RBC Bearings Incorporated (NYSE:RBC) Q2 2025 Earnings Call Transcript

RBC Bearings Incorporated (NYSE:RBC) Q2 2025 Earnings Call Transcript November 1, 2024

RBC Bearings Incorporated misses on earnings expectations. Reported EPS is $2.29 EPS, expectations were $2.3.

Operator: Good morning and thank you for joining us for RBC Bearings’ Fiscal Second Quarter 2025 Earnings Call. I am Rob Moffatt, Director of Corporate Development and Investor Relations. And with me on today’s call are Dr. Michael Hartnett, Chairman, President and Chief Executive Officer; Daniel Bergeron, Director, Vice President and Chief Operating Officer; and Rob Sullivan, Vice President and Chief Financial Officer. As a reminder, some of the statements made today maybe 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 listed in the press release, along with a reconciliation between GAAP and non-GAAP financial information. With that, I’ll now turn the call over to Dr. Hartnett. Thanks.

Michael Hartnett: Good morning, everyone and thank you for joining us. I am going to start today’s call with a quick review of our financial results and I’ll finish with some high level thoughts on the industry and our outlook for the remainder of 2025. I’ll then hand it over to Rob Sullivan for more detailed color on the numbers. Second quarter net sales came in at $398 million, a 3.2% increase over last year, driven by continued strong performance in our A&D segment and what we believe was continued outperformance versus peers on the industrial side. Total A&D sales were up 12.5% year-over-year, with 17.3% growth on the defense side and 10.3% growth on the commercial aerospace. On the industrial side, the segment came down 1.4% year-over-year, with OEM down 2.5% and aftermarket sales down 0.9%.

Before I go too deep into the quarterly results, I wanted to spend a minute or two on the strength you are seeing currently seeing on the defense side of the business. Year-to-date sales stand at an impressive 26.7% organic growth versus last year. We are seeing exceptionally strong demand in our marine business where there is multiyear backlog that can drive additional growth. We are also seeing continued strong and urgent demand for our fixed wing and missile guided munitions category. With the current political backdrop, we are planning for the continuation of this demand through the remainder of this year into next and beyond. During the period, we saw unexpected headwinds from Boeing strike the impact of Hurricane Helene, later resulted in a plant shutdown in Asheville, North Carolina for over a week.

These events impacted revenues by $4 million to $5 million in the period. Well, now summer is over. We’re moving to the performance during the period. Gross margin in the quarter came in at $173.8 million or 43.7% of sales, a 55 point increase year-over-year. The biggest drivers of our margin expansion continue to be increased absorption of our aerospace and defense capacity, ongoing synergies at dodge and a wide range of smaller projects on a plant-by-plant basis that we continue to identify through the RBC of management process. I’d like to acknowledge and thank our teams for this performance. They are the driving force behind the projects that deliver these results. They are the foundation of our culture of continuous improvement. Net income of $67 million was up 6% year-over-year, and that translated into an adjusted EPS of $2.29 per share compared to last year’s $2.17 per share.

Cash from operations came in at $43 million and compares to $53 million last year, with the timing and scope of cash tax payments as the biggest factor in year-over-year comparison. We use our cash to continue to deleverage the balance sheet with over $35 million of debt reduction in the quarter, taking our trailing net leverage to rise approximately 2x [Technical Difficulty]. As a reminder, we are targeting a $275 million to $300 million debt reduction for the year, which should allow us to exit the year nicely below the 2x turn mark, leaving our balance sheet well positioned for further acquisition interests. Moving to our outlook. On the A&D side, demand remains very strong. As a result of recent events, Boeing is playing an increasingly smaller role in our revenues, and we expect this to continue over the balance of this quarter and into next.

And consequently, we are planning our business accordingly. When their strike go in and how the plan to step up production of the 737 year frame is not at all clear to us at this time. Of course, the production of the 787 ship remains unaffected. We do know that their backlog for 737 is substantial. Their customers need the aircraft some desperately. We stand in a perfect position to support any production rate set by management. We expect clarification in the next few weeks on these matters regarding production rates and are currently busy negotiating and ending contracts now that will support production for Boeing through 2030. Using these assumptions and with the strong results already delivered in the first half of the year, I believe our A&D business should be able to deliver low to mid-term growth for the full year.

On the industrial side, I was pleased with the results we saw in the second quarter, including the continued strength in grain, food and beverage and power generation. All of our weakness was concentrated into a new end market, primarily oil and gas, as a result of inventory corrections during the period at [indiscernible]. I believe our industrial business can return to growth in the back half of the year and as at for some of these end markets rollup and our relentless focus on driving organic build intents. Looking forward to next year, as we develop our operating budgets today, we see, number one, continued defense demand led by new products and revenues, owing 737 old rigs at the 38% rate pushing towards 50 rate in ‘27. Strong and increasing demand for jet engine components for repairs, strengthening investment demand based products playing an increasingly significant role in our lineup of revenues, impactful synergies from Dodge acquisitions as we ended tooling and testing cycle and begin the reassuring of some products at RBC plants, an important and incremental expansion of our statements of work both European aerospace community.

With that, I’ll now turn the call over to Rob for more details on financials.

Rob Sullivan: Thank you, Mike. As Dr. Hartnett indicated, this was another strong quarter for RBC despite the short-term and onetime challenges in the period. Net sales growth of 3.2% drove gross margin growth of 4.5% year-over-year with 55 basis points of gross margin percentage expansion. This year-over-year margin expansion was primarily reflected in our Industrial segment, where we continue to see strong execution and the benefits of Dodge synergies achieved. On the SG&A line, we continued our investments in our future growth. This includes investment in personnel costs for existing talent as well as new resources such as sales force additions to support the international expansion that we previously highlighted. In addition, we continued our investment in back office support, including IT and had incremental professional and travel fees during the period.

This led to adjusted EBITDA of $123.4 million, up 1.1% year-over-year and an adjusted EBITDA margin of 31%, which was down 66 basis points year-over-year against the tough comp, but still above 2024s full year 30.9% margin. Interest expense in the quarter was $15.6 million. This was down 22% year-over-year, reflecting the ongoing repayment of our term loan and revolver lower rates on our variable rate debt and the benefits from our interest rate and cross currency swaps. The tax rate in our adjusted EPS calculation was 22.1%, reasonably consistent with last year’s rate of 22%. Altogether, this led to adjusted diluted EPS of $2.29, representing year-over-year growth of 5.5%, an impressive result given some of the short-term headwinds in the quarter.

In terms of cash flow through the first 6 months of fiscal 2025, we have generated $140.4 million in cash from operations, with free cash flow conversion of approximately 100% of net income. Our second quarter free cash flow was impacted by the timing of certain tax payments and the purchase of a building in Switzerland for approximately $8 million during the quarter, which was previously leased. A portion of this was financed with a 10-year mortgage at 2.2%. Our 6-month free cash flow has increased 14.5% year-over-year, primarily driven by net income growth results during the period. As usual, we will use a meaningful portion of the cash generated to continue to deleverage the balance sheet. We repaid over $35 million of debt during the quarter with another large $32 million payment crossing the wire 2 days after the quarter’s close.

If you include that payment, it takes our total year-to-date debt reduction to $128.7 million. And in terms of our free cash flow generation going forward, the October 15 automatic conversion of our Series A mandatory convertible preferred stock is not only slightly accretive to EPS, but also removes the cash dividend payment, reducing our future total cash outlays by approximately $23 million on an annualized basis. This is roughly 9.5% of fiscal 2024 total free cash flow. In the third quarter, when calculating EPS, we anticipate net income to be reduced by approximately $1 million of dividend cost and the diluted EPS to include approximately 1.8 million additional shares from the conversion. The full impact of the shares will be reflected in the fourth quarter when they are all outstanding for the full period.

Looking into the third quarter, we expect revenues of $390 million to $400 million, representing year-over-year growth of 4.3% to 7%. As a reminder, many of our plants, our fiscal third quarter includes fewer selling days due to holidays and is typically our lightest quarter of the year. Our guidance is calling for flattish revenue trends as compared to Q2 2025 despite the selling day headwind and despite the aerospace OEM headwinds that Dr. Hartnett pointed out earlier. This is driven primarily by ongoing strength in the broader market and industrial sales that should be comparable to that – on the gross margin side, we are projecting gross margins of 42.5% to 43.5%, which would be an increase of roughly 70 basis points year-over-year at the midpoint.

On the SG&A side, we expect SG&A as a percentage of sales to be in the 17% to 17.5% range during the third quarter. In closing, this is another strong quarter for RBC. We remain focused on leveraging our core strengths in engineering, manufacturing and product development to drive both organic and inorganic growth, continued margin excellence and high levels of free cash flow conversion. With that, operator, please open the call for Q&A.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Michael Ciarmoli with Truist Securities.

Michael Ciarmoli: Hey, good morning, guys. Thanks for taking my questions. I guess the strike – combination of the strike implications, the hurricane, I think you called out the revenue impact, any way to quantify the impact that may have had on gross margins?

Michael Hartnett: Look that mean Yes. I mean there’s – obviously, there’s a way to do that, but I can’t do it here and now. If you just look at the consolidated gross margin, it’s kind of reflective of those products. So I’ve been just using the consolidated gross margin, as we are expecting for contribution would – what that would have contributed to EPS, I think that’s fair.

Michael Ciarmoli: Okay. Okay. Okay. Fair enough. And then, Mike, I think you said the exposure to Boeing was down even further now. I mean does that incorporate Spirit as well? And are you at a position now? I know you guys always like to build strategic inventory and ship out of that strategic inventory. Are you – have you built too much? Is there going to be a destock period? I know the lead times are definitely still elongated for some of your products. But any color in terms of once maybe I mean, I guess, first has to get at this sort of rate cap lifted. But any thoughts on if there’s a destock headwind once they start ramping again?

Michael Hartnett: Yes. I don’t see it. I mean we’ve – we’re sort of down at the nadir, what we’ve been supplying that whole food chain in terms of products. So I think once they get back into production and start heading towards that 38 number, I think they’re going to pull a big vacuum on the system.

Michael Ciarmoli: Okay, okay. Got it. That’s helpful. And then just the last one, I mean the urgent demand for fixed wing munitions. Any – I mean, I guess, just any more detail you could provide there if you’re seeing more from Europe and NATO recapitalizing? Is it just all flowing through kind of the domestic prime contractors, maybe even what the pipeline looks like for some of these newer programs, I mean, we keep seeing a lot of new development platforms across a lot of different domains. Any detail there?

Michael Hartnett: Well, I think the detail there is that there’s just a lot of these guided weapons and shoulder mounted weapons use bearings, precision bearings and many of them are miniature bearings. And there is and those – because they’re U.S.-made defense products, those miniature bearings have to be U.S.-made bearings, U.S.-made bearings, and there’s that particular supply chain has atrophied over the last generation. And now, there’s not sufficient production capacity or miniature bearings to service the demand. And I mean I’m not telling any secrets out of school here, but I mean defense departments offering special incentives to increase minister bearing production and we know about it. We’re not participating in it for other reasons, but we’re not – what we are aware of it.

Operator: Thank you. And our next question comes from Peter Skibitski with Alembic Global. Please state your question.

Peter Skibitski: Hey, good morning, guys. Sorry if I – sorry if I missed it, but I know you quantified the Asheville impact in, I guess, industrial. Can you quantify how much the Boeing IM strike negatively impacted the second quarter? And maybe give us a sense of how we should think about the back half of the year, the kind of lingering impact?

Michael Hartnett: Well, yes, I think – for the back half of our year, our assumption is based on the Boeing, being in production and the supply chain having the requirements for one month out of 3. And is that the right number? I don’t know. It seemed to be conservative when we made it. This is now November and the strike looms, although it’s – maybe it will make progress today as I read the journal. So yes, so what boiled into our numbers, is operating one month out of it.

Peter Skibitski: Okay. So you’re assuming sequentially your commercial aero revenue should be down in the third quarter?

Michael Hartnett: Yes.

Peter Skibitski: Okay. And then – just – I mean, you had some nice backlog increase sequentially, I think about 4.6%. Was a lot of that commercial aerospace and I don’t know, maybe this wide-body orders?

Rob Sullivan: A lot of that, Pete, would have been on the defense side. Certainly, aerospace, defense segment heavy, but it would have been a lot of the defense side of our business.

Peter Skibitski: Okay, got it. That was – well, heading into my last question then, we’ve got this continuing resolution ongoing, right, for DoD, which is your third quarter. Have you seen sort of quarter-to-date as we sit here in November, any slowdown in defense bookings that we can maybe surmise results from the CR?

Michael Hartnett: Yes. I am trying to think if we are seeing that. Our defense bookings are, for the most part, the significant part of those are with OEMs. So they’re not with the Department of Defense. So the bookings are firm contracts or purchase orders that are extended over often many years. And I think what’s reflected in our backlog is it still 12 months. Okay. So – yes. No, we’re not seeing it. We’re not feeling it.

Peter Skibitski: Okay, got it. That’s helpful. Thanks so much, guys.

Operator: Our next question comes from Tim Thein with Raymond James. Please state your question.

Tim Thein: Thank you. Good morning. Just the first one was on Rob’s commentary there at the end. But in terms of the outlook for the third quarter, I thought I heard Rob, you say that you expected industrial to be flat with the second quarter. Was that – did I hear that correct? Or…

Rob Sullivan: Yes, sequentially, it should look a lot like Q2, plus or minus. That’s what we’re looking at right now.

Tim Thein: Okay. So alright, so that’s than you’re seeing if that were the case and not to hold you to the penny, but that’s calling for year-over-year growth.

Rob Sullivan: Right.

Tim Thein: Yes. Okay. Got it. And I guess I’m interested in maybe this ties back into the outperformance that you that I believe you saw in terms of – we haven’t seen or heard from every one of your industrial peers, but I suspect that down less than a point is probably better than what you’ll see from others. And I’m just curious as you look to the third – your fiscal third quarter, the commentary from the – at least from the public bearing distributors, they’re not calling for much by way of improvement. So I was just curious in terms of what you guys are seeing? Is this some of the benefits from Dodge paying off – is it maybe you’re gaining a higher share of wallet with the distributors? Maybe you can just give some color in terms of what’s driving this outperformance on the industrial side.

Michael Hartnett: Outperformance relative to our peers?

Tim Thein: Yes. I mean if you did yes exactly. Yes.

Michael Hartnett: Okay. Because I don’t think its outperformance relative to our plan.

Tim Thein: Got it.

Michael Hartnett: It’s – I mean I I’d have to know more about why our peers are falling behind than we’re a little behind our plan. So I didn’t think it was our performance with the description of where we are. But do you think that – that fits us. I don’t know what they’re problem is.

Tim Thein: It wasn’t a flattery. It was – I mean, I just – I don’t think others are talking about industrial revenue is down a point or less. That was all.

Michael Hartnett: Okay.

Tim Thein: And I’m not asking to speak for your peers. I’m just maybe just in terms of – to the extent you are seeing improvement, and again, maybe it’s lagging your expectations, but I suspect, is better than what you’ll see from others. So it was just if you had any commentary around what you’ve seen internally and where you’re where your – some of the initiatives you put forth and how those are progressing?

Michael Hartnett: Well, I mean, there’s – there’s – I would say that [indiscernible] performance is showing an improvement year-over-year because last year, in these quarters, our first and second quarter, we had – we were still fighting with the tail of supply chain problems. And that second quarter was the end of that tail. So – which effectively made those quarters last year a little bit stronger than they should have been because of products that needed to be shipped, but couldn’t be shipped because we didn’t have all the parts we needed to finish various assemblies. So – so now, we’re not – we don’t have that difficult quarter-to-quarter comp. And so now it’s more a pure operating performance relative to market demand.

Tim Thein: Got it. Okay. And then just on the – I think last quarter, you had commented that the full year margin improvement may be closer to 100 basis points on the gross margin side? Do you – is that still the forecast today?

Michael Hartnett: Yes. It is the forecast.

Tim Thein: So, yes. Okay, got it. Got it. Okay. And last one and I’ll move on. Just you highlighted within A&D, the Marine segment, I think you have been calling on that for some time. Any – I don’t know if it’s for competitive reasons, maybe you are precluded from divulging it. But any context in terms of within that total company backlog, the size of it even if it’s just qualitatively, the size of that marine backlog as you sit here today?

Rob Sullivan: Yes. I mean it’s a meaningful hard net backlog to the tune of a couple of hundred million.

Tim Thein: Got it. Okay. Thanks a lot.

Operator: [Operator Instructions] Our next question comes from Ross Sparenblek with William Blair. Please state your question.

Ross Sparenblek: Yes. Hi. Good morning guys. Maybe just starting with Dodge, thinking through kind of the longer term growth outlook, the business has been stable. But it would be great to hear where you stand on the R&D strategy and how we should be thinking about the timing of getting that new product muscle working?

Michael Hartnett: Yes. Well, we have several new product initiatives moving through from R&D into production, and so there – I think this year, some of the first will probably generate a few million dollars over the full year period. I mean it’s a normal start for a new product. So, I would say that new products out of Dodge on an annualized basis, next year $5 million to $10 million.

Ross Sparenblek: Okay. So, do you feel like you are getting buy-ins from the workforce and this is really starting to potentially snowball in the next couple of years?

Michael Hartnett: Yes. Well, I think it’s if we have identified the market demand well enough, I think we have some pretty sharp people working at end of the equation. Yes, I think those should be meaningful contributors.

Ross Sparenblek: That’s great to hear. And then maybe just thinking about Dodge’s warehousing business, it’s been a tougher couple of years, but it has seen signs that greenfield activity is picking up. Anything just call on that performance and then maybe anything around project activity that you might be hearing from your customers?

Michael Hartnett: I think that side of the business showed some – saw some positive effects here in this last quarter. So, it’s coming back slowly. We are looking seriously at that market, and we are probably going to develop a new product line to address it, which will probably take a few years in the development, but should allow us to be a more significant player.

Ross Sparenblek: Okay. I don’t want you to give away any of your strategy there, but is it still conveyor oriented, I can ask?

Michael Hartnett: Yes.

Ross Sparenblek: Perfect. And then…

Michael Hartnett: You want me to give away, Ross.

Ross Sparenblek: On the 787 and 777X ramp, phone is kind of breaking up, but thinking about the second half margin progression to aerospace, that was previously in the cards. Conversations may still be in the works with Boeing on that. Just any expectations there, maybe second half or even fiscal next year?

Michael Hartnett: Well, I think next year, we should be beyond these troubles and into production and moving into that $38 per month ship build rate. That’s our expectation. And that’s in terms of what we are rolling together for operating budgets that will sort of be the basis of our operating budget next year. Clearly, Boeing had published an objective of moving into the 50s before they had the problems that they had last year. They certainly need to do that. At one point, they had an objective of 60 ships per month. They really need to reboot that objective given their backlog and the need of their customers and the needs of their supply chain. I mean there is – the supply chains are, right, are in pretty tough shape.

A lot of them are – if you have a survey exactly the financial health of a lot of Boeing and Airbus’ suppliers, it’s not good. And we know that because we sell them products and we try to collect our receivables based upon what we sold them. And so we know we have something, now we have had a tough time.

Ross Sparenblek: Got it. Anything to call out there, I guess on maybe your willingness to look for incremental market share gains with Boeing, feels like diversification might be the better angle at this juncture?

Michael Hartnett: Can you say that again, Ross?

Ross Sparenblek: I mean I know you guys want to maybe diversify away from building a bit, but if you saw low-hanging fruit on potential market share opportunities, I mean would you move in that direction?

Michael Hartnett: Yes. There is a lot of low hanging fruit. I mean Boeing is going to be a survivor. There is only two of these guys in the whole world right now that are practical producers. And we like both of them, and we have projects – big projects in the breach with both companies. And some are reaching harvest, let’s put it that way.

Ross Sparenblek: Got it. Very helpful. Thank you, guys.

Michael Hartnett: Yes.

Operator: Our next question comes from Ron Epstein with Bank of America. Please state your question.

Ron Epstein: Yes. Hi. Good morning guys. What are you seeing out there in sort of the M&A world? How are properties priced? Is there anything on the market? Does the stress that the – Boeing stress has maybe caused some suppliers? Has that opened up some opportunities?

Michael Hartnett: Yes, we see things coming to market on the M&A world all the time, and we – particularly in the A&D side of the business, and we try to understand whether or not we should participate in the auction. And sometimes we do and sometimes we don’t. What we are seeing is a hungry and competitive private equity interest in aerospace companies, if you complete that. So, the competitive nature of these businesses that are attractive to us has been difficult. And some of these businesses come with big problems to solve. So, whoever gets involved with any one of these acquisitions in many cases needs to have a big toolbox because a lot of tools to fix them.

Ron Epstein: Yes, that makes sense. And then maybe another question, maybe along sort of similar lines, but different, I think it became very evident yesterday when Huntington Ingalls reported that they are having all kinds of issues. Are there opportunities specifically for you guys in kind of the naval supply chain to help, I mean it seems like that end market in particular is really struggling to execute? And I don’t know, for a company that’s a good executor, is there an opportunity there for you guys to do something to pick up share, either organically or inorganically because of all the troubles that are happening in that naval supply chain.

Michael Hartnett: Well, we certainly looked at it, Ron. And I would say right now, our focus is on executing our current order book and trying to bring up our production rate, actually, we have to double our production rate as quickly as possible to meet the objectives that the navy has and the rest of the industry has for our product. So, we have been really busy doing that. We have talked to some of the people that have complained that the industrial base isn’t big enough or strong enough to support the build-out. And we have offered to build the plant on the waterfront in Connecticut and barge things over to Graton and equip it with the appropriate machinery and so on and so forth. And we could do it, but there wasn’t a lot of interest expressed.

Ron Epstein: It’s unfortunate. Yes. Alright. Thank you.

Michael Hartnett: Yes.

Operator: Thank you. And our next question comes from Joe Ritchie with Goldman Sachs. Please state your question.

Vivek Srivastava: Hi. This is Vivek Srivastava on for Joe. Thank you for the question. My first question is on the industrial end market. You talked about industrial sales next quarter compared to 2Q. This would imply about 3% to 4% organic growth. So, just trying to understand number one, what is driving that confidence? And do you expect both original equipment and aftermarket to return to positive growth next quarter?

Daniel Bergeron: So, on the – just to understand your question, kind of the end markets that we are seeing, good activity on this mining, multi-industrial, food and beverage, warehousing, both on the – for all of them on the OEM side and the MRO side. And we are still seeing softness on some of the mining side of the business and on ag and those end markets. So, it’s a mixed bag now. Oil and gas, we are expecting we should see that starting to come back maybe in our fourth quarter or first quarter, same with semiconductor, which is starting to show signs that, we could see some positive movement in Q4, Q1. But it’s just our average or different markets on the MRO side that are actually driving some of our growth.

Vivek Srivastava: Very helpful. Moving on to pricing, just trying to understand how much of your list pricing you put on in January and how you are thinking about that? And then you have talked about contracts in aerospace and defense, any color on contracts coming up for renewal? And what’s the view on pricing there?

Michael Hartnett: Well, I would say this is as it relates to aircraft and defense, a lot of the contracts that we have with various people were signed in 2019, 2020. And between 2020 and today, the producer price index is up 32%. And so these new contracts that we are negotiating reflect that change. The old contracts that we have where the prices were set years ago don’t have – many of them don’t have the adjustment needed in order to reflect the change in the PPI, but the new ones do, and new prices have been readjusted.

Vivek Srivastava: That’s very helpful. Just last one, just last question quickly on your backlog within industrial, any color on how your industrial backlog is trending maybe compared to 2019 levels? And do you see like some risk of that backlog still normalizing, or you think backlog in industrial is now more normalized?

Michael Hartnett: The big takeaway I would tell you on the industrial backlog that’s worth considering the 2019 was just that during the supply chain price as Dodge carried a much heavier backlog than they do today. So, Dodge has gone back to a much more normalized lower backlog. It’s really not an overly meaningful part of our backlog today, which really reflects their normal book and turn type of business, which you would expect. And that’s also reflected on the classic RBC, so on the industrial side. The markets behave the same way, light [ph] in our business in the quarter

Vivek Srivastava: Thank you.

Operator: Thank you. And our next question comes from Steve Barger with KeyBanc Capital Markets. Please state your question.

Steve Barger: Thanks. Good morning.

Michael Hartnett: Good morning Steve.

Steve Barger: On the industrial side, the 4%-ish growth you expect for industrial in 3Q, certainly seems positive. The comp in 4Q is similar. So, is that a reasonable year-over-year run rate from here, meaning you think the inflection has happened in industrial for your business and you are back to consistent growth?

Rob Sullivan: I just want to be clear. So, what I said was that sequentially, it could look a lot like Q2 plus or minus. So, with the fewer days, that could mean down ever so slightly. So, we didn’t say 4% next quarter, I just want to – we do think we may grow that, make dollars, I mean growth rate.

Michael Hartnett: Yes. We do expect sequential growth, but we didn’t say 4%.

Steve Barger: Sequential growth in growth rate, not dollars?

Michael Hartnett: In industrial.

Steve Barger: Industrial, I understand. But you are not saying sequential growth in dollars, you are saying sequentially growth rate gets better. Got it. Just want to make sure that everybody understood. Okay. What percentage of the portfolio do you classify as defense now across the two segments? And what percentage of the portfolio, Mike, would you consider as exceptionally strong, maybe running 20% plus?

Michael Hartnett: We can look at that number for you.

Steve Barger: Okay.

Michael Hartnett: So, just within Aerospace and Defense segment, defense is about a third of the total in that segment.

Steve Barger: A third in aerospace, okay, but you have some defense and industrial as well.

Michael Hartnett: No. We have it all in aerospace and defense.

Steve Barger: Got it. Okay. And Mike, and for the second part of that question, you had talked about some of the lines of business being exceptionally strong right now. What percentage of the overall portfolio would you consider exceptionally strong?

Michael Hartnett: It’s RBC traditional, RBC industrial. The traditional RBC’s A&D, which was – used to be 60% of revenues before we acquired Dodge, so it’s 30% of total revenues is exceptionally strong.

Steve Barger: 30%. Got it. That’s great. And just one last one, I heard you say $4 million to $5 million related to the weather impact in the one plant, you were able to mitigate the strike impact of strong demand from other customers. What would revenue have been in 3Q ex strike?

Michael Hartnett: At what build rate?

Steve Barger: I guess the build rate that was occurring prior to the strike.

Rob Moffatt: This is Rob Moffatt. I don’t think we are going to get into hypotheticals on the third quarter, especially since it’s forward-looking.

Steve Barger: Well, I was actually looking for 2Q, what it would have been because you only lost a couple of weeks of production in 2Q, but…?

Rob Moffatt: But we had two impacts on the Boeing side, right. You had the original impact from the January door plug blowout. Then you had the strike itself. Then you had the hurricane. There is just too many variables to really narrow that down and/or high level of confidence [ph].

Steve Barger: Got it. Okay. Thanks.

Operator: Thank you. And we have now reached the end of the question-and-answer session. And I will now turn the call over to Dr. Hartnett for closing remarks.

Michael Hartnett: Okay. Well, thank you and this concludes our conference call for the second quarter. Appreciate everybody’s participation and all the good questions and look forward to talking to you again in early February.

Operator: Thank you and all parties may now disconnect. Have a good day.