27, we are guiding revenues of $525 million to $530 million representing year over year growth of 12.7% to 13.7%. On a 9 month basis, that would mean sales of $1.56 billion to $1.57 billion representing growth of 15.6% to 16% year over year. The outlook reflects the normal seasonal impact of the holiday period on our third quarter. Adjusted gross margins in the next quarter are expected to be in the range of 45.5% to 45.75% and SG&A as a percentage of net sales is expected to be in the range 16.25% to 16.5%. With that, operator, please open the call for Q&A.
Operator: Thank you. We will now be conducting a question and answer session. First question is coming from Kristine Liwag from Morgan Stanley. Your line is now live.
Jason Olkam: Hey, Mike, Daniel and Robert. In the press in the press release, you noted that you expect the second half of the fiscal year to be better than the first half. Can you maybe provide more detail on that comment and provide some context on what you are expecting for growth in the second half for industrials and aerospace and defense? And also, it would be great if you can maybe comment on any notable differences and expected growth dynamics between commercial aero and defense.
Operator: I am just making notes of your question, Kristine.
Michael J. Hartnett: Sure. Well, first of all, easy to explain. The easiest component of the expansion in the second half is we got an extra week in there. So the way our accounting calendar works it gives us an extra week. So that explains some of it. I think what is more relevant here, though, The efforts that we have put in over the past several years and the capital that we have put in over the past several years will now show in these quarters. It will show more in the fourth quarter than the third quarter for reasons which I will explain. But that is that is definitely we have added capacity We have the machinery. We have trained the people. We have done the logistics behind the supply chain. And that effort is going to produce dividends for us in the next 6 months. So behind that, we are behind our plan for the year. On marine production. We are just not producing what we plan to produce. And we have had some difficulties in the supply chain. Those difficulties have required us to in source some processes that are somewhat complex. But manageable. And we expect to do some significant catch up particularly in the fourth quarter of our year, on our marine plan. And so that is that is another element that is important to us. And on the third quarter, third quarter is always a tricky quarter for us. Because it is a short quarter, Everybody knows there is plenty of holidays. But I think what people do not feel is, you know, a lot of our business goes to either the government or a and d customers that have market caps in excess of $100 billion. I will not name any names, but you know the names. They seem to use a lot of December in terms of holidays and vacation time. A lot of our products that have to be shipped are shipped in accordance with a release that has to come from them with regard to certifications for quality and logistics. And so we are depending upon them in many cases for these certifications. In this particular year, there seems to be more of that than normal. So some of that might roll into the fourth quarter and some might not. it is really it is really hard to tell. So that is that is that is the basis of our third quarter forecast right there. Let's see. I think when we look at the aerospace and defense side, I suspect if we can get the marine up and on its feet, then I think we are certainly going to be north of 15% on the A&D side of the business. Maybe hovering closer to 20. On the industrial side, very GDP dependent. And so I think, you know, we are always sort of budgeting a high single digits expansion on the industrial side of the business. Because we are not great forecasters of what the GDP is going to be out 6 months. And if you know somebody that is please introduce us to him.
Jason Olkam: Thanks, Mike. Maybe just, as a quick follow-up. I mean, I guess, in your comment on the sort of, like, the logistical sign offs, for kind of calendar 4Q, I guess, is that more directly related to the-- with some of the things you are doing in marine? Or is that or is that a separate comment that maybe is about, maybe market share that you are winning on other programs, maybe just a little extra on that would be helpful?
Michael J. Hartnett: No. it is actually marine seems to be, you know, a little bit independent of that, but it is usually aerospace. it is aerospace, defense, maybe a little bit space. I think space is in there too. that is, you know, that is a little bit more administrative there is more administrative releases on the defense side. Gotcha. Maybe just 1 last quick 1 is just the. You mentioned on marine kind of tripling output from the baseline for that business. I guess, do you have a sense of how long you think it would take to achieve that? Well, I think once we put the in sourcing project to bed, and I hope we have all the linen and the pillows, and that is that is imminent. I think we will probably be past 70% next year. And be in FY 2028 and we will round that off in FY 2029. Got it. Thank you very much, guys. I will hop back in the queue.
Operator: Thank you. Next question is coming from Steve Barger from KeyBanc Capital Markets. Your line is now live.
Steve Barger: Hey, good morning guys.
Michael J. Hartnett: Good morning, Steve. Mike, Good to talk to you.
Steve Barger: First question is on defense, on missiles and munitions. How much of what you are seeing today is just for replenishment of depleted inventories versus a structural increase in production rates? And what is your visibility like there?
Michael J. Hartnett: Well, I mean, it is certainly, the programs that we have been on our programs like the Tomahawk, the GMLRS, the standard missile, and the hypersonic missile/Sioux. Program You know, we have been we have been pretty much steady state manufacturing product for those systems as it. As is normal. Certainly, those systems, the build rate for those systems has stepped up substantially. So we are going to see a substantial stepping up in that next year. So maybe some of that in the fourth quarter. it is hard to predict. But, you know, if you look at the tomahawk, I mean, it is it is no secret that tomahawks have been built at 200 per year kind of rate. They now are going to 1 thousand a year kind of rate. We produce several fuel system components for the Tomahawk missile. Which are critical to the missile. So we are actually in the process now of laying out floor space to bring up those production rates in accordance with that kind of demand. And GMLRS is something that we are well tooled on, and, you know, there is a think there is a 40% or a 20%. I do not remember the trailing numbers, but it is at least a 20% step up in volume, and we are told and we will not have any trouble meeting that step-up. And the hypersonic Sentinel program is a big 1 for us, and we are kind of in the middle of that. it is. That hypersonic is going through its testing. And once testing is completed, we will be released for manufacturing. So I think we are probably 18 months away from that release.
Steve Barger: And I know your submarine programs are the biggest part of defense. How big is missiles and munitions as a percentage of defense? Revenue for you?
Michael J. Hartnett: Good question.
Robert Sullivan: Robert, how big is it? I mean, I think it is running in the range of $50 million a year right now. Yeah.
Steve Barger: Got it. Okay. And then 1 follow-up on industrial. In your prepared remarks, you noted a lot of positive end markets. We are hearing the same from other companies. Can you talk about what you are seeing from the more traditionally cyclical OEM markets to the extent that you have exposure? I am just trying to get the sense of whether we will see an equipment CapEx cycle beyond the pickup in aftermarket and distribution that is already taken place.
Michael J. Hartnett: Well, certainly, our most cyclical OEM end market in industrial is oil and gas. And you know, with what is going on in the world, there is a renewal there. We are seeing a pickup there. Got it. And you do not have much machinery, like traditional machinery exposure. Right? We have it. it is not material. Okay. All right. Thanks. I will get back in line.
Operator: Thank you. Next question is coming from Michael Ciarmoli from Guggenheim Securities. Your line is now live.
Michael Ciarmoli: Hey, good morning, guys. Thanks for taking the question. Nice results. Maybe, Mike, at the maybe I know the answer to this, but I will answer it anyway. Just given kind of the demands coming from marine, missiles, all things aerospace and defense, are you seeing any risk to your businesses of being second sourced at all as the industry in general is broadly looking for more capacity?
Michael J. Hartnett: I think the answer the overall answer to that is no. We hear a lot of talk about bringing on second sources. For certain positions but that talk usually is directed at us to be the second source. So Right. You know, we do take we do take a lot of pride in service levels. And so you know, a bearing is a very small part of an airframe. I guess if you look at a 37 and, you know, you look at discounted selling price of a 37, it is probably $60 million or $70 million. And, you know, our content is $200 thousand. So, you know, we do not if you do not create the problem, it is not the problem. You will not be. They will not be looking for a solution. Because they have other problems to solve. So our whole theory in life here is do not be the problem. Right. that is always good advice.
Michael Ciarmoli: What about just on the capacity constraints you talked about in marine? Can you quantify that in terms of revenue? Or and even that area, I guess, maybe honing in specifically, was that more on the legacy RBC? Was it more on the VACCO side? Any additional color there?
Michael J. Hartnett: it is more legacy RBC. You know. VACCO is just. it is got the same charge of tripling their production. And they are they seem to be more able to do that there is because of their designs are different than Sergeant's designs completely. So yeah, the problem is in Tucson and so we kind of work on that every day. Try to bring solutions to what they need. Fortunately, the requirements that they have, which are, you know, technically somewhat sophisticated from a metallurgical standpoint, We are equipped in other plants, RBC plants, to manufacture those items. So we are in the process of retooling some of those RBC plants today to bring their manufacturing rate of those products consistent with the. With sergeant's needs. So that is why I am recently you know, it is it is a timing thing at this point. I am reasonably sure that we are going to feel the effects of that in the fourth quarter. Okay. Okay. And then just last 1 for me.
Michael Ciarmoli: Robert, do you have the aerospace OEM growth rate in the quarter? And maybe just kind of what you are seeing there in terms of kind of from Boeing, from Airbus, from the engine OEMs? Are you kind of in line with their rates? Are you looking into next year to where they want to get to in rates across the narrow bodies and wide bodies?
Robert Sullivan: Yeah. Let me let me give you the numbers. So total commercial OEM was a $114.9 million. This quarter, Distribution was 21.5. Got it. And see. Just so you have it, defense is 67.5. The OEM side. And 26.4 on the distribution side. So Got it. You know, we are certainly seeing sequential growth in the OEM side consistently. Since we have been ramping up and certainly driving a lot of it. Got it. Okay. Perfect. Thanks, guys.
Operator: Thank you. Next question is coming from Scott Deuschle from Deutsche Bank. Your line is now live.
Scott Deuschle: Hi, good morning.
Robert Sullivan: Robert, was the sequential backlog increase related to marine or is that something else? It was broad across the arrows. it is mostly aerospace as you can imagine. Some of it was without tobacco, some of it out of sergeant marine. Then just some other aerospace contracts. Flowing through.
Scott Deuschle: Okay. And then Mike or Robert, you mentioned 78% growth in the space business in the first half. Can you share a rough split of that between organic and inorganic from VACCO?
Robert Sullivan: So, yes, I would say that you know, VACCO certainly makes up a large portion of that. When you look at it, but even, you know, if you look this quarter 2 versus quarter 2 last year, it is still up a few million bucks or, you know, an organic basis.
Scott Deuschle: Okay. And then Mike, if an aerospace OEM were to add RBC as a second source of supply, on an existing product, currently sole sourced to someone else? And you sign that contract, let's say, this quarter, how long would it take for that to begin to shift to that customer and then show up in your results? Is it a year or longer? Or shorter?
Michael J. Hartnett: Well, it depends upon what-- if we sold them, if it is a standard product that we are already producing, you know, we would we would probably give them a lead time kind of delivery And just phase it in, and the lead time would be depending upon product line. But at this point, it could be 50 weeks. Okay. Then last question for me, just on the earlier point about capacity. Are the primary machine tools you use to produce aerospace bearings? Then how long does it take to get those tools if you order them now? Well, the primary machine tools if you can get the material. The material is also a problem. But you have to be way ahead of the game on the material side. Primary machine tools are turning and cutting machines, and those are, you know, those are made by Mori Seiki and people like that. And then there is the next step in the process would be heat treating. So there is usually, there is the turning machines lead time of 6 months. The heat treating equipment, lead time depending on the type of heat treating you wanna do, is a year to 18 months. And then there is finishing equipment. And the finishing equipment is we use we use 15 months planning to get it on our floor and get it operational. And sometimes it is it is a little quicker than that, but not very much. And there are several different finishing operations that have that kind of lead time. So you might have a grinding operation and then you might have a polishing operation and stoning operation. And so both of those machine sets have that kind of lead time. And that is that is sort of the major machine tools. You know, at the same time, you need operators and folks that can deal with that level of complexity. On the floor that can run these machines. So simultaneously, you have to be training those people And as you train those people, you usually have a drop back in plant efficiency because you have you have a lot of people in training and not a not a not a lot of people in making. So you are you are your paid hour versus your earned hour is diluted. Your earned hour is diluted. So you know, that is sort of the manufacturing equation for bearings right there.
Scott Deuschle: Okay. And then, I guess, as you look forward, do you see the constraint on growth as being continuing to be focused on tooling capacity and your ability to bring that in? Or does it start to shift more toward labor as you get into next year?
Michael J. Hartnett: I think we are okay from a labor standpoint. I mean, there is, you know, we are not we are not perfect. But it is not. it is it is a it is a fringe item at this point because of some of the approvals that we have recently gotten for our plants in Mexico. Where there is plenty of labor and plenty of labor availability. And plenty of machine tool capacity. So yeah, I, you know, I think the major component here is going to be continuing to cycle in advanced machine tool systems to upgrade those systems that are. We have on the floor to improve throughput and efficiencies. Thank you very much.
Operator: Thank you. Next question is coming from Peter Skibitski from Alembic Global. Your line is now live.
Pete Skibitski: Hey, good morning guys. Nice quarter.
Michael J. Hartnett: Good morning, Pete. Mike, can you update us on where you are at especially at Boeing, production rates just because they have obviously had some trouble stabilizing here at 47 per month in the max and trying to get to 10 on the 787. I know it differs by plant, but maybe you can give us kind of an average of where you think you are. You produce that. This quarter? Yeah. I think I am trying I am trying to think of the last meeting I had on that 2 weeks ago. And I think they were clocking it about 42 to 45. it is it is a little disproportionate because some of our business. We are getting we are getting businesses. You know, business volume from previous suppliers of Boeing who have sort of exited the supply chain. To say it nicely. And so that is that is a little bit disproportionate to their to their rates, which push pushes a couple of our plants to a higher speed limit.
Pete Skibitski: Right. Organically, it is almost like you are in the low forties organically if you exclude market share gains. Right. I think that is fair. Okay. Okay. Okay. Sounds good.
Robert Sullivan: And then just 1 more, just 1 maybe for Robert. Robert, 1 of the better SG&A spend quarters you guys have had in probably 3 or 4 years, I guess. And, yes, you are looking like a bit of an uptick here in the third quarter. But you know, how do we. Was there any kind of unusual onetime lower spend levels this quarter? Or are we able to maybe see a pronounced downward trend over the few years? Maybe just update us on kind of what you are seeing SG&A wise. I think we are seeing more than just the leverage of the increase in sales over time. that is helpful to the 16% mark. I think, you know, this was a strong execution quarter in terms of SG&A and controlling our cost profile. You know, obviously, as certain compensation items run through, you get a little bit of an uptick in dollars. Moving forward. But we are pretty comfortable right now where we are, and we are pretty pleased to see the leverage on the increased sales compared to where we were a year ago. You know, we were closer to 17. So it is just it is just kind of a continuation of the discipline that we have been trying to put in place. Okay.
Pete Skibitski: Thanks, guys.
Robert Sullivan: But just to add to that quickly, the uptick in the next quarter is largely centered around stock comp, which, you know, I think is gonna be up $1.5 million next quarter that is driving us closer to that forecasted rate. Okay.
Pete Skibitski: it is like a first quarter, third quarter thing, typically?
Robert Sullivan: it is just the timing. And so I think that Q2 was up from Q1 in stock comp. Q3 is a little bit up from Q2.
Pete Skibitski: Got it. Okay. Thank you. Thanks.
Operator: Thank you. Next question is coming from Tim Thein from Raymond James. Your line is now live.
Tim Thein: Thank you. Good morning. This question is just on industrial. And I was interested, you know, that. I think you said nearly 11% growth on the, on the distribution side in the quarter. If you look at the results of some of the public suppliers there, they are not growing at nearly that rate. So I am just curious if maybe you could add some context there And, obviously, they are getting a bit of pricing. So just curious if that is are you seeing any signs of or maybe inventory build from some of the customers or, maybe gaining some share or a combination of that? Anyway, just a bit of context in terms of what you are seeing in that side of the industrial house and whether you think that is the sustainability, I guess, of that. Thank you.
Michael J. Hartnett: Well, I think 1 of our advantages there, Tim, is that you know, if we kind of use Dodge as the proxy on the industrial. On the industrial side of our business. They are their product availability across their line items and they have thousands of line items, 97% of the time, 95% of the time, 96% of the time, when a customer needs that product, it is in stock. And so their service levels are extraordinarily high. And this is this is an aftermarket kind of kind of thing that somebody needs the part because there is a part that failed in somebody's machine someplace that they need right away and that we have it in stock, and so they buy it from us. I think our service rates are you know, industry leading, and I think that brings I think that brings a lot of revenue into Dodge and RBC. The balance of RBC's industrial business sort of runs the same, you know, the same plan. Understood. Okay.
Tim Thein: And then maybe 1 for Robert. Just how to think about the some of the cost items here as we think about what the picture looks like today versus 90 days ago. Just, how you are thinking about this, I think, is more of the gross margin level the impact of inflationary-- the potential inflationary headwinds, how that is changed, at all, in terms of how you are thinking about the back half of the year, given changes in freight and logistics, etcetera? How impactful is that?
Robert Sullivan: Yeah. Thank you. that is a fair question. I think we have been running this inflation race for a few years now. I am trying to stay ahead of it. I think we have done a pretty effective job across the board. You know, I think last quarter, we increased our outlook for the year from 50 to 100 basis points of margin expansion for the full year. I think we still feel good that 100 basis points is very, very achievable. So we certainly keep very close eye on the cost pressures as they come on. And, you know, we are constantly making sure we are making sure we can to stay in front of it. Okay. Thank you, guys.
Operator: Thank you. Next question is coming from Ronald Epstein from Bank of America. Your line is now live.
Andrew Steinberg: Good morning. This is Andrew Steinberg on for Ron. I just wanted to ask about the capital allocation strategy here, given the comments on the supply chain and particularly in marine. Are you guys looking at M and A opportunities where you could potentially vertically integrate areas of weakness in the supply chain? Any color there? Would be appreciated.
Daniel A. Bergeron: Yeah, hi, this is Daniel. Of course, we are always taking a look to see if some of our supply chain is if there is an opportunity to insource it. And it is not the main focus of our M&A strategy. So I think we are we are out looking, Robert and I, like always, You know, RBC, you know, we have we have been doing this for over 23 years and have completed over 27 acquisitions. So we continue to do that. Robert's job to get the balance sheet in shape and delever it. So we are in a good position to participate in any transactions that come by. And so and his team have done a great job getting that leverage down under 1, and we will continue to do that and continue to delever, and we will continue to look for deals to get done. So, you know, 3 legs of the stool. Right? Pay down the debt, invest in organic growth, and continue to look for M&A.
Andrew Steinberg: Just a quick follow-up. Are there any particular categories in the marketplace that appear attractive as, like, a bolt on acquisition?
Daniel A. Bergeron: Well, you know, we like deals that bring new products and technology that we can bring over our current customer base to better leverage our position in our market with our customers. So we like defense assets. We like aerospace assets, and we like industrial assets. Alrighty. Thank you.
Operator: Thank you. Next question is a follow-up from Scott Deuschle from Deutsche Bank. Your line is now live.
Scott Deuschle: Yes. Sorry if I missed it, Robert, but were there any end markets in the industrial business that batted well above their weight in terms of driving this growth, particularly on the OEM side? Or is that growth pretty balanced across the different end markets?
Robert Sullivan: You are saying OEM specifically?  We brought it out as well. Yeah. I mean, mining and metals did really well. This quarter. And then semiconductor, you know, while it is small, it was mighty. It was up significantly this quarter as well. On the OEM side. But really broad based expansion across so many end markets there. Okay. OEM business was up 24.6%. Right. Yeah.
Scott Deuschle: And then is there much of a margin benefit that also hits for the aerospace and defense business when you hit this Marine unlock at the end of the year? Or is it more of just a revenue tailwind?
Robert Sullivan: it is definitely a margin benefit. We have been feeling some pinch on the margins, I think, with some of the headwinds in the marine business. So I think that there is definitely opportunities there as we can work through and ramp up Can you quantify that pinch at all? Like, a couple million dollars a quarter or something like that? Well, for their business, I think it is, you know, this past quarter is 5 or 6 points. On that business. So it is, yeah, it is impactful. Yeah. The aerospace margins, you know, that was 1 pinch. Other side of it again is that Q1 and Q4 just notably have the most production days and tend to be our strongest operating quarters. Q2 has fewer production days you feel a little bit of that seasonality pinch in the efficiency. So Thank you.
Operator: Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over for any further or closing comments.
Michael J. Hartnett: Well, I think our closing comments are, we appreciate everybody's interest and questions this morning. Hope we gave you a good understanding of the positive outlook that we have and we feel about the business. And look forward to talking to you probably in late January, early February. Thank you.
Operator: That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today. You may now disconnect.