RBC Bearings achieves 14.4% sales growth in Q2, driven by aerospace and defense, with $1.6 billion backlog and strong momentum heading into fiscal 2026

OPERATOR - (00:01:15)

Good morning and thank you for joining us for RBC Bearings Fiscal Second Quarter 2026 Earnings Call Hi, I'm Josh Caro with the Investor Relations Team. With me on Today's call are Dr. 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 may be forward looking and are 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.

Dr. Hartnett - (00:02:09)

Good morning and thank you. So good morning everyone and thank you for joining us. As usual, I'm going to start today's call with a short review of our financial results with some comments and I'll finish our outlook on the industry in fiscal 2026. Rob Sullivan will follow me with some more details on the results. Second quarter net sales were 455.3 million, a 14.4% increase over last year, driven by continued strong performance in our aerospace and defense segment and steady performance from our industrial businesses. Consolidated gross margin for the quarter was 44.1% versus 43.7% for the same period last year and adjusted EPS was 288 versus 229 last year. Clearly our performance exceeded our expectations for the second quarter of fiscal 26 and the company is showing good momentum moving into the second half of RBC's year. Free cash flow for the period was a strong $71.7 million. 56% of our revenues were industrial sector and 44% aerospace and defense. With the aerospace and defense sector now racing to parity, we think next year total A and D sales were up 38.8% year on year. Commercial aerospace expanded 21.6%. Defense expansion was 73.3%. Organically the performance looks like this. Commercial aerospace increased by 21.2%, defense increased by 22.4%. Demand across the A and D sector is impressive and momentum is strong. Backlog is up to $1.6 billion today from 940 million in March and 860 million last year. At this time we fully expect to approach $2 billion in backlog by year's end which will be an amazing milestone, especially when you consider that more than half of our revenues preclude backlog production. Although revenues are currently capped by production capacity, we are working hard to expand manufacturing capacities in our marine and aircraft RBC plants, adding more capacity each quarter. Clearly this will be impactful to margins. Primary drivers here are submarine, aircraft and engine customers. Proprietary components are quiet valves and actuators for submarines, i.e., the Virginia and Columbia boats, as well as MRO supplies for existing fleets. Both Sargent and Vaco are the RBC contributors here on airframe and engines. As Boeing and Airbus and Embraer continue increasing build rates to unprecedented levels, Production of our products, of course must follow. As most of you know, we have substantial content in these airframes and engines where we supply precision and line bearings as well as integrated structural components across aircraft and engine spectrum. And with Boeing's recent FAA approval to expand production rates, business is good and about to get better. It's important to understand that building rates of submarines and commercial aircraft are at levels not seen in over a generation since the early 1980s. For submarines. For reasons both good and bad, we currently are booking some orders for deliveries into the2030s. RBC is dead center in the middle of this effort today with considerable number of proprietary sole and single source products governed by multi year contracts in the majority of cases. Let's turn over to our industrial business now. Overall, our industrial business was up 0.7%. Industrial distribution was up 3.3% while the OEM sector was off 4.7%. Continued weakness in the markets of oil, semiconductor, machinery, European machine tools continue. Our industrial OEM business is a 7030 split with 30% being the OEM component. We are encouraged to see the continued demand in the industrial aftermarket across many of the markets that we monitor. These include aggregates, metals, grains, food and beverage, forest products, warehousing, to name a few. I will now turn the call over to Rob Sullivan who will give some colored commentary on the financial treatments and the Q3 outlook. Thank you Mike.

Rob Sullivan - Vice President and Chief Financial Officer - (00:07:20)

As Dr. Hartnett mentioned, this was another strong quarter for RBC. Net sales grew 14.4%, driving a 15.4% increase in gross margin. Gross margins were 44.1% for the quarter or 44.9% on an adjusted basis compared to 43.7% in the same period last year. During the quarter we delivered strong performance across our business segments, specifically within A and D, which has been seeing strong growth. As Dr. Hartnett previously noted, A and D gross margins during the quarter were 38.7% or 42.3% on an organic basis and industrial margins were 48.2%. Included in the Aerospace results were 24.7 million of net sales from Vaco during the period, which was acquired on July 18 this quarter. On the SGA line we had total costs of 77.4 million, or 17% of net of sales for the quarter. This ultimately resulted in an adjusted EBITDA of 145.3 million or 31.9% for the quarter. That represents an approximate 17.7% increase in EBITDA dollars compared to last year. Interest expense for the quarter was 13.4 million. This was down 14.1% year over year, reflecting the impact of debt payments made over the last 12 months and lower interest rates partially offset by the impact of borrowing $200 million on the revolver in July. To assist in paying for the acquisition of vaco during the second quarter, we paid off 45 million on our term loan balance. We made an additional $40 million payment on September 30, which will be reflected in next quarter's results. Diluted earnings per share were $1.90 compared to $1.65 for the same period last year. Adjusted diluted earnings per share were $2.88, representing a 25.8% increase over 229 for the same period last year. The tax rate in our adjusted eps calculation was 22% compared to last year's 22.1%. Free cash flow in the quarter came in at $71.7 million with conversion of 119.5% and compares to 26.8 million and 49.4% last year. The higher conversion rate was due to the increased earnings and working capital management during the quarter. As we have previously noted, our capital allocation strategy going forward will remain focused on deleveraging by using the cash that we are generating to pay off the term loan and then the revolver balance. This week we finalized an amendment to our credit facility extending the revolver until 2030. We intend to pay the term loan off by November of 2026. Looking into the third quarter, we are guiding revenues of $454 million to $462 million representing year over year growth of 15.1% to 17.1%. This guidance embeds an operating environment that's been fairly similar to what we have been seeing over the past few quarters with the additional benefit of owning VATCO for a full quarter on an organic basis Net sales are expected to increase 7.4 to 9.5%. On the margin side, we are projecting adjusted gross margins of 44% to 44.25% for the quarter and SG&A as a percentage of sales to be between 17% and 17.25% for the period. We continue to remain well positioned to achieve our objectives and drive sustainable growth, leveraging our core strengths in engineering excellence, operational efficiency and innovative product development. Looking ahead, our focus will remain squarely on executing on our organic growth strategy, further integrating vatco, driving operational efficiencies and delivering strong free cash flow conversion that will create long term value for all our stakeholders. With that operator, please open the call for Q and A.

UNKNOWN - (00:11:06)

Thank you.

OPERATOR - (00:11:07)

At this time we'll be conducting a question and answer session. If you'd like to ask a question at this time, you may press Star one from your telephone keypad and a confirmation tone. indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

UNKNOWN - (00:11:30)

Thank you.

OPERATOR - (00:11:34)

Thank you. And our first question is coming from the line of Christine Lewack with Morgan Stanley. Please proceed with your questions.

Christine Lewack - Equity Analyst - (00:11:41)

Good morning, Dr. Hartnett. Good morning, Rob. Maybe following up on the backlog, you had a very strong backlog growth of 60% in the quarter. Can you provide any color regarding how much of that was just from the Vaco acquisition? And also what were the key drivers of that increase? And then also, you know, you actually alluded to a $2 billion backlog by the end of your fiscal year. That's a significant step up from where we are today. Any sort of color on what you're seeing there would be helpful.

Rob Sullivan - Vice President and Chief Financial Officer - (00:12:17)

Yeah, so approximately 500 million of that increase is due to the Vaco acquisition. And then the remainder of the business is up more than 20% from this time last year. You know, we're seeing extraordinarily strong growth in the A and D side of the business. You know, approximately 90% plus of our backlog is really all A and D. The industrial side has a much smaller component when you look at our backlog and we expect that to continue through the rest of the year.

Dr. Hartnett - (00:12:49)

Christine. We're currently negotiating contracts with and we're very far along, they're very mature in the negotiations and we expect to conclude those within the month which should round the whole thing off to that $2 billion level, at least that neighborhood. Maybe it's 100 million less, maybe it's 100 million more, something like that. But it's to some extent, we've had rollover of aircraft contracts which all begin sort of next year, and there's still several marine contracts that we're working our way through and really, for the most part, have worked our way through. And we're waiting for the conclusion of the signatures.

Christine Lewack - Equity Analyst - (00:13:45)

Great. Super helpful. And then, you know, I think, you know, Dr. Hartnett, last time when we talked, it seems like Boeing production rates are starting to move up. And you know, from Boeing's earnings this quarter, it seems like that's really truly materializing. Can you just remind us regarding your production rates? What's the utilization of your aerospace plants? And when we think about this volume finally coming through, how should we think about incremental operating margins, especially with the changes in contract that you've had and of course, the inflation that's gone through the business in the past few years?

Dr. Hartnett - (00:14:25)

Well, I mean, it's right now in terms of capacity utilization for the airframe business, you know, we're pretty much at 100% everywhere. And so we're adding capacity, we're adding shifts, we're adding manpower, and we're adding some capital to continue. And we're going to be stepping up capacity every quarter going forward. In several of the plants, demand is strong. So you're going to see, obviously when you add plant, when you add shifts, you get better absorption of the overheads, and so you get some margin expansion there. So the outlook for margin expansion overall is it just couldn't be more positive.

Christine Lewack - Equity Analyst - (00:15:23)

Yeah, that's very exciting to hear. So I'll keep it to two questions today. Thank you.

OPERATOR - (00:15:29)

Thanks. The next question is from the line of Michael Cimiroli with Truist Securities. Please proceed with your question.

Michael Cimiroli - Equity Analyst - (00:15:36)

Hey, morning, guys. Nice results. Thanks for taking the questions. Maybe just housekeeping. I think I may have missed it. Rob, what was the aero OEM growth in. In the quarter and the arrow distribution growth in the quarter?

Rob Sullivan - Vice President and Chief Financial Officer - (00:15:55)

So the aero OEM, you talking commercial or you're talking about the whole segment? Just commercial.

Michael Cimiroli - Equity Analyst - (00:16:03)

Sorry.

Rob Sullivan - Vice President and Chief Financial Officer - (00:16:04)

So commercial OEM grew 27.9% this quarter. Got it. And commercial distribution was basically flat. It was actually down 2%, but more or less flat.

Michael Cimiroli - Equity Analyst - (00:16:16)

Okay, okay, got it. And then just looking at industrial distribution, looks like it was, you know, I think you had it up 3.3%, but down 8% sequentially. And any, anything happening there? Was that any sort of seasonality lumpy orders. You know, I know it's usually down a little bit sequentially on a, on a seasonal basis, but any, anything jump out with that industrial distribution side.

Rob Sullivan - Vice President and Chief Financial Officer - (00:16:49)

We had some really relatively strong performance in the industrial distribution business in the first quarter. Some really strong orders on that end. So the fact is it's still growing. It's just probably quarter over quarter. That's what you're seeing there.

Michael Cimiroli - Equity Analyst - (00:17:04)

Okay. Okay, got it. And then I think you guys called out the dilutions from Vaco roughly 360 basis points or so. Can you give us any sense as to how we should think about, you know, the Vaco margins expanding? I know you kind of just answered Christine's question with, couldn't be more positive on the outlook for margin expansion, but how do we, how do we think about that, that maybe Vaco drag dissipating and getting those margins up to and in line of, of historic RBC margins?

Rob Sullivan - Vice President and Chief Financial Officer - (00:17:40)

Yeah. So, you know, look, they're running in the mid-20s at this point. You know, on an adjusted basis, that's their normal run rate. It's going to take some time, but we think there's tremendous capacity for some operational synergy there over time to get those margins looking like the rest of the RBC business. That's what we picked up on when we were doing diligence and that's kind of the internal objectives. But you know, these, these projects do take time.

Dr. Hartnett - (00:18:07)

Okay. Yeah, Michael, I would say on that too that, you know, we, we, as far as Evaco is concerned, we're, we're still in the getting to know you phase and very encouraged by what we see and lots of manufacturing synergy with Southern California plants, which is needed because VECO needs to substantially kick up production rates. And those rates will. That manufacturing production will be done in the west coast plants that have the floor space and they'll need some added capacity. So we're working on that right now. So that's going to be very positive to margin absorption on the West Coast. So and I think the, you know, right now we're looking at some of the existing space contracts and renegotiating terms and conditions that are more aligned with RBC policies. And so we're just working, working through that one at a time. And that's, that's part of the, that's part of the, of the process. So we expect next year Vaco to be a star player in our lineup. Got it. Helpful.

Michael Cimiroli - Equity Analyst - (00:19:35)

I'll jump back in the queue. Thanks guys.

OPERATOR - (00:19:41)

The next question is from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your questions.

Steve Barger - Equity Analyst - (00:19:48)

Thanks. Good morning.

Dr. Hartnett - (00:19:51)

Morning, Mike.

Steve Barger - Equity Analyst - (00:19:54)

You talked about adding capacity to support all these aerospace and defense programs and I'm sure planning for that growth is a moving target. But what revenue level did you direct the team to plan for.

Dr. Hartnett - (00:20:13)

For that group.

Steve Barger - Equity Analyst - (00:20:16)

Yeah, let's start with A and D and then maybe talk about the whole company.

Dr. Hartnett - (00:20:24)

Why don't we just email you our five year business plan, Steve?

Steve Barger - Equity Analyst - (00:20:29)

Well, you're talking about, you know, needing to substantially ramp production across multiple programs. I'm just wondering, do you think that you need to be able to support 1.2 billion, 1.5 billion? You know, I'm just talking A and D now. Or is this going to be a $3 billion capacity plan or is this going to be a situation where you're just continually kind of tacking it on and chasing that capacity as those programs evolve?

Dr. Hartnett - (00:21:04)

Well, I think that's a good question. There's, you know, we're doing it sort of business by business and I haven't rolled it all up into what the final number's gonna be. And a lot of that depends upon how quickly we can add the capacity and get the throughput. But if you look at one of our businesses on the marine side of Sargent, I think two years ago, we're in the mid-30s in terms of annual revenue out of that marine program. And we, we need to be well over 100 as quickly as we can get there. And so it's a matter of how quickly can we get there. So that's, that's kind of what's, that's kind of what's going on in, in Tucson. And when we look at Vaco, we're still trying to figure out what the mature steady state production rate needs to be in order to keep the MRO business and the shipbuilders happy with the hardware output. So we have differences of opinion on what that number is right now. So I can't really be more specific about it, but it's much bigger than where they are. So yeah, we're going to see substantial improvement in both airframe air engine and marine over the next couple of years. There's, you know, there's almost no way to avoid it. If they keep building airplanes and they keep building submarines, it's just. There's no way to avoid it. Right?

Steve Barger - Equity Analyst - (00:23:00)

No, I guess that's the key takeaway here is that RBC has the potential to have a pretty significant, based on the slate of opportunities you see in front of you.

Dr. Hartnett - (00:23:12)

Correct. That's how we see it.

Steve Barger - Equity Analyst - (00:23:16)

And when you look at those programs and opportunities out there, do you have enough engineering staff to support underwater ground based aircraft space? Like, is that a capacity constraint as well on the engineering side?

Dr. Hartnett - (00:23:35)

Well, you never have enough engineers and you certainly never have enough good engineers. I don't think it's a capacity constraint. I think, you know, I think the design engineering work was in the testing. Engineering work for the most part is done and so there's probably incremental staff increases needed. Although when we acquired Vaco, we got quite a few very, very capable engineering team. So that's going to be helpful, I think. On the, on the production side, you know, we have, you know, we have our MET program where we hire college engineering graduates every year and put them into our plants into a two year training program and we've been doing this for years and I think the last time I looked at the numbers, the number of people that were in the two year training program was probably 100 folks. So I mean we've been salting engineering talent into the company for years. So we have a very deep bench of expertise and we're actually looking at that yesterday at who's in the 10 to 15 year group with us and because that's, you know, that's the emerging management of the company and it's, it's quite salty.

Steve Barger - Equity Analyst - (00:25:16)

That's good to hear. I don't remember ever hearing an AI related question on one of your earnings calls, so I'm happy to be first. Are you leaning into AI from the engineering side or anywhere else in the organization to try and help optimize manufacturing or engineering or anything else?

Dr. Hartnett - (00:25:39)

You know, I think AI is something you almost can't avoid using. Right. It's just you get too many good answers quickly when you, when you go to chat or you go to Gronk or one of the, one, one of the suppliers. And I personally, I mean I asked my five questions every day. I never subscribed to ChatGPT, but they do give me five questions every day and I use them up every day and I think there's many, many of us that subscribe and use it productively. So yeah, it's having an impact. How to measure exactly what that impact is. Right now we don't have that, we don't have a good grip on that. But you know, the other day we were talking about designing a component that was failing in our tests and so I personally asked AI, you know, what kind of tribological coupling did beryllium Copper make on steel and how would I improve that coupling through design? In 30 seconds I got a report that would have taken me a week to get from one of my engineering teams that was excellent. And we actually debated using some of those recommendations within the hour. So that's the impact it's having here.

Steve Barger - Equity Analyst - (00:27:20)

That is. That's interesting detail. Thanks. I'll get back in line.

UNKNOWN - (00:27:26)

Okay.

OPERATOR - (00:27:29)

Our next question is from the line of Scott Dusais with Deutsche Bank. Please proceed with your questions.

Scott Dusais - Equity Analyst - (00:27:35)

Hey, good morning Rob. When you restrike the Boeing and Airbus contracts, do we see the full benefit of that hitting the calendar first quarter or do you have to honor some pre existing backlog ordered at lower prices such that it takes a few quarters for that benefit to show up in gross margins.

Rob Sullivan - Vice President and Chief Financial Officer - (00:27:52)

We should see most if not all of that, you know, right away on the shipments that start after January 1st.

Scott Dusais - Equity Analyst - (00:27:59)

Okay, and in terms of what you all have been targeting to get out of those renegotiations, are you generally tracking to what you hoped for in terms of your ask or is there any just general update as it relates to the status of those negotiations you can offer?

Dr. Hartnett - (00:28:15)

Well, you never get what you ask. I mean you know it's the airframe people are very tough negotiators. So let's just put it this way. We negotiated with them for two solid years and that negotiation was scheduled every week for two solid years.

Scott Dusais - Equity Analyst - (00:28:45)

Got it.

UNKNOWN - (00:28:46)

Okay.

Dr. Hartnett - (00:28:47)

And we're. And I go ahead. Yeah, and we were reasonably, you know, I think, I think neither side was completely happy with the results but we weren't disappointed. Okay.

Scott Dusais - Equity Analyst - (00:29:03)

And then just following up on the prior question on AI, you know Caterpillar reported results earlier this week. They have an investor day next week. A big topic of conversation is the demand on these smaller and mid sized power generators. I don't think on a large combined cycle generators you have much content. Correct me if I'm wrong but on these smaller and mid sized reciprocating engines, is that an all area that RPC plays in?

Rob Sullivan - Vice President and Chief Financial Officer - (00:29:28)

No, no we're not, we're not in that area at all.

Scott Dusais - Equity Analyst - (00:29:33)

Okay. And last question for you Dr. Hartnett. There's now a publicly traded company out there that's generating 30% EBITDA margins in their fasteners business. And the industry appears to have some supply constraints and I believe you'll have some capabilities here. You got through Sargent and Shearpins. So just curious like is that an area of strategic interest for you as you think about organic investment in the business? Just given the margin potential Others in the industry are demonstrating.

Dr. Hartnett - (00:30:04)

We've looked at, we've looked at fasteners many times and yes, we have a business that sort of overlaps that, that market and it's, we don't see it as productive a market in terms of proprietary protection and what our current capitalization is, tool to produce is. Let's put it this way, there's more interesting markets that we pursued.

Scott Dusais - Equity Analyst - (00:30:49)

Okay, thank you. I'll pass it along.

OPERATOR - (00:30:53)

The next questions are from the line of Pete Skavitzki with Alembic Global. Please proceed with your questions.

Pete Skavitzki - Equity Analyst - (00:30:59)

Good morning, guys. Nice quarter.

Rob Sullivan - Vice President and Chief Financial Officer - (00:31:02)

Thanks, Pete.

Pete Skavitzki - Equity Analyst - (00:31:04)

In defense, just with this government shutdown, we're about a month into your third quarter. Just wonder if you guys are seeing any headwinds on order flow from the shutdown.

Rob Sullivan - Vice President and Chief Financial Officer - (00:31:16)

None. None, None.

Pete Skavitzki - Equity Analyst - (00:31:19)

Subs are pretty protected. Okay, and then just on the triple 7x delay shift to the right. Mike, I know you guys have a lot of content there. Any, any meaningful impact to your prior plan over the next few quarters from that delay?

Rob Sullivan - Vice President and Chief Financial Officer - (00:31:35)

No, it hasn't, hasn't been part of our plan at all. Just because, you know, the uncertainty of when that ship is, is going to be produced. So you just, you know, if it's, if it's produced sooner, it's. We'd call that plan insurance. Yeah.

Pete Skavitzki - Equity Analyst - (00:31:56)

Okay, last one for me. Just on, you know, Mike, your bullish comments earlier about gross margin expansion. Are you still within the framework of the kind of your typical 50 to 100 basis point annual goal or are you moving kind of beyond that organically, you know, and, or with the Vaco opportunity there? What's the right way to think about that?

Rob Sullivan - Vice President and Chief Financial Officer - (00:32:21)

Well, we ended last year, you know, at about 44, 4 for the full year. Our first two quarters this year, 45 4, 44 9. Obviously Vaco is, you know, a little bit lower than the rest. So that will impact the second half of the year to a certain degree. But organically we're right in line with that level of expansion. And even with Vaco, I think we're still going to be able to expand our margins year over year. So I think we're very pleased with where we are.

Pete Skavitzki - Equity Analyst - (00:32:53)

Okay, thanks guys. Thanks, Rob.

OPERATOR - (00:32:58)

Our next questions come from the line of Ron Epstein with Bank of America.

Ron Epstein - Equity Analyst - (00:33:01)

Please receive your questions. Yeah. Hey, good morning, guys. Has there been any impact from, you know, critical minerals, rare earths on what you guys do? And if there is, how are you mitigating it? No, we see no impact at all. I think we're, our products don't use it we saw more of an impact from the. From the availability of, you know, the more exotic stainless steels, which. That. That problem seems to have corrected itself. But that was a problem, you know, 12 months ago. That was a bigger problem. Gotcha. All right, good to know. And then if I could follow up. On that AI question, I found your answer fascinating. You know, being an engineer myself, you get that answer from Grok or whatever. What do you have to do to review it to actually trust it? You know what I mean? And then when you get to a point where you can trust it, does. This have an implication on the number.

Dr. Hartnett - (00:34:20)

Of engineers that you're going to need or. You know what I mean? It's just, how do you get confident that the AI is giving you something that's useful? Well, I, you know, I think. You know, I think when we. If we use that. The answer that I got for that tribal, logical coupling, you know, it came out with. It came out with suggestions that. That if we were thinking about it, we would come up with those answers. But it really, you know, it sort of. Sort of gave us a reminder that said, hey, you could do it this way, you could do it that way. There's three or four different ways to improve it. And did you think of these? And those were all sort of known and comfortable solutions for us. So it's sort of centered us a little bit and, you know, stimulated our thinking on the subject. So that was, you know, I think it's a place you start. It's sort of like when you're researching a company, you pull out a value line, and that's always the place you start. And then from that, you know, you say, well, that's an interesting company. Maybe I should dig a little further. So that's. That's how we're using AI right now. Yeah. Interesting. Interesting.

Ron Epstein - Equity Analyst - (00:35:50)

I mean, can you imagine a world where it's doing more than that for.

Dr. Hartnett - (00:35:53)

You, or is it just kind of how it goes? Yeah, well, you know, it's. It's funny because when we have our operations meetings, we'll have 30 people in the room and we'll be asked. Sometimes they get into, how do we solve this problem? How do we solve that problem? And everybody's going to AI and coming up with suggestions. And so it sort of feeds on itself. So you have three or four engineers that are using their phone to figure out how to solve a problem. All of a sudden you've got suggestions on the table that you wouldn't have had. You wouldn't have thought about it. That quickly. And so you know the old days of driving up to the university to go through the library, I mean that's over. Yeah, interesting. Well, thank you very much. Okay, Ron, thanks. Thank you.

OPERATOR - (00:36:57)

The next question is follow up from the line of Christine the Wag with Morgan Stanley. Please proceed with your question.

Christine Lewack - Equity Analyst - (00:37:04)

I mean, I guess with that comment, Dr. Hart, it sounds like you should pay for ChatGPT and just stop doing the free stuff for now.

Dr. Hartnett - (00:37:14)

Well, you know, I guess, I guess I tipped you off on how we manage expenses at rbc.

Christine Lewack - Equity Analyst - (00:37:26)

Well, great. So with that, I mean, look, you know, I think there's some pretty interesting themes going around and in this with AI and then you've got this full theme of embodied AI. And so I wanted to ask you a more, I don't know, a different question we haven't really discussed before. Like have you guys, how do you think about humanoids? You know, you're starting to see some pretty interesting machines out there, but right. Bearings are to machines as elbows and joints are to humans. How do you think of that world? Do you think that's a commoditized bearing or do you think that you have a role in something like that?

Dr. Hartnett - (00:38:07)

Well, you know, I think if you've been through some of our plants and there's a healthy amount of robotics that are sort of co robots with, you know, working beside a person who's doing work. Right. So as that technology proves itself, we will adopt it, there's no question about it. And so I think ultimately there'll be humanoids in the RBC plants doing what? I'm not sure, but it'll be, you know, it'll show up as a capital requisition at one of our ops meetings in the not too distant future and that's how it'll begin. Right now we're making use of liberally of robotic and non contact measurement technologies.

Christine Lewack - Equity Analyst - (00:39:13)

I see. Super helpful. So you see yourself more as a user. But I guess my question is more as a supplier to that industry, similar to as you're a supplier for a lot of those robotic systems. Is this a potential business opportunity for you as a supplier if that industry matures? Because I can imagine if you are using it for those kinds of industrial use cases, then quality and making sure the humanoid doesn't break down is going to be similar to the value that you add for other industrial applications where you're small dollar amount but you know, a critical portion for functionality.

Dr. Hartnett - (00:39:53)

Yeah, well, you know, I think, you know, today we supply bearings for robotics that are in some Pretty sophisticated applications where there's either high temperature or vacuum or a little bit of both, producing computer chips. And the way this always starts is somebody that's designing a robot, doesn't have any production volume and will go to one of our distributors and buy one of our bearings and use it in their prototype. And once it proves out and they start getting into production, they'll continue to use that distributor until production gets to a certain rate. And then they'll. They'll trace back to the manufacturer or we'll find out about it from our distributor, that this is an OEM that's using considerable amount of volume, and that's how all of these, every one of these markets is developed.

Christine Lewack - Equity Analyst - (00:40:57)

And do you see this as an exciting market?

Dr. Hartnett - (00:41:03)

You know, I really haven't thought that much about it. You know, I think Elon Musk thinks it's an exciting market because he thinks cars are less of an exciting market. Right. So he's going to turn Tesla into a humanoid robot machine. And I guess that works great.

Christine Lewack - Equity Analyst - (00:41:28)

Thank you. Maybe we'll spend another time talking more about that. But thank you for your. Your thoughts today.

Dr. Hartnett - (00:41:34)

Okay, thanks, Christy.

OPERATOR - (00:41:38)

Thank you. At this time, we've reached the end of our question and answer session. I'll turn the floor back to management for closing remarks.

Dr. Hartnett - (00:41:46)

Okay, well, I think that ends our conference call for today. I'd like to thank everybody for their participation, and I guess our job now is to go back to work and make the third quarter happen. So thanks again.

OPERATOR - (00:42:06)

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.