RBC Bearings Inc (RBC) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the RBC Bearings third quarter 2007 earnings conference call

[OPERATOR INSTRUCTIONS]

I would now like to turn the call over to your host for today's call, Ms. Lauren Murphy with Ashton Partners. Please proceed.

Thank you. Good morning, everyone, and thanks for joining us today for the RBC Bearings third quarter 2007 earnings conference call. On the call today will be Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer, and Daniel A. Bergeron, Vice President and Chief Financial Officer.

Before beginning today's call, I must preface all comments with a Safe Harbor statement. Some of the comments 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 all of 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 conditions. These factors are also described in greater detail in today's press release and on the company's website at www.rbcbearings.com.

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'd like to turn the call over to Dr. Hartnett.

Thank you, Lauren. And I would like to add my welcome to each of you and thank you for taking the time this morning to listen to the conference call. We appreciate your continued interest in RBC Bearings. Today we are going to follow the same format that we've done in the past. Dan Bergeron and I will be sharing the duties. I'll go through some highlights of the quarter and Dan will go into the details and accounting treatments on specific points.

This morning we released the third quarter results and I hope you've had an opportunity to look at them. For those of you who haven't, let me give you some highlights.

Sales for the quarter were $76.5 million, which was up 13.6% from the comparable period last year. Excluding the participation in a Class A truck product, our sales growth for the quarter was up 20%. Gross margin improved 20.5% to $24.5 million from $20.4 million in the third quarter of '06. Gross margin as a percent of sales for the quarter was 32.1%.

Operating income increased 32.9% on a GAAP basis and 27.5% on an adjusted basis year-over-year. Net income was $9.4 million or $0.44 a diluted share, as compared to $5.1 million or $0.29 a diluted share last year.

Our net debt ending December '06 was $59.2 million, which equates to a leveraged ratio of EBITDA to debt on a trailing 12-month basis of about 0.9 times. Our backlog increased to 178.1 million. Last year's was 152.6 million at this point in the year. Operating cash flow for the nine months totaled $42.2 million.

Obviously, we're pleased with our results this period and feel the company has made very good momentum as we move into the last fiscal quarter.

We feel that the economic performance in the third quarter, where the GDP growth was 3.5%, or 5.8% when the influence of housing and auto was removed, will continue for most of our markets. In fact, we've just finished about three days of meetings with our industrial sales force, roughly 70 people, internal and external in the company, working on the industrial markets, and the outlook was generally very favorable. Further, the tremendous expansion of Boeing and Airbus order book, where the dollar value of sold planes in the backlog now are multiples of their annual sales, means good things for our business development and performance for the foreseeable future.

The company is making progress on increasing its position in both aerospace and industrial markets through account expansion and new product introductions. We are working to close several important initiatives in this regard now and I'll be in a better position to discuss these in future calls. Both operationally and strategically, we are tracking to the plan that we set for the year a year ago. In fact, it looks like we'll complete the year considerably ahead of our management plan.

Given the above and knowing that $625 billion will be spent on defense during the 12-month period which ends September 30, '07, a first look at our fiscal year '08 shows a solid continuation of the momentum created in fiscal '07.

Our management, manufacturing and sales teams understand the importance of providing a high level of service and assurance to our customers in these very busy times. And I want to personally thank these people who work at RBC and are listening to this call today for their continued hard work and dedication to our customers.

During the quarter, we continued to see heightened demand for our products, particularly those in the aerospace and defense sectors, which exceeded our expectations and, again, we exceeded our guidance. The demand for our products from the commercial aircraft market was stronger than we projected a few months ago. Hence, there were requirements, similar to last year, to supply product earlier than planned to some customers.

Again this year, some products planned for shipment in the fourth quarter were shipped upon customer request in the third quarter. Please remember this point when we discuss our fourth quarter guidance later, where this factor is reflected.

We normalize for the Class A market influence. RBC's industrial businesses showed a year-to-date sales growth which slightly exceeded one times GDP for the quarter and approximately two times GDP year-to-date. Our goal for this metric is two times GDP, so on a quarter-to-date measure, we're on track -- so on a year-to-date measure, we're on track. We expect some new products and account initiatives to provide additional growth in this area in the period ahead.

Our industrial distribution sales grew this quarter by more than 14% on a year-to-year measure when normalized for the Class A truck volumes. This sector led the industrial products group in terms of growth both here and in Europe. In Europe, we saw considerable demand and pricing improvement for our machine tool products, which are widely used in production tooling in the Swiss machine tool and watch industries.

Our industrial OEM business was flat this quarter when measured on a year-to-year basis when the influence of the Class A business is removed. I think the underlying market demand for these products is stronger than demonstrated, however, the manufacturer of heavy equipment and the construction and mining industries was restricted because the producers were unable to obtain necessary components to support their manufacturing objectives and, therefore, needed fewer bearings.

To a lesser extent, our OEM business was also limited because manufacturing capacity was prioritized away from lower margin products and the industrial offering in order to support the demand for products sold to the aircraft and defense industries.

Aerospace and defense were really big winners in our lineup this period, expanding 36% on a year-to-year rate comparison basis. Consolidated sales growth was 19% year-over-year when normalized for the effect of the Class A truck volume.

With regard to our internal measures and initiatives, we continue to make good progress expanding profit margins. In fact, our gross margins exceeded 190 basis points on a quarter-to-quarter measure and we see the trend continuing. On a year-to-date basis, gross margins are up approximately 160 basis points.

Our progress on managing working capital was also very good and we produced over $42 million of cash flow from operations during the first nine months.

As we discussed in prior calls, we are deriving greater revenues from our aerospace-defense offering and, consequently, we are strengthening our sales, marketing and manufacturing infrastructure to support these increased demands. To some extent, the strength of our aerospace business is redirecting resources from other areas. During the quarter, 48% of our revenues came from the industrial side and 52% from the aerospace-defense side. This is the reverse of the situation that existed in the second quarter of our fiscal '07.

The influence on financial results of this continued blend from industrial towards aerospace-defense, combined with our efficiency improvements and pricing initiatives, should be the achievement of our target operating margins, which we would like to see in the 20% neighborhood. This is one of our operating goals. Actual adjusted operating income was 18.1% of sales for the period and 18.7% of sales on a GAAP basis.

Our strategy, which is to focus on product development and improve our channel penetration across end markets, where we feel there are promising growth opportunities, is working well. Our engineering talents and overall service levels continue to differentiate us in the marketplace. These characteristics continue to enable us to further solidify our customer relationships, where we are considered a trusted business partner.

Let's talk a little bit about our tapered roller bearing Class A manufacturing operations. As we discussed in the last conference call, it is our intention to consolidate assets of our business that are directed towards the Class A truck market and eliminate redundant manufacturing capacity. Our timing was to wait until market demand for these products was at its nadir. Well, the time has come. In the fourth quarter, we will cease manufacturing activity in our Glasgow, Kentucky plant and liquidate the assets. The manufacturing responsibility for the Class A product has already been assigned to other RBC plants, which are, for the most part, tooled for these products.

As a result, we will take a pre-tax one-time charge to operating income of approximately $5 million in our fourth quarter. The charge is half cash and half balance sheet adjustment, the derivation of which will be explained by Dan later in this call.

The cash portion of the charge is more than offset by the sale of excess real estate in Kulpsville, Pennsylvania, which was made redundant as a result of another plant consolidation last year. That sale generated approximately $3.5 million net and was also completed during our third quarter.

That's a quick recap of our quarter and I'm now going to ask Dan to review the financials.

Thanks, Mike. As Mike has just mentioned, in December, the company completed the sale of the Nice bearings facility in Kulpsville, Pennsylvania. The building and land was sold for approximately $3.9 million gross, $3.5 million net, and the company realized a gain on the sale of approximately $800,000 before tax.

Also in December, the company received approximately $1.2 million in payments under the U.S. Continued Dumping and Subsidy Offset Act for 2006, also referred to as the CDSOA, and this payment has been classified below operating income in other non-operating expense/income on the consolidated statement of operations.

Net sales for the third quarter fiscal 2007 were $76.5 million, an increase of 13.6% from $67.4 million for the comparable period last year. Net sales for the third quarter fiscal 2007, up $76.5 million, exceeded the company's quarterly guidance range of $72 million to $75 million.

Net sales to the aerospace and defense customers increased 36% in the third quarter fiscal 2007 compared to the same period last year and net sales to our core industrial markets of construction, mining, semiconductor, capital equipment, general industrial and industrial distribution, were up 3.6%, offset by a decrease in the year-over-year volume in the Class A truck aftermarket. These end OEM result in an overall decrease of 3.7% for the diversified industrial group in the third quarter fiscal 2007.

Gross margin for the third quarter fiscal 2007 was $24.5 million, an increase of 20.5% from $20.4 million for the comparable period in fiscal 2006. As a percentage of net sales, gross margin was 32.1% for the third quarter fiscal 2007 compared to 30.2% for the same period last year. This margin improvement was mainly driven by manufacturing efficiencies, volume and product mix, and continued cost control.

In the third quarter earnings press release, I included a reconciliation of operating income, net income and diluted earnings per share for the fiscal year and last year and for the quarters, which excludes certain special items, charges and gains for comparison purposes. You can find this reconciliation on our website and also attached to the earnings press release that was put out first thing this morning.

So the rest of my comments on SG&A, operating income, net income and diluted earnings per share will exclude the impact of these special items, charges and gains.

The SG&A for third quarter fiscal 2007 was $10.5 million compared to $9.1 million for the same period last year. As a percentage of sales, SG&A was 13.7% for the third quarter fiscal 2007 compared to 13.6% for the same period last year.

For the first nine months of fiscal 2007, SG&A is running at 13.5% of net sales, which is on target to our internal plan of full-year expectations.

Operating income was $13.8 million for the third quarter fiscal 2007 compared to operating income of $10.9 million for the same period in fiscal 2006. Our operating income for the third quarter fiscal 2007 of $13.8 million exceeded the company's quarterly guidance range of $12 million to $13 million.

As a percentage of net sales, operating income was 18.1% for the third quarter fiscal 2007 compared to 16.1% for the same period last year.

Interest expense net for the third quarter fiscal 2007 was $1.2 million, a decrease of $1.8 million from $3 million from the same period last year. This decrease is mainly due to the reduction of debt from the proceeds in the secondary offering and the continued debt reduction from free cash flow.

For the third quarter fiscal 2007, the company reported net income of $8.2 million compared to net income of $5.1 million for the same period last year. This is a 60% increase year-over-year. Diluted earnings per share was $0.38 for third quarter fiscal 2007 compared to $0.29 per share for the same period last year, an increase of 31%.

Cash provided by operating activities for the third quarter fiscal 2007 was $14.8 million compared to $9.9 million for the same period last year. The company continues to drive down the working capital it needs to run the business. Our CapEx for the third quarter fiscal 2007 was $3.4 million compared to $1.9 million for the same period last year.

In the third quarter of fiscal 2007, the company used approximately $14 million of cash to pay down debt. Total debt minus cash on hand for the period ended December 30, 2006 was $59.2 million compared to $158.7 million for the same period last year. Cash on hand for the period ended December 30, 2006 is $13.5 million compared to $10.3 million for the same period last year.

In January, the company bought back approximately 26,000 shares of our stock at an average price per share of $26.38.

Now, for the fourth quarter, as Mike has already mentioned, the company has begun the consolidation of its tapered bearing manufacturing capacity. The consolidation will result in a charge in Q4 of approximately $5 million, of which $2.5 million will be associated to impairment of assets. Once the consolidation is complete, the company anticipates an improvement in gross margin for this product line from a negative to a positive result over the next 12 months.

As Mike has already mentioned, the cash impact of this action has been more than covered by some cash proceeds from the sale of our Nice facility and the payment we received from the CDSOA.

Next, Mike is going to give you the guidance for the fourth quarter. So keep in mind the guidance for operating income excludes this $5 million charge. So I'm going to turn it back to you, Mike.

Thanks, Dan. Now, I would like to give you guidance for our fourth quarter and full year. We expect sales to be in the range of $78 million to $80 million in the fourth quarter, operating income to be between $13.5 million and $14.5 million, and this will bring the full year to approximately $305 million in sales and produce a total operating income of $53 million to $55 million.

This is a sales and EBITDA increase of approximately 11% to 12% and 23% to 25% on a year-to-year basis, respectively.

I'd like now to turn the call back to the operator and answer any questions you might have.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Walt Liptak of Barrington. Please proceed.

Thanks. Good morning, gentlemen, and congratulations.

Thank you.

My first question is on the truck business. I wonder if you could tell us, it seems like that business has turned down early, because most of the truck OEMs are still building at a pretty rapid rate and I guess the lead times are in advance of the OEM production. I wonder if you can tell me what the revenue decline is for your truck-related business.

And with the restructuring that's going on, '08-'09 are expected to be pretty good years for heavy-duty truck. Can you ramp back up with the restructured business to the same revenue level?

Well, you had two questions. One is the revenue decline.

Yes.

I'm trying to give you the right number here, 4.4 million year-to-date and the quarter was 2.5 million.

Okay. What is the base?

The base is roughly $20 million. It swings back and forth around $20 million.

And following the consolidation, can you ramp back up and what's your capacity level going to be?

Yes, we won't have any trouble getting to those new levels, the previous levels. The capacity is certainly going to be in place to do that. I think the reason that we're coming down early is our business is primarily aftermarket and the aftermarket, the way it works, dries up a little bit earlier in the cycle because of the way suppliers -- the way that business was supplied during the period.

It went from a shortage situation and when you have a shortage situation, the aftermarket runs in there, buys bearings and tries to cover the shortage and make some money covering it and, inevitably, too much inventory gets pushed into the situation when that happens and now there isn't a shortage situation. So there's liquidations of inventory going on in the aftermarket and they don't need bearings from us.

So, yes, we'll be able to get back up to those levels. Given the situation in some of the construction and mining markets, we'll probably redirect some of that capacity into the construction and mining markets and be a little bit more -- and phase down the exposure in the Class H business over time.

And then if I can ask another question about the pull-forward. We've been talking about this for a number of quarters now and it seems like the aerospace customers and the aerospace supply chain continues to pull in production from the quarter out and bring it in. What does the visibility look like for the March quarter? Your revenue number looks conservative. How much pull-forward are you expecting in the March quarter? Is there something that you're seeing in the supply chain that suggests that there won't be a pull-forward next quarter?

Well, I think the pull-forward in the third quarter was mainly in the aerospace and defense businesses and, to me, it's given the lead times and the complexity of some of those products, it's a little remarkable to me that the manufacturing operations were able to respond the way they did. And having completed January, I would say that some of those manufacturing operations are again exceeding their January plan by shipping more product than we expected to see. So there will probably be some upside in the fourth quarter and to the extent -- I hesitate to predict it.

Okay. I understand. Thank you.

Your next question comes from the line of Andrew Obin of Merrill Lynch. Please proceed.

Yes, good morning, gentlemen.

Good morning, Andrew.

Probably a more, sort of top-down kind of question. It seems that the company is starting to generate very strong cash flows. Because of the secondary that you guys did, there's not a lot of leverage on the balance sheet and my model sort of shows that you guys will have virtually no net debt by the end of the year, like in 12 months.

The question I have, A, how do you guys think about acquisitions in the current environment and, B, in that absence of acquisitions, how do you guys think about your capital redeployment strategy going forward, given that the company is generating very robust cash flows?

Well, I think on the acquisition side, we continue to look at businesses, Andrew, and we're very active. We're looking for things that align with our markets, maybe new products, old customers kind of an approach, no new products, new customers approach at all. So there are candidates out there and they vary in size and given some of the candidates that we're looking at, they would be a significant addition to our business.

How big an acquisition would you consider at this point, if you're willing to talk about it? If not, it's obviously--

I think depending upon pricing and fit, we would probably be comfortable with something in the revenue range of as much as $100 million. We'll probably do a small acquisition this quarter, which we'll be talking about, I think, on the next conference call, which is much smaller than that, but is an expansion of our skill base and helps us get into some of the markets that we feel that there are good growth potentials in the industrial side of the world.

And what about capital redeployment, other than acquisition, dividends, more extensive share buybacks? How -- do you have a target capital structure or you will just continue to be very opportunistic and conservative?

We'll be conservative and having run a business with leverage of seven times EBITDA for some period over the last 15 years, we're enjoying the sunshine.

So no immediate plans for sort of getting cash back to shareholders, just continuing with the old strategy.

Right, no immediate plans.

Thank you very much.

Your next question comes from the line of Steve Barger of Keybanc Capital Markets. Please proceed.

Good morning.

Good morning, Steve.

Good morning.

You talked about some of the aerospace strength on a year-over-year basis and quarter-over-quarter, but can you talk about the growth in the backlog, OEM versus aftermarket, and maybe also talk about what you're seeing from construction and mining, given some of the constraints in their manufacturing chain?

Usually, the growth in our backlog is a result of OEM business, Steve. The distribution business tends to be pretty short cycle. We've just never really pulled the backlog apart and looked at how much of it was OEM and how much of it was distribution, but typically the distribution. But typically the distribution business is a standard products business where you'll often have that product available for immediate sale.

Okay.

And the second part of question was?

Construction and mining. You talked about some manufacturing constraints. How are you seeing the backlog grow there?

Well, the backlog there, we're talking to all of our construction and mining people now and there are serious constraints with every single one of them relative to the hardware that they can get to build these large trucks and large earth-moving pieces of equipment. So we're seeing our backlog there sort of at a reasonable steady state with our shipments and until the big guys in this space solve their constraint problems, we're probably going to be there for a while.

Now, having said that, we're also talking to them about some of those constraint problems are bearings. So we're actively working with them to solve some of the bearing constraint problems that exist on sizes that we hadn't previously produced.

On the non-bearing issues, have they talked about timing for when they can resolve that or is that an unknown for them?

If they have any clear measure, it hasn't been communicated to us.

Okay. So can I just shift to the pricing environment and maybe can you discuss your ability to get price as compared to last year at this time or maybe even one quarter ago? Is your sales force seeing any significant changes with respect to what customers are saying?

No. I would say that pricing has -- a few quarters ago, we were into this how do we manage the cost effect of material increases.

Right.

And so we found that the customer base was very understand with regard to what we had to pass through. And I would say that that situation now is normal. There are some unusual material things going on in the high alloy sector which sort of are an exception to the rule, but I would say that the pricing environment is normal and people are accepting modest increases in prices.

Okay. And one last one. Can you talk about the Allpower contribution for the quarter? Is the integration there ahead of schedule and what is the basic outlook there?

I'll let Dan do that.

The contribution for the quarter was around $3 million, but we're integrating there and the integration is going well. So we're starting to get blended now of their products and our products and putting additional capacity in there. So from an organic standpoint, I'd say, for the quarter, we are probably at a growth of around 9% or even a little north of that and year-to-date around 11% or 12%.

But it's going fine right now. We're still in the early stages of pulling them into our business strategy, but right now we're happy with the progress that's been made.

All right, thanks.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of [John Hoffhalter] of Robert Baird. Please proceed.

I just have two questions for you really. First, can you talk about the antidumping that you received, the $1.2 million? And something like that, have you filed for further kind of offsets there?

My understanding from our lawyers, I'm not an expert at it, is that we will qualify again next year for attainment. It's impossible for us to tell what the dollar value of that will be. And then the years after that, it will slowly, but surely start to go down until it gets to zero.

And is that in your kind of Class A tapered roller bearings where you would be receiving that?

No, it's in ball bearings.

And then could you just talk kind of on the acquisition terms? Are you still seeing pricing being reasonable? I mean, something we've kind of been impressed with over the last year, year and a half, is just your ability to buy stuff at really pretty attractive valuations. Is that still the case?

Well, it depends upon scale and I think the smaller ones are more reasonably priced and the larger ones that attract private equity become unreasonably priced. So it's very scale-dependent and, yes, we are seeing small deals that are interesting to us and are synergistic with our markets and our skills, accretive to our earnings, that are reasonably affordable.

Okay, thank you.

Your next question comes from the line of Marty Pollack of NWQ Investment Management. Please proceed.

I wonder if you could just address a couple of items. One, that facility consolidation, what did you say was the potential expense savings there next year? I don't know if you've given a number on that.

What is the net savings?

Yes.

It's probably $4 million or $5 million a year when we're at a steady state rate. There's startup expenses in a new plant and there's training people and that sort of thing. But we certainly wouldn't do it for nothing.

Would the full benefit accrue more to '08 as opposed to '07, I mean the full run rate benefit?

I think the full run rate benefit will probably accrue to '09.

Just regarding your comments, overall target 20% margin, as you look at the business the last two or three years, with your margins, did you see the band of sort of the margins? Has it shifted forward, upwards, to the extent that I guess if the market does soften, if you had the market soften, the kind of incremental margins you've been seeing are going to be more difficult to achieve, in fact.

What would be the decrement to margins on the way down? Is there anything that the company has positioned itself to in terms of variable cost structure versus fixed to cushion that?

Well, I think, fortunately, we're into markets on the commercial aircraft and certainly the defense side that looks like they have many years to run. And given that and given the fact that once you start producing these products, your efficiency of production improves because your techniques improve, your methods improve, your ability to procure materials at a reasonable price improves, and sometimes you look at alternative manufacturing sites where the overall cost structure is better.

So a lot of this is getting the products into your shop and then looking at the performance cost structure and identifying ways to improve it. So given the fact that we have some markets with some really good legs, I think we're in pretty good position to continue to expand.

Now, on the cost side management of this, given our history in terms of coming from a leveraged business, we haven't taken any of the systems that we had in place to manage cash and costs out of place. So we actually had systems in place where we could tell where each dollar was going for the next six months and we haven't disabled any of those processes and we still use them to run the company.

So we're very focused on the cost side of our business and the cash management side of our business to make sure that we know how to pull the cost structure apart if and when the time it is needed.

The sales breakdown, as you define it, roller, plane, ball bearing and different sales trends there, I'm just wondering if you can sort of, just for a minute, review the end market exposures, how they've effectively impacting the shift of those markets and what do you see as the outlook going forward?

Well, I'll let Dan take that one.

Well, actually, Marty, it's kind of hard for us to answer it, because the way the product is broken down on a segment basis, it goes across all of our different markets. So I think if you looked at the sales numbers that we provided in the press release for the different segments, you can see the for the quarter and year-to-date, the roller bearing segment is down and that's mainly driven by Class A truck, the tapered bearings, which are classified as roller.

But for plane bearings, the plane bearings go across to all of our product lines, aerospace, defense, industrial, construction, and so it's really hard for us to try to pinpoint that question for you and give you a good answer.

I'm thinking more it's the mix volumes, I effectively expected that answer. As you look forward, though, again, when these end markets, end market influence and where some of these bearings are more of a factor than others, what should we be thinking about that breakdown? Clearly, with the Class A truck, a market is probably getting into a significant slowdown here in terms of builds. Is that number going to get much lower into next year or this year, effectively?

Well, it's going to get lower and then, hopefully, by the beginning of FY-'09, when the truck build picks up again, we should see that number starting to pick up. We're definitely going to see the growth in the business in the plane bearing segment and the ball bearing segment and, as Mike had mentioned, in our other segment is where our, call it, tool machine business is in Europe and that's been seeing some nice growth over this year and we expect that to continue.

Last question. The mix, 52% is aerospace versus 48% industrial. The way the trends are shaping up, do you expect -- just what would you be looking for sort of there vis-à-vis exposure, relative exposures to [PCAT]? It seems aerospace has got certainly more momentum at the moment. How far could that exposure take you in terms of mix?

I think we're sort of approaching it and it will maybe go to 55/45 in favor of defense-aerospace, but we have a lot of growth going on in that sector which is growing much stronger than the industrial sector. But having spent the last three days with our industrial folks, we have some very interesting projects underway. So I would think that we'd probably bottom out around 55/45.

I'm sorry, one last question. With regard to organic growth, I'm not sure that you guys discussed that much. But is there some number that you're, in a sense, saying -- I think you said clearly versus GDP, you're, I think, two times the growth overall. Is there some nominal organic growth that you're kind of looking at and thinking that the company's able to achieve on an ongoing basis?

I think what we've tried to set there, Marty, is a two times GDP kind of growth rate for the industrial sector and knowing that the aircraft-defense is probably more like in the mid teens to upper teens and a blended rate in sort of the low double digits. That's pretty much the way the year looks like it's going to come out.

Thanks so much.

You have a follow-up question from the line of Steve Barger of Keybanc Capital Markets. Please proceed.

Gentlemen, a few months ago, Boeing bought one of their former vendors who provided OEM parts and aftermarket services. Not to spring a kind of conceptual question on you, but does their move back there in the supply chain like that have any consequences for you, threats or opportunities, or how do you think about that?

Who did they buy? Remind me.

It's called Aviall.

Yes, Aviall, okay. Well, in that particular case, Aviall is in a business that is not at all aligned with what we do. They service sort of the APU market and other markets like that and we don't have any business or much business in that sector.

So that didn't have a big effect. Now, if Boeing continues to buy into the aftermarket parts people, we would have to see how that works. But our relationship with Boeing, I would classify it as wonderful and I think it would just help us if Boeing needed more bearings from us in companies that they consolidated.

All right, thanks.

This concludes the Q-and-A session. I would like to now turn it over to Dr. Hartnett for closing remarks. Please proceed.

Well, I would like to thank everybody for their interest today in RBC Bearings. And we'll go back to work making our bearings and look forward to speaking again at our next call. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.