RBC Bearings Incorporated (RBC) Q2 2024 Earnings Report, Transcript and Summary

Greetings, and welcome to the RBC Bearings Fiscal 2024 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] 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 Bearings 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 will 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. 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 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. Hartnett.

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 most lines. Our profitability, we are ahead of plan and 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 Dodge in November of 2021, 24 months ago. We've now have achieved a net debt to EBITDA ratio of 2.71 over the trailing 12 months, down from 5.65 from fiscal 2022. 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 $1.55 billion 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 in this -- on this measure. RBC classic industrial sales were up 1.7% during the same period. We had very little supply chain impact in the -- 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 April. This has a substantial impact to us. Airbus is pursuing the build rate of -- 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 sourced 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. EBITDA $122.1 million, up 12.2%, adjusted net income, $68.9 million, up 11.3%. Full year guidance, revenue is $1.55 billion to $1.6 billion. Gross margin is expected to be in the low to mid-40s. Debt paydown 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 in use. Regarding our third quarter for 2024, we are expecting sales to be somewhere between $370 million 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 2024 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 2024 compared to 15.6% for the same period last year. Other operating expenses for the second quarter of fiscal 2024 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 2024. 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, net 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 was $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 Specline, 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. [Operator Instructions] Thank you. Our first question is from Kristine Liwag with Morgan Stanley. Please proceed with your question.

Hey, good morning, guys. How are you?

Good morning, Kristine.

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…

[Multiple Speaker]

Yeah. Well, when we look at our industrial end markets, overall they're steady. When I look at Dodge's second -- 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 some -- 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 is pretty much -- 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 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 pretty much steady in the fourth quarter with last year, maybe up a few percent. It's just -- it's hard to project that given 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 stew 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, they're 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 -- that some of the markets that are off a little bit. To some extent, we're rationalizing our offering in some of those markets where the margins are compressed. And so, over a longer period that will affect our revenue line too. It will be a second order effect, but it will be an 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 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 trying to get more of the next step of the synergy plan from the deals?

Yeah. Kristine, this is Dan. For the six-month period, we're up about 1,100 basis points on EBITDA margin for Dodge driven by -- a lot by the synergies. That puts us at about $70 million to $80 million of synergy based on a run rate of $700 million in sales [technical difficulty] done pretty quickly and get in place. I think the ones that we're working on that are longer poles in the tent that are going to contribute over the next two to three years is cross-selling 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 in-sourcing product into our US plants and into our Mexican facilities. And that's more of a long-term goal for us. So that's going -- 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, which -- the bigger company now, and we have a little more leverage in negotiating contracts. So, we're pretty happy where we are in the process right now.

Yeah. I might add one other thing, Kristine, 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 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 has -- it not only opens up floor spacing in the United States for new product growth, which has been constrained by supply chain support. But it also allows us to achieve economic benefits in labor cost 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.

Yeah. Thank you.

Our next question is from Pete Skibitski 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. Obviously, we've seen kind of ISMs be below 50 here in the US for about a year now and people think Europe is already in a recession. But things have slowed a bit in industrial organically, it seems like, but not -- so your factories are full still. So, I just wanted -- what does it feel like to you? Does it feel like we're kind of in the late part of the cycle? Or do you think all the Federal spending is kind of offsetting it for you guys? How does it feel like to you? Are we deep in a recession? I'm just wondering 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 economic demand in the industrial. I don't think we're gaining great -- in any great way, and we're not losing. We're staying about even. I mean, you can grow industrial if you can grow your market share and if you have some interesting new products to introduce. So, to some extent, you have to make your own wind. And so, we're building wind machines. And so that's how we see it. That's how we see it.

That's fair. No, it makes sense to me. And I guess, to the extent you have new -- I imagine maybe you guys are lightening up on pricing in certain areas, because it's a little bit of a disinflationary environment. But I guess, to the extent that you have new product introductions, 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?

Yeah. Well, we're -- when we bought Dodge two years ago. We -- 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 RBC 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, this is a well -- these are well accepted product in the marketplace. And if we produce more, there is a market for them. And so, how do we produce more? And the answer to that 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 that's kind of -- I mean, we'll get Dodge cooking, but it wasn't the first order of priority. And it usually never is with the new acquisition. It takes some time to go through the motions and integrate. And so, we're beyond that now, and we're into the growth mode.

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

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

Morning, guys. Your Industrial segment outperformed some of the other public bearing companies on the top line this quarter. Do you think that's all end 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. We service the same end markets. It's -- in many cases, there's great overlap with some of our end markets and to some extent, some of our products. So, I think, we do an exceptional job at Dodge, and in customer service, and customer support. And it's really well recognized. And -- 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. Incremental margin in 1Q was 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 segment in 2Q margin wise?

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 the Dodge Synergy is absolutely driving their growth at 1,100 basis points that Dan talked about earlier, 1100%. 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 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. It's obviously in the Q every quarter, but we can look at breaking it out in future releases for you.

Yeah.

Yeah. The story is the Industrial margins are still around the 45% mark. Aerospace margins ticked up this quarter, less than a point, but they're definitely up, which is the trend that we were looking for as the plants continue to 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 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 your 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. Just wanted to -- was wondering about the Specline acquisition, if you could give a little bit more color on that and what your expectations are for Specline going forward?

Sure. Well, just to kind of reframe this Specline. Specline 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 were looking for a home for their business. We learned about it. And so, that's sort of the background story behind the acquisition.

Gotcha. I appreciate that color. And you mentioned your net debt is 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 still -- 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 studying the current candidates, but we -- there's nothing immediately actionable.

Okay. Got you. And then just turning to aerospace and defense. You guys -- the first quarter growth rates above 22%. And you guys mentioned the increased build rates. Are you expecting growth to accelerate in the back half of the year? Or should we kind of think about tapping the brakes here a little bit and 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 you just -- 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 tip -- 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. So, 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. There's -- unless some world event happens that grows 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. Thank you. 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 Q1 that weren't repeating in Q2. So that offered some improvement on the SG&A as a percentage of sales. There was the temporary reduction in stock comp expense. I expect Q3 stock comp to be $4.3 million compared to the $3.7 million we saw this quarter. So, we had favorability in some of the variable costs that came in, which really drove the nice quarter. But as we discussed -- as we put out there in the release, as a percentage of sales next quarter, we're thinking somewhere between 17% to 17.5%.

That's helpful. And maybe just on the new plant, great to hear that you are 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 costs you would point out because of the plant coming up?

Yeah. For the Tecate plant that Dr. Hartnett was talking about, we don't expect to see a real disruption there and our big cost impact to capitalize that plant and it's -- and the floor space over the next 12 to 24 months. So, it should fall in our normal CapEx and so.

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 orders, especially on the industrial side would be helpful?

I'm 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. Just curious if you can -- you have some color you can provide on when you should start seeing orders from these projects start hitting your P&L?

Well, I think the industry is still waiting to see orders from the infrastructure bill, which would be substantially important to the -- to our business. And it's -- and I think that's the oldest of the bills that has been approved. And I would say it's -- the impact 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 US is running at full capacity today. So, new plants will have to be built to produce cement and asphalt in 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 spending is meant for. So, we're really at the beginning of that entire phase. This is must have felt -- it must have felt this way in 1958 when Eisenhower announced the building of the interstate highway system.

Thank you.

I'm sure 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.

This is on for Ron. Could you guys give more detail on what you're seeing for labor talent acquisition, attrition rate is 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 -- 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 with 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. And typically, year-to-year, we'll bring in close to 100 new engineers from -- these 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 are 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 has grown at double-digit for us, and we expect it to for the next 12 months.

Great. Thank you so much.

Thank you. Our next question is from Steve Barger of KeyBanc 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 op 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 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, it's a challenging quarter with the holidays, just -- which reduces our margin profile, but Q4 looks strong on that front. So that's kind of where we're looking to shape up for the year.

Yeah. Is one segment or the other taking 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, this is Dan. 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, we'll be right on track to where we were prior in the first six months of the year.

Got it. Thank you.

Thank you. Our next question is from Tim Thein 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 in the back half of the year and into 2024. A lot of discussion just in terms of the OEM 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 to into 2024.

Well, 2024 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 when we look at -- right now, we're going through our FY 2025 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 what the 2025 baseline is for the aerospace and defense units. And it looks to me like everybody is 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? What do we -- in some places in the country, that's not so difficult. In other places, it's very difficult. So, 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. And in some of our businesses right now, if we had double -- 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 [indiscernible]. In terms of the -- 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 [indiscernible] 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, 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 compared to 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.

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. End of Q&A:

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

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