Turning to cash flow. The company generated $80.5 million in cash from operating activities in the third quarter of fiscal 2024 compared to $60.9 million for the same period last year. Capital expenditures were $9.5 million in the third quarter compared to $6.5 million last year. Free cash flow conversion this quarter was 152% and 116% for the full nine-month period. We paid down $60 million on the term loan during this quarter leaving total debt of $1.26 billion as of December 30, 2023 and cash on hand was $71.6 million. I would now like to turn the call back to the operator for the question-and-answer session.
Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.
Kristine Liwag: Hey good morning everyone.
Michael Hartnett: Good morning.
Kristine Liwag: Industrials was flattish in the quarter. And then also your — looking at your fourth quarter outlook for revenue, it just seems a little bit lighter versus what you’ve seen so far through the year. Can you give us any color regarding what’s driving these pieces? How much visibility you have? And if there’s any downside risk to your updated 4Q revenue outlook?
Michael Hartnett: Well, I think in terms of the aircraft and defense side, Kristine, the visibility is really good. It’s really a matter of making it and we usually do a pretty good job there. So there’s — we don’t see a lot of risk there. And on the Industrial side, the visibility — mainly the visibility and the driver there is largely Dodge. And Dodge is a company that really doesn’t have the kind of backlog or contract relationship with its customer base, because of its customer base as we do. And so, we’re always extrapolating based upon economic demand and economic forecasts what exactly Dodge’s sales are going to be. So, if there’s any risk to the upside or to the downside, it’s probably coming mostly from Dodge.
Kristine Liwag: Great. And then I know it’s — we’re already here in February. So, based on what you’re seeing out of Dodge, what’s the pace of ordering? And I know it’s more of a brick and fix type business. What’s the pace that’s driving that? And I guess in terms of Industrial revenue, PMI now is trending higher. Is your outlook then for this quarter more conservative Mike?
Michael Hartnett: Yes, I hope it is. I would say that here we are in February and Dodge’s business is performing very well. So, — and we only have about six weeks to go. So, what could possibly happen?
Kristine Liwag: I guess on that — sorry I’ll sneak one more in. The first two years of the deal with Dodge, you’ve always talked about the years of the factory. And with the margins where they are you’ve clearly done your job there. So, can you give us an update where you are in terms of revenue synergies between legacy RBC and Dodge?
Daniel Bergeron: Sure Kristine, hi, it’s Dan. On the revenue side as we talked about in the past we just don’t have a lot of overlap on our OEMs. So, we’re starting to see some nice traction there. We’ve been training the Dodge sales team on RBC product and we’ve been training the RBC team on Dodge products and we’ve been doing that both domestically and globally and we’re starting to see some traction from those events. And I think that would just continue to be accretive to the topline over the next three to four years as the sales engineers get up to speed on these different products and these different OEMs that they’re visiting. So, from that standpoint, we’re feeling good on the margin side. I think you already kind of address that.
But our gross margins for the nine months were up 220 bps and 160 bps fell down to EBITDA. So, we’ll definitely gain leverage off the investments we’re making on SG&A and we’re definitely gaining the benefit from the synergies on the cost side and the SG&A side with Dodge. On the cost side, I think we still have some nice synergies still coming through for 2025, 2026, and 2027 on our in-sourcing efforts that were kind of long-term goals for us and those are moving along nicely. We’re actually building out manufacturing facility space in Mexico to give us more capacity for US products in the United States for Dodge. So, that’s going to be hopefully accretive to the topline and to gross margins. And we continue to work on consolidation in our SG&A to see what other costs we can continue to drive out between the two divisions.
Kristine Liwag: Great. Thanks guys. Thanks for the color.
Operator: Thank you. Our next questions come from the line of Pete Skibitski with Alembic Global. Please proceed with your questions.
Pete Skibitski: Hey, good morning guys. Nice free cash quarter again.
Michael Hartnett: Thanks.
Pete Skibitski: So, maybe just to start there. I had a question on inventory. You guys booked a lot of inventory back in 2023 I think because of supply chain issues but a little bit more slowly in the first half of this year. But it looks like working capital was really kind of de minimis growth here in the third quarter. So, should we expect your inventory needs to slow going forward? Maybe your supply chain is becoming more predictable maybe. But just was wondering if that should that growth should slow going forward even as your revenue grows particularly in aerospace?
Michael Hartnett: Well, I think the inventory growth that you saw previously, was mainly driven by Dodge and their supply chain. And so, we’ve kind of dialed that back. And it hasn’t responded as well, as we wanted to see it respond. So we’re going to continue to dial it back, and sort of get Dodge more into the steady-state turns that they demonstrated in 2019. But — feed those dollars into the into the aircraft business, because of the demand there and the lead time on materials — lead time of materials now is — for our types of materials is typically average 50 weeks, and then — but it actually doesn’t get delivered for till 60 weeks. So you have to be really — you have to be long on your planning for materials for these businesses. And I’d expected dollars just to stay reasonably constant, but shift ownership.
