Good day, ladies and gentlemen. Thank you for standing by, and welcome to the RBC Bearings Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker host, Michael Cummings with Alpha IR. Please go ahead..

Good morning, and thank you for joining us for RBC Bearings fiscal 2022 second quarter earnings conference call. With me on the call today are Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer; Daniel A. Bergeron, Director, Vice President and Chief Operating Officer; and Robert Sullivan, Vice President and Chief Financial Officer.

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. Now I'll turn the call over to Dr. Hartnett..

Thank you, Mike, and good morning to all, and welcome to the second quarter fiscal 2022 conference call for RBC Bearings. Net sales for the second quarter of fiscal 2022 were $160.9 million versus $146.3 million for the same period last year, an increase of about 10%.

For the second quarter, sales of industrial products represented 48% of our net sales and aerospace products represented 52%. Adjusted gross margin for the quarter was $63.4 million or 39.4% of net sales. This compares to $58.6 million or 40% for the same period last year.

Adjusted operating income was $30.5 million, 19% of net sales compared to last year $29.9 million, 20.4% of net sales. Adjusted EBITDA was $45.4 million, 28.2% of net sales compared to $43.5 million and 29.8% of net sales for the same period last year. And we ended the quarter with $1,346 million of cash and $7.6 million of debt.

Demand from the industrial markets maintained an extremely strong performance during the period and showed increasing strength as the quarter ended with important markets gaining new strength towards the end of the period. Our industrial OEM business showed a year-to-year expansion of 31% over last year.

The industrial aftermarket continued to expand showing a gain of 26.4% over last year, while OEM expansion covered around 33.4% for the period. We saw demand ranging from excellent to extraordinary in most markets served, and we look forward to additional strengthening from some of these markets as we see for the balance of the year.

Relative to Dodge, their year-to-date performance was up 22.5% over last year and orders continue to outpace sales. We are expecting a good showing here and in our fourth quarter. Very happy on how their markets are performing and their manufacturing plants are keeping up with demand. Turning to the aerospace and defense markets.

They contracted 4.4% for the quarter. Defense showed a gain of 11% for the period, offset by OEM, which was off 7.7%. We are now seeing increases in orders shippable later in the year across all of our locations that service and supply both Boeing and Airbus as well as their subcontractors.

It appears that we are about to complete with the inventory hangover created by the abrupt halt of production on the MAX and are seeing a substantial pickup in our order book for commercial aircraft components for both major plane producers deliverable beginning in our fourth quarter.

In fact, backlog for this sector is up $50 million over last year, which is really a great sign. Our gross margins under more or less steady-state conditions would have – we would have expected margins to be a point or more higher. We are not operating, however, under steady-state conditions today.

In the second quarter, we added additional costs to the plants supporting commercial aircraft production in order to step up our capacity to support the demand, which we will see in early next calendar year. This created an overhead absorption variance degrading our margins slightly.

But it is what it is and it's something that we had to do in order to step up to support this additional demand that we see coming very quickly. Secondly, we've been adding staff to absorb the Dodge acquisition in order to support the services supplied by the previous owner, ABB.

And last, there was a variance on tax considerably impacting the effective rates that Rob will explain later in the call. Regarding the third quarter, we expect sales to be somewhere between $245 million and $250 million, and we are expecting a very strong fourth quarter with contributions from both the industrial and the aerospace markets.

I'll now turn the call over to Rob for more detail on the financial performance..

Thank you, Mike. Since Mike has already covered net sales and gross margin, I'll jump down to SG&A. SG&A for the second quarter of fiscal 2022 was $29.7 million compared to $26 million for the same period last year.

The increase was mainly due to higher personnel costs of $2.4 million, $1 million of additional share-based compensation and $300,000 of other items. As a percentage of net sales, SG&A was 18.4% for the second quarter of fiscal 2022 compared to 17.8% for the same period last year.

Other operating expense for the second quarter of fiscal 2022 was expense of $5.7 million compared to expense of $4.2 million for the same period last year.

For the second quarter of fiscal 2022, other operating expenses were comprised mainly of $2.8 million in amortization of intangible assets, $1.4 million of acquisition-related costs, $1.1 million of restructuring costs and related items and $400,000 of other items.

Other operating expense for the same period last year consisted mainly of $2.6 million in amortization of intangible assets, $1.5 million of restructuring costs and related items and $100,000 of other items. Operating income was $27.1 million for the second quarter compared to operating income of $26.4 million for the same period last year.

On an adjusted basis, operating income would have been $30.5 million for the second quarter of fiscal 2022 compared to adjusted operating income of $29.9 million for the second quarter last year. Income tax expense for the second quarter of fiscal 2022 was $4.7 million compared to $5.4 million for the same period last year.

The effective income tax rate for the second quarter was 40.5% compared to 20.9% for the same period last year. The rate in the second quarter was impacted significantly by approximately $1.9 million of discrete tax expense, primarily associated with the valuation allowance for capital loss carryforwards.

Further, in part as a result of the blackout associated with the acquisition of Dodge, benefit associated with stock compensation activity was approximately $100,000 during this past quarter compared to $400,000 last year and $2.1 million last quarter of fiscal 2022.

For the second quarter of fiscal 2022, the company reported net income of $6.9 million compared to net income of $20.4 million for the same period last year. On an adjusted basis, net income would have been $23.5 million for the second quarter of fiscal 2022 compared to adjusted net income of $23.2 million for the same period last year.

Net income available to common stockholders for the second quarter of fiscal 2022 was $6.4 million compared to $20.4 million for the same period last year. On an adjusted basis, net income available to common stockholders for the second quarter of fiscal 2022 was $23 million compared to $23.2 million for the same period last year.

Diluted earnings per share were $0.25 per share for the second quarter of fiscal 2022 compared to $0.82 per share for the same period last year. And on an adjusted basis, diluted EPS for the first quarter of fiscal 2022 was $0.89 per share compared to adjusted diluted EPS of $0.93 per share for the same period last year.

Excluding the impact of the additional shares issued for the offering of the common and preferred stock, adjusted diluted EPS would have been $0.92 per share compared to $0.93 per share for the same period last year. Turning to cash flow.

The company generated $40.2 million in cash from operating activities in the second quarter of fiscal 2022 compared to $26.1 million for the same period last year. Capital expenditures were $3.5 million in the second quarter of fiscal 2022 compared to $2.1 million for the same period last year.

Looking ahead, as we integrate Dodge into our business, there are a few things to keep in mind. In addition to the costs we continue to incur in our aerospace plants, as we look toward a recovery in that space, we will experience a certain amount of unusual and duplicate costs with the integration of Dodge for a period of time.

As detailed in the previously released Dodge financials, their margins historically run a bit lower than RBC's. They've also had a bit of an impact associated with inflation and material availability as most folks have in this environment. We are on track to achieve the margins we anticipated with legacy RBC.

However, the impact of integration, these other matters, I mentioned, will impact consolidated margins a bit, and lead to gross margins of roughly 35% to 36.5% in the coming period, which we expect to improve gradually incrementally from there. As we spend more time with the business, we'll have more information to share in future periods as we talk.

SG&A as a percentage of sales should improve with the expanded scale and move closer to the 17% to 18% point in the next quarter with a further improvement as we received the benefit of a full quarter of Dodge. Keep in mind, it's only been about 12 days since we closed, and we look forward to sharing more information with you when we talk next.

I would now like to turn the call back to the operator for the question-and-answer session..

Thank you. Now first question is coming from the line of Pete Skibitski with Alembic Global. Your line is open..

Hey. Good morning, guys..

Good morning, Pete..

Excuse the voice. So I guess, Rob touched on supply chain and maybe inflation at Dodge. The rest of RBC just isn't really seeing much in the way of supply chain problems because we've seen it really across the defense industry. But you guys aren't having the same problems that the rest of the industry is having.

Is that correct?.

Well, I would say that for RBC, the supply chain situation isn't perfect. We're scrambling to take care of business here. And by and large, we're being successful. It's really not having any material impact on us to date. We do have to do unusual things, but we do them and move on..

Okay. Fair enough.

And then Mike, just given – I mean, first half of the year here, industrial has been pretty torrid, any change to the individual markets in industrial that you're seeing a demand from?.

Yes. Well, of course, there's new demand coming from the oil and gas market, which was pretty much dormant for the last 24 months. I'll tell you, it's not dormant now. And so you get oil over $80 a barrel, and things start happening. And believe me, they're happening.

So we see a lot of the new demand coming in from oil and gas on our standard products that we've supplied over the years to those markets. And we're also seeing unusual demand coming from semiconductor. I would say the semiconductor space is definitely supply constrained, and that's really, really benefiting us right now.

So we're scrambling to service new customers in that whole region. So I think those are the two that come right to the top..

Okay.

Is it hard to find an area of weakness in industrial?.

Yes. It is..

Okay. And then maybe, Rob, can you give us a sense of the other line that includes amortization you started to include – well, I guess you did not include really the intangibles amortization from Dodge in 2Q.

But what should we expect that line to be kind of each quarter once the Dodge starts to be included?.

Yes. I mean – that's a great question, Pete. I mean, I think once you start to factor in Dodge, we're looking at total amortization per quarter of somewhere in the $17 million to $18 million, including RBC legacy. Obviously, we're still going through some of the purchase price allocation, so that could change a bit. But that's what we're looking today..

Okay. Got it. Okay. We'll add that back roughly in the cash flow, I guess. Okay. I'll add more, but I'll get back in queue. Thanks guys..

And our next question is coming from the line of Steve Barger with KeyBanc. Your line is open..

Hey. Good morning, guys..

Good morning, Steve..

Can we go back to the 35% to 36% gross margin for 3Q? I think you said there's some duplicate costs with the integration, some inflation, some availability. Can you kind of put that into buckets for us? And tell us how much of that is unusual versus operational? And then I think you said it will take a few quarters to catch up.

Any prospects or expectations for when that happens?.

Yes. As I mentioned, we're diving into the weeds with these guys, right. And they have had a bit more constraints on material availability, which will impact their ability to hit some of their higher margin parts in the next quarter. So that's probably taking a point or two away from them on their end.

And then the duplicate cost is just like any integration when you put two businesses together, right. You throw additional heads at additional resources. So those will last probably through the rest of the fiscal year as we stand this up. And then from there, the margins will start to incrementally grow.

It will take some time, but we're big believers in our ability to do so..

Just one comment on that, Steve, is that Dodge was a carve-out from ABB. So it wasn't standalone within ABB. So there's a lot of shared services. So over the next six to nine months, we have some transition service agreements to get through. And that's going to cause a little bit of duplication in cost, right.

We'll be paying ABB for using their systems as we're setting up new systems. And that's running about $1.6 million a month, so that is going to be $1.6 million a month duplicate.

But as were honed and setting up new systems, bringing the new people, we're still going to have the transition service agreements that we're trying to get out of in the next six to nine months to get Dodge standing fully on their own two feet..

Understood. Thanks for that clarification.

For the $245 million to $255 million in expected revenue for next quarter, how much of that is coming from Dodge?.

The range is – we have a range in for Dodge and we have range in for RBC. But for Dodge, we're using a center point of around $100 million. And just to remind, their third quarter acts just like RBC's third quarter, right. They have just the amount of – same amount of production days. So you have Christmas, you have the holidays.

So you know for us, that's always our worst quarter from a gross margin and topline sales because you just don't have enough production days. And then in the fourth quarter, you picked up those production days back. So it makes their fourth quarter so much stronger.

And they're right – they're going right, obviously, to our fiscal and year-end into 44.5. So they're going to be right on our production days calendar going forward effective November 1..

Right. But if I just use that $100 million number, that suggests that RBC legacy will be about $150 million, which is about $10 million down sequentially from what you just put up in 2Q. If I look back at the last few years, within a few million bucks rolls 3Q is pretty much in line with 2Q.

So it feels like that's a little bit of a bigger sequential decline.

Is there – how can I square that with the commentary just around robust end markets?.

Yes. So for Q3, I'd say this – the center point for RBC is around $153 million compared to last year of about $145 million or $146 million. So it's mainly going to be heavy again on industrial and a little softer in aerospace.

Even though we're getting a lot of activity, especially in backlog on aerospace, it's all going to start coming through in Q4, Q1 and Q2 of next year..

Okay. So even though aerospace has a really easy comp, I think it's negative 30% for last year.

Well, should we expect that aerospace is up double-digits in 3Q year-over-year?.

We'll have to get back to you because I just don't have that in front of me, Steve. I don't have them both broken out..

I think aerospace is probably going to see the same quarter Q3 that they saw in Q2. It's not going to be materially different in terms of sales for the simple reason that the lead time associated with producing these parts. We just can't get a maiden shift in that quarter.

So they're going to be making them, but they're going to be shipping them in the fourth quarter. So it's – what's planned for the third quarter is pretty much what we've ordered six to nine months ago, and that's just what's coming through now. And so that's just the way that whole clock work proceeds..

Understood. I will get back in line. Thanks..

Our next question is coming from the line of Michael Ciarmoli with Truist. Your line is open..

Hey. Good morning, guys. Thanks for taking the questions here. Maybe just to stay with aerospace, where Steve was going. Is there something different about your aerospace sales? I mean just looking at all of the peer companies selling into the OE market, we've seen pretty significant sequential growth, this reporting season from all of them.

And you guys – I guess, the revenues at the OE side, flattish and then maybe even more surprising, the aftermarket distribution down, which really runs contrary to the trends that we're seeing from the broader suppliers out there. So is there anything else you guys can point to? I mean we obviously know the widebodies have been down.

They've been weak. I don't know if you can give any color on where you are on MAX production.

We saw Boeing step up that rate, but it seems like you guys just aren't seeing it yet?.

We're seeing it in the backlog. We're seeing it in the order book, and we're seeing the schedules fill in, and they're pretty much filling in, in the fourth quarter. One of our plant managers recently made the statement, I hope we can make all this stuff. So yes, we are definitely seeing it there.

We are not seeing it so much from the aircraft aftermarket because for the most part, we don't do repairs. I mean we make parts for OEMs. We have a little bit of a repair shop, but it's very small. But we make parts for the OEMs and our aftermarket distributors are pretty much bearing specialists.

And they are in a – they're just starting to come alive now. Maybe they're a lagging indicator, but they're just starting to come back into the picture of significant business with us right now. And so that's just the way our markets work..

Okay. I mean, can you parse out the backlog maybe? I mean are you seeing orders? I mean presumably nothing wide-body related.

Do you have a good directional signal as to what – where the rates on the MAX are going to go? I mean – or is the order flow more skewed towards the 320 and the 220, where it seems like Airbus has better line of sight there?.

No. It's definitely the 320. We're seeing it there. We're bringing on new production programs to support the 320 that we haven't had before. So we're happy to see that. We're very much engaged with the LEAP engine. And so that's – I think, 60% of the 320 uses the LEAP engine. So we're happy to see that.

And then on the MAX side, yes, it's all about the MAX at Boeing, and we see the pickup in rates. For the most part, the way our business works, we think of it this way.

If Boeing is going to produce 40 planes a month in FY2023, and I'm just picking a number out of the year, I mean, I don't have anything other than using that as an example, but it's in that depot. We really have to start the bearing a year ahead of time. And that sounds crazy. But when you look at it, steel lead times are 26 to 30 weeks.

So we have to really make sure that if the steel on order probably takes three months to – so let's say, six months to get the materials, three months to produce the bearing. And then we get the bearing to the subcontractor. We assume that he needs it three months ahead of time to integrate it into his systems.

Maybe it's less, but we use three months as a rule of thumb. So we've already used a year. And then the subcontractor gets it to Boeing, and we assume Boeing needs three months to make it into an airplane. Maybe I'm wrong by three months somewhere, but I'm not wrong by more than that..

Got it. No, that's helpful. Maybe just one more and I'll get out of the way here. I think Pete asked about supply chain, and you kind of just mentioned ordering steel. And I mean, your inputs, I mean, can you give any more specifics on where lead times are? And then we've seen a number of the metal suppliers putting through surcharges, price increases.

What are you seeing on your pricing environment? Are you able to pass-through the pricing? Should we expect that to be a potential tailwind to margins as you reprice? Or how should we think about that?.

Well, that's an interesting question. It probably takes an hour to answer just because of the – we have two drastically different businesses here, one on the RBC side and one on the Dodge side.

And so on the Dodge side, the industry has announced a price increase to those industrial distributors of the – sort of the mid single-digit kind of level, which should take care of a lot of business in that regard. And on the RBC side, we normally have contracts where there's a pass-through in raw material and/or a PPI index.

And so that's typically how we try to manage this thing. And so it takes more vigilance than it used to take when there was no – none of this inflation going on to make sure that you're invoicing at the right rate. So it's just where the world is in November of 2021..

Got it. I’ll jump back in the queue. Thanks, guys..

We have a follow-up question from Pete Skibitski with Alembic Global. Your line is open..

Yes. Thanks, guys. Hey, guys, is there a cost that you have in mind to conduct the Dodge integration? A lot of times when we've seen these companies have kind of an upfront cost before the savings kind of roll through later on down the line. So I'm just wondering if you guys have a cost in mind.

And I guess you would adjust that out in the adjusted results.

And do you have kind of a completed plan at this point? Or is it still a work in process?.

Well, I think Dan alluded to the transition services agreement of the $1.6 million there, which is going to cover a lot of the – just the blocking and tackling as we build those businesses together.

Outside of that, there's some assistance from some outside vendors on certain processes, but they're – and we will continue to track those, but it won't be – we don't have anything significant to tell you about today. By the end of next quarter, we'll have two months of Dodge under our belt.

So we'll be in a lot better position to tell you which of those costs are recurrent and which are just going to be transition or one-time costs that are impacting the business that will go away over a period of six to nine months..

That's fair enough. Fair enough, guys. Look forward to it. And then just on the accounting, Rob, you and I have talked about this briefly previously, but you're expecting is about $5 million in preferred dividends each quarter or the stock where it is.

Are we over the MAX price right now and they'll start to convert? Can you just clarify that?.

Sure. Yes. So it’s 22.5% step-up from the 185 that you have to track. The dividend should be about $5.8 million a quarter, just based on the liquidation value of the original securities of 100 and the number of shares issued at 5%. So then each quarter, you'll do the if-converted calculation to assess which is more dilutive and report on that.

This quarter, the effect of the dividend is more dilutive. And I would expect next quarter, it should be the same thing. The dividend should be the method for calculating EPS..

Okay.

And what rate did you guys end up getting on a term loan?.

It's LIBOR plus a specified margin, and the margin currently is 1.75%. The LIBOR is 1 and 15..

Yes. Exactly..

Yes. Okay. Great. Last one for me. I mean, another great quarter of free cash flow. The working capital management, it looks like it's been really strong.

Should working capital kind of reverse the back half of the year? Or how do we think about that kind of headwind in the back half just given – I mean, free cash conversion was exceedingly high in the first half of the year..

I think there'll be a weaker Q3 and a stronger Q4 because we're definitely investing and working in WIP and in raw material and in a little bit of labor.

And that will get used up in this quarter to manufacture finished goods that we hope are shipping in Q4 and early in Q4, so that we start seeing some of the impact to those collections by the end of Q4..

Okay. Great. Thanks, guys..

Our next question is coming from the line of Steve Barger with KeyBanc. Your line is open..

Hey, thanks.

Is that 17% to 18% SG&A rate good for 4Q as well? Or will there be some leverage on that given the bigger topline?.

Yes. No, that's a great question, Steve. I'm glad you asked it. Keep in mind, we only have two months of Dodge. So we haven't realized the full benefit of the scope of Dodge coming in and diluting the SG&A percentage. So I expect it will improve in the fourth quarter..

Okay.

By like 100 basis points? Or any way to just think about that for modeling?.

I think that's probably right. I think closer to the 16% to 17%, it should fall in there..

Got you. And I know it's really early days, but cross-selling, I think, was a nice part of this as you integrate the bigger Dodge sales force.

Any time line on the cross-selling opportunity? Realistically, how long does it take to get them aligned to the broader product set?.

Well, I'd say right now, we're trying to hold them back. Everybody wants to sell everybody else's product right now. It's the Wild West. So we've been saying, listen, let us decide how to organize this so that – because compensation programs are – everything is different between the two companies.

And so all that's got to be sort of true before we can – but it's – look, we're going to pick up a 35 man selling force in Canada, and we have two guys in Canada, and we just hired one. So now we're taking two. So now we have 37.

So we got 37 salespeople in Canada and customer service people and management people in Canada supporting a pretty sizable amount of revenue. And they're in places that I don't even know how to pronounce the name of some of these towns.

So in Canada, it's just one country of four or five that it's the biggest, but it's one country of four or five that are represented like that and selling our product to those other areas is going to be very productive.

As a matter of fact, the Canadians are coming here as far as I know, Thanksgiving week, so that we can have a little poll on how to organize this..

Good. And well, and I guess to that point, the backlog is at 4.57, a nice increase year-over-year, and that's at the quarter end.

What is that now including Dodge?.

Well, Dodge doesn't have much of a backlog, and they never will. And when they're running right, what they consider right, their backlog is like $10 million. I think right now....

Right. Just more book and ship..

Yes, they're a book and ship company, and it's really astounding the way they can manage their mix to be able to support a broad industrial customer base with a very broad mix and do it so efficiently every day. I think right now, the backlog is – if I had to project it would be somewhere between $35 million and $50 million..

Okay. And just last question, Mike, you've always been really good at working at Pareto list and trying to find the biggest areas of waste in an organization. Any initial thoughts on what you go after first? Where the big pockets of opportunity are? And again, I know its 12 days in, but you always have good insights on that..

It's a big company, and I'm still walking the plants and talking to the folks and looking at the reports and in making my assessment of where the low-hanging fruit is. And I'm just not there yet.

But I'm going to move my office so that it's 50% in Greenville, so that I can get a lot closer to the Dodge business and understand what we can do to improve it..

Got it. And actually one last one.

Tax rate for 3Q and 4Q, where should that run?.

Yes. So we're still assessing the impact of Dodge. They have a footprint a little bit more – a few more states than RBC, so that will kind of have an impact. But I think our full-year rate excluding the discrete items of that 24-ish percent is probably a good bellwether, 24%, 25%..

Okay..

No. Remember, that excludes any impact from stock comp. And we will still be in a blackout for the coming quarter, but eventually that will come off and so you'll start to see those things come through..

Got it. Thanks..

Our next question is coming from the line of Michael Ciarmoli with Truist Securities. Your line is open..

Hey, guys. Thanks for taking the follow-up. Mike, maybe on supply chain. I think when you made the Dodge announcement, you've talked about $200 million of supply chain that has the potential to be sourced internally from RBC.

Does the current environment assuming Dodge is seeing stretch lead time, seeing their suppliers increased prices, but does this environment help you accelerate the realization of that $200 million in supply chain savings?.

I hope it does. I think it's – right now, I think it's going to be a little difficult to get their attention on that, even though they work for me because they're so busy chasing their suppliers. There's nobody left to work on my synergy projects. But yes, it looks like it's going to be manageable, and we'll find a way to shoehorn that in..

Okay. And then something that hasn't come up, just defense. Can you – we've talked a lot about commercial aerospace and the trends there. Assuming you've got exposure to the F-35, those rates are coming down. It looks like the defense sector is seeing the range of either legacy program cuts, supply chain tightness.

Has your outlook changed for defense at all? Or any programs that you're seeing that have turned into headwinds or conversely, anything seeing a pickup there?.

Well, I would say the – our major OEM programs in the defense sector, we're definitely on the right platforms. So if you look at the marine side of the business, where it's still the number one defense priority. So as far as I know, is making submarines, right. So I mean, we're strong there and sort of getting stronger.

And we're up considerably on the submarine business, and we should even be up more than we are today. And we're a little bit constrained by production activities in marine, which kind of nipped our second quarter topline and our margins a bit in the quarter, but it is what it is. And I mean, these guys are up substantially from last year.

So that program is solid. We have the F-35, yes, it maybe backing off a little bit, but I don't think we're going to miss it. We have a lot of the platforms at Sikorsky, which are important long-term. And we have important weapon systems platforms that really form a good backbone for what we're doing and what we supply.

And those according to the people that we speak to and buy these things, they're always discussing multiyear contracts with us going out several years. So on that side of the house, it looks fine. On the spares side of the house, where they're just replacing parts for equipment that they're using in the field, that's down a bit.

And I think it's down a bit. My theory on that is that we're not working hard enough to – in that sector inside of RBC to attract more business because they still spend a lot of money replacing parts. And we're tooling up our government parts organization to strengthen it and to get a little bit deeper into the spare side..

Got it. Helpful. All right. Thanks, guys..

I'm showing no further questions at this time. I would now like to turn the call back over to Dr. Hartnett for any closing remarks..

Okay. Well, that completes our conference call for the second quarter of fiscal 2022, and I appreciate everybody participating and all the good questions. And thanks for your interest in RBC Bearings. And we will – I'm sure we'll speak more in February. Good day..

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect..