RBC Bearings Q4 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Josh Carroll with Investor Relations. Please go ahead. Thank you, operator. Good morning. Thank you for joining us for RBC Bearings Fiscal 2023 Q4 Earnings Conference all. With me on the call today are Dr. Michael Hartnett, Chairman, President, and Chief Executive Officer, Daniel 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. With that, I'll now turn the call over to Dr. Hartnett. Thank you, Josh, good morning and welcome to all. Net sales for the Q4 of fiscal 2023 were $394.4 million versus $358.9 million for the same period last year, an increase of 9.9%. For the Q4 of our 2023, sales of industrial products represented 69% of our net sales, and aerospace products 31%. Gross margin for the quarter was $166.5 million, or 42.2% of net sales. This compares with $137.5 million, or 38.3% for the same period last year. Adjusted operating income was $88.6 million, 22.5% of net sales, compared to last year's $71.9 million and 20% respectively. Adjusted EPS came in at $2.13 a share. Adjusted EBITDA was $121.1 million, 30.7% of net sales, compared to $104.4 million and 29.1% of net sales for the same period last year. On the industrial businesses, during the period, the industrial sales growth was 7.4% against some strong comps from last year. Dodge was our leader with 9.2% expansion rate on combined OEM and distribution sales. The latter showed a low teens expansion rate for Dodge. Overall, the industrials were up high single digits, with sector growth mitigated somewhat by Europe. On aerospace and defense, overall, we saw a rate of expansion of 16%, with aero OEM up 25% and aero commercial distribution up 42.8%. The demand drivers here continue to be the large plane builders and their supply chain in support of production for Boeing and Airbus 737, 787, A320, and A330 principally, as other, as well as other producers of business jets and a myriad of subcontractors needed to support the industry. Additional volume increases were felt from our space initiatives, and we saw demand for products to support the new field for eVTOL taxis beginning to trickle in. As mentioned in previous calls, we expect to see increased demand creating double-digit growth from the plane builders for many quarters to come as they continue to aggressively expand build rates. We continue to add resources and planning to support these increased rates as well as, we expect expanded work statements. To summarize, for the period, RBC saw growth in revenue of 9.9% and an Adjusted EBITDA expansion of 16% against the same quarter last year. Regarding our Q1 of 2024, we are expecting sales to be somewhere between $380 million and $390 million range. I'll now turn the call over to Rob for more detail on the financial performance. Thank you, Mike. SG&A for the Q4 of fiscal 2023 was $59.6 million, compared to $54.5 million for the same period last year. As a percentage of net sales, SG&A was 15.1% for the Q4, compared to 15.2% for the same period last year. Looking forward, SG&A as a percentage of net sales is expected to be between 15.75% and 16% of sales in the Q1, including approximately $3 million-$4 million of stock-based compensation expense. Other operating expenses for the Q4 of fiscal 2023 totaled $20.7 million, compared to $23.7 million for the same period last year. For the Q4 of fiscal 23, other operating expenses included $17.7 million of amortization of intangible assets, $2.5 million of restructuring costs associated with our South Carolina operations, and $0.5 million of other items. For the Q4 of fiscal 2022, other operating expenses consisted primarily of $17.2 million of amortization of intangible assets, $5.7 million of costs associated with the Dodge acquisition, and $0.8 million of other items. Operating income was $86.1 million for the Q4 of fiscal 23, compared to operating income of $59.3 million for the same period in fiscal 2022. Excluding approximately $2.6 million of restructuring costs associated with our South Carolina operations, offset by $0.1 million of acquisition related costs. Adjustments. Adjusted operating income was $88.6 million or 22.5% of sales for the Q4 of fiscal 2023. Excluding approximately $12.5 million of acquisition costs, adjusted operating income for the Q4 of fiscal 2022 was $71.9 million or 20% of sales. Interest expense for the Q4 of fiscal 2023 was $21.7 million, compared to $13.6 million for the same period last year. We anticipate interest expense between $20 million and $21 million for the Q1 of fiscal 2024, including approximately $1 million of costs associated with the amortization of deferred financing fees. For the Q4 of fiscal 2023, the company reported net income of $49.2 million, compared to $31.5 million for the same period last year. On an adjusted basis, net income was $67.7 million for the Q4 of fiscal 2023, compared to $61.7 million for the same period last year. Net income available to common stockholders for the Q4 of fiscal 2023 was $43.4 million compared to $25.7 million for the same period last year. On an adjusted basis, net income available to common stockholders for the Q4 of fiscal 2023 was $61.9 million, compared to $56 million for the same period last year. Diluted earnings per share attributable to common stockholders was $1.49 per share for the Q4 of fiscal 2023, compared to $0.89 per share for the same period last year. On an adjusted basis, diluted earnings per share attributable to common stockholders for the Q4 of fiscal 2023 was $2.13 per share, compared to $1.93 per share for the same period last year. Turning to cash flow, the company generated $71.4 million in cash from operating activities in the Q4 of fiscal 2023, compared to $46.9 million for the same period last year. Capital expenditures were $12.4 million in the Q4 of fiscal 2023, compared to $8 million of capital expenditures for the same period last year. We paid down $70 million on the term loan during the period, leaving total debt of $1.4 billion as of April 1st, 2023, and cash on hand was $65.4 million. Cumulatively, since November 2021, we have now paid $400 million on the term loan. I would now like to turn the call back to the operator for the question and answer session. Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the queue. You may press star two if you would like to remove 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 your questions. Our first questions come from the line of Kristine Liwag with Morgan Stanley. Please proceed with your questions. Hey, good morning, everyone. Morning. You know, looking at margins, I mean, you guys printed 42.2%. This is, you know, one of the highest you've ever had, if not the highest. Can you talk about what drove this margin improvement? How much of this is from synergies? Last quarter you were already at, you know, you already had significant synergies from Dodge. How much is left to get to your final target of $70 million-$100 million per year by year five? Hi, Kristine, Dan. You know, we had a good mix in the quarter. You're right on the synergy side. Since owning Dodge over this period of time, we've added 7 percentage points to their gross margin contribution. I think on the COGS side, that will start to slow for a little from the next 12 months, then pick up again as some of our longer-term projects that we're working on the synergy side, will kick in. On the top line sales side, I think, we're a little behind target of where we'd like to be on our synergies. I think we still have some good upside over the next three to four years to get to that target as we train our sales teams on both sides of RBC and Dodge to cross-sell each other's products around the world. That's working well, but it takes time to get everybody trained up. On SG&A, I think we're definitely ahead of where we thought we were gonna be. We were able to move Dodge off of ABB's IT systems and picked up a nice savings on doing that, on getting them onto their own system and on the back of RBC's IT group also. We picked up some nice synergy there. Going into this year, you know, Rob gave you guidance for Q1. You know, hopefully we do a little better than that. We'll see what happens. I think we are definitely ahead of where we thought we would be coming into the real first year of our integration with Dodge. I see. Following up on how much synergies have already been harvested, like from the $70 million-$100 million, can you just give us a run rate of how much of that's already been done? Yeah, I'd say on average, our run rate is anywhere from $45 million-$56 million. Great. In terms of commercial aerospace, you talked about, you know, the significant step up for aircraft production rates, Mike. Can you level set us in terms of where you are in production rates? Boeing's, you know, trying to hold on to 31 per month for the MAX, and there's a discussion of moving up to 38 per month around now-ish this summer and then to 42 by year-end. Is that where you're tracking? Are you above or below where they are? You know, is there some sort of inventory that needs to get depleted before you get on that run rate ramp? Also any color you could provide on the 787 as well as we get towards 10, the A320 and the A350. Yes. Those are a lot of answers. let's see. The, you know, in terms of Boeing's content and where we are relative to the, to the buildup, you know, What we do is we look, as you do, at their skyline chart and, you know, determine, you know, are they First of all, are they producing themselves to their chart? We think they are. We kinda, you know, monitor that pretty closely. We look at, based upon if they're gonna go to, say, 38 planes a year or whatever, and they're gonna do it in January, we know that we have to have our product, 6 months ahead time. If they're gonna build 38 planes, the bearings can't show up and the hardware can't show up the day that they want 38 planes to exit their plant. We kind of offset the lead time on their chart by 6 months and determine what our production requirements are in order to have that product available in 6 months. We're pretty much aligned. We know what our mix per plane is, and as a result of knowing what that mix per plane is, we can kind of back calculate their rate and our rate, and are they, you know, do they correlate? They correlate very well. We've done a lot of work to make sure that we're completely in cadence with their buildup. In terms of inventory in the system, right now, I would say thank God there's inventory in the system. Because stepping up production rates, you know, 25% a year is a big order for a company like us, who actually have to make it from, you know, raw material to finished goods. We're doing the best we can to meet their rate expectation. We know by the end of the year that whatever inventory is in the system for the 737 and the 787 is gonna be pretty much squeezed out of the system. You know, we're gonna be commando by about December. We're gonna have to produce very well at their production rates December and beyond. The difficulty in doing that is material. Lead time for these aircraft steels are 50 weeks, and the deliveries after 50 weeks are not completely certain. Maybe you expect to get it in 50 weeks, and you get it in 55 weeks or something like that. Steel availability is a problem, and there's some steels that are not available at all. They're important alloys and they're highly used in the aircraft industry. I think the aircraft people are gonna have some difficulty all the way around, not only in bearings but in structures to determine how to substitute other steels for the steels that have already been specified for use. I see. Mike, in terms of these steels, is there a Boeing master agreement or an Airbus master agreement that can help with sourcing? I mean, that seems like a fairly important input to have uncertainty over considering the production rate volumes that are in that skyline. Yeah, we talk to them all the time. I'm sure other people have the same discussions, not just people making what we make. And, you know, these specialty steel producers are to some extent unwilling to produce the chemistry needed. Some of them have gone bankrupt or have been restructured. Actually, Airbus just bought one of them, and because of this situation. This situation exists in the United States too. Great. I think- With this uncertainty. I think it's something that... What's that? Sorry, Mike. With this uncertainty, how are we gonna see the, you know, 50%, 60% volume increases that the OEMs want in 2, 3 years? I mean, the environment you're describing seems fairly dire for a really important input, and we've got this massive volume ahead of us to meet those rate ramps. How do you think this gets resolved? Does that put at risk, you know, these production rate increases? It certainly is a big consideration on these production rate increases. It needs to be resolved. Exactly how it gets resolved is, there needs to be some material substitutions for some of these alloys, in the design. So, you know. We can't do that. That's Boeing's design. So they're gonna have to double-time, their engineering department to provide materials that are modern and available. Great. Thanks, Mike. Thanks, Dan. Yep. Thank you. Our next question comes from the line of Pete Skibitsky with Alembic Global. Please proceed with your questions. Hey, good morning. Nice quarter, guys. Thank you. Hey, hey Mike, just one clarification. When you talk about steel and steel alloys, are you also including sort of, you know, aluminum alloys and nickel alloys, or is it strictly steel and its alloys? Well, I mean, it's steel and its alloys, and its alloys are, you know, nickel and chrome and manganese and, you know, that sort of thing. I'm talking about steel. I'm We don't have the aluminum worry that other people have. We do have the steel worry. Okay, got it. I guess I just wanted to ask about the top line in the Q4. You guys, you know, beat your own revenue guide pretty handily. Was there a particular market segment that surprised you there or a share gain maybe, or something else? Well, you know, I think it as I said at the last conference call, it's really hard for us to project Dodge's revenue because of they really don't work with an order book like the rest of RBC does. RBC, you know, has a backlog of a year in order book. We, we're very, we're very confident in our, in our outlook for what we're gonna produce and what it's gonna generate for revenues. With Dodge, they, you know, they have, they have a much different business model where, you know, they're sort of GDP-driven. I mean, you tell me what the GDP is gonna be, and I'll tell you what Dodge's revenues are gonna be. In this particular quarter, their business was stronger than we had anticipated when we did our last conference call. And it continues to be strong. Mm-hmm. Okay. Yeah, that's fair. And to that point, I mean, you've seen ISM PMIs below 50 now for a couple quarters in a row, right? I'm wondering, are you guys kind of seeing out there market softness at all? Or, you know, I'm wondering if there's market softness, but you're kind of offsetting it with pricing gains and market share gains, you know, things like that. Or actually, or just the end markets just stronger than you might expect for where the PMIs are right now. You talked about Europe being weak as well. Yeah. Well, I mean, in the industrial business, it's very end market de-dependent, right? Right now, you know, there's a lot of consolidation going on with these industrials that are our peers, so I'm sure that's creating some service level problems. On the other hand, there's the end, you know, very end market dependent. You know, our end markets are... If you start with oil and gas, very strong. Semicon is soft, but it's not dead. Mining is steady, the demand is very acceptable. Aggregate is very good. Grain is very good. Infrastructure is good. Wind is not as breezy as it was last year. The general distribution is very good. It's, you know, these industrial markets are surprisingly strong, that we serve, despite the news, the news of the day on what the economy is doing. Yep. Yep. Okay. Last one for me. I appreciate the color. You guys have been talking a lot about, you know, expect to grow this year, but you've also been talking about, you know, additional defense plans. You did this steward restructuring in South Carolina. I don't know if that was just a pure kind of a cost takeout or not. How does kind of all that roll up into your CapEx projection for fiscal 2024? Yeah. I think we'll be right in that 3%-3.5% of revenue range. You know, I'd be surprised if it bulges more than that. Okay. There's nothing to make it bulge right now on the horizon. Okay. Okay. The South Carolina restructuring, was that just a pure cost reduction at Dodge? Is that how to think about that? Yeah. It was kind of a combination of some cleanup at the Dodge level as well as one of our legacy RBC plants, just clean up down there. Nothing, nothing out of the ordinary. Gotcha. Okay. Thanks, guys. Yep. Thank you. Our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your questions. Thanks. Good morning, guys. Morning, Steve. Thank you. Yeah, good morning. Thinking about your 1Q revenue guide, as I look at the comps, seems like we'll see another double-digit organic for aero, maybe single-digit for industrial. First, is that how you see it? Second, is that how you're thinking about the year as well? Yes and yes. Got it. Yep. Yes, and absolutely yes. Absolutely, a single digit industrial or just that's that you expect solid growth for the full year? Yeah. I mean, it'll be single digit industrial, I expect, you know, maybe a little bit better. Certainly not into the double digits, maybe the upper singles. The aerospace will be strong. It'll be, you know, sort of at least mid-teens. Marine, you know, marine will be a contributor, and they haven't been this past year, but, you know, the knots are getting untied and that material will start to flow. That sounds good. You know, with that in mind, you drove 174 basis points of gross margin expansion last year, which was the best performance in 10 years. You talked about, or Dan talked about the Dodge COGS benefit starting to slow this year. Can you talk through total company gross margin expansion plans that you see? What's your target? What are the big levers for expansion? Just how are you thinking about gross margin for FY 2024? Well, I'd love to say that we're gonna grow 0.5 points to 1 point. I can't tell you what the details of that growth are gonna be. That's probably more a an objective than a plan. I don't see we're gonna have any deterioration in gross margin. I mean, just the volume alone should give you pretty good leverage, right? What's the offset? Yeah. Just the aircraft volume going through the plants, which is, you know, we're seeing quarter-to-quarter better absorption of our overheads because we've had some of those plants on a slow cadence. That by itself is gonna accrue to the benefit. You know, on the other hand, we, the Dodge business is heavily dependent upon subcontractors and purchase parts and, you know. Those variances have were crazy last year, they're under control this year. They seem to be normalizing. On the other hand, you know, counter to that, we're working to insource some of that product from Asia to the United States and to Mexico, and to our Mexico plants. There'll be some start-up expenses on, you know, based on learning curve that we'll probably have to absorb. It's absorbable. You know, over the longer term, we'll get better absorption in the Mexico plants just by doing that. Yeah, I think overall there should be some expansion. I wouldn't say that we're gonna see the same year that we saw last year. Yeah, understood. You know, going back to Pete's question about PMI being sub 50 for 6 or 7 months now, but really strong industrials, not just from you, that's what we heard through earnings season in general. What are your thoughts on the divergence? Why, you know. You study cycles. What do you think is going on? That's a good question. You know, I study our sectors pretty well, and I kinda know what's going on there, but I don't, I don't know... I mean, we're, you know, we're not into our motive in heavy truck and all that sort of thing in any major way. Those markets are, you know, as you can see, haven't been robust. They've been acceptable. Consumer goods is not our thing. What we do is, you know, produce the basic, you know, food stuffs and aggregate to keep the economy moving. You know, you look at the Dodge business, it's a very low beta, business in terms of, in terms of its, demand profile across the years. You know, I think we're a little bit, I wouldn't say immune, but we're a little bit different than the normal industrial business that's servicing, you know, automotive and consumer products. Yep, that makes sense. Thanks for the time. Yep. Thank you. Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your questions. Hi, guys. This is Larry Stavitski on for Seth this morning. Thanks for taking the questions. You know, you guys mentioned the areas of strength, industrial strength in terms of the end markets. Have you seen any change in industrial customer appetite, you know, due to macro concerns quarter-over-quarter? Anything that's of concern to you guys? Well, we're thinking about that. No, I guess the overall answer is no. We haven't seen any concern. I think the only soft spot that we've seen in the industrial side was the reversal of Amazon's decision to build all those warehouses. I think that kind of, you know, kicked the legs out of, you know, a few stools in the industry. Our business softened up last year at this time in that sector. We've completely been able to, you know, overcome and restructure around it. Okay. Then on supply chain, you mentioned, you know, steel availability is still a problem. How has, you know, the dynamics with the supply chain, how have they changed quarter-to-quarter or, you know, year-over-year? I mean, are things loosening up a little bit for you guys or is it still pretty, you know, pretty tight out there? It's, you know, it's pretty much normalized with. For most steels, for, you know, 80% of our steels, which are, you know, in production. The planning lead time has expanded, we just have to expand our planning lead time to accommodate it. As long as you can get ahead of that game, you'll do fine. We're ahead of the game. On the specialty steels, those are still hard to get. I mean, those are. That's a problem that still needs to be solved. Yeah. You expect that to go on for a couple quarters? I don't. You know, I don't. I think new suppliers have to be will be tooled. I mean, I think, I think there's gotta be some new people entering this market that can produce these things. It's, you know, it's capital intense, but a lot of people already have this capital. If they realize, you know, that there's decent volume and decent profitability in these alloys, I think, you know, I think the problem will get solved. Got it. Thank you, guys. Appreciate the call. Yep. Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please proceed with your questions. Thanks. This is Vivek Srivastava on for Joe Ritchie. My first question is on industrial inventory at distributors. Could you provide some color on the destock risk, especially on the industrial distributor side? Maybe any color by end market where there's more destock risk right now versus less? Any color on the timeline of when the destock can happen? Yeah. Well, you know, I think the industry at large is, as far as we can see, there hasn't been any overstocking situation. I think during the pandemic it was hard to get the materials. Now I think most of our distributors are happy to be able to get these materials and put them on their shelf. You know, 50% of their sales is from break-fix. When something is broken in the marketplace and somebody needs an immediate repair and, you know, it's a profitable sale for them if they have it in inventory. They don't like not to have it in inventory. There's been some inventory liquidation over the past six to nine months as a couple of our major customers consolidated. During the consolidation, stores were closed and inventories were combined. We definitely saw a drop in revenues from some major customers as this occurred. It seemed to have been completed around the December, January time period, which may have been part of the reason why our Q4 was stronger than we had anticipated. That's the only mechanism that we saw that was unusual in place over the last 12 months. Got it. That's, that's super helpful. Then just maybe on your backlog, looks like sequentially backlogs were pretty strong, and maybe it's driven by Aero. Any indication you can provide on how the industrial side of the backlog on RBC, is trending and what are you seeing from order trends on the industrial side? Yeah, sure. Most of the sequential increase was driven from our defense business, you know, be it Sargent or, you know, actually one of our legacy businesses. The Dodge backlog is actually down $10 million, which is not a bad thing because as we've talked about, they are not a business that traditionally carries a significant backlog. The orders have remained strong holistically in the industrial side of the business. Thanks. That's helpful. My last one just across like some of your peers talk about having portfolio outside of just bearings and broadly across the industrial drivetrain could help with gaining more traction with the customers. Just any indication how much of your portfolio maybe is outside of bearings more on the industrial drivetrain side? Like what is your counter to some of those claims that peers probably who have more products across the drivetrain can gain more share? Yeah, I would think that maybe 25%-30% of our sales are products that are not bearings. They're, you know, they're either systems, gearbox systems, or they're valves or they're rods that go into structural components for aircraft. Yeah, I'd say you know, we haven't made those calculations, but I'm extrapolating what I know about the business, but I'd say it's 25%-30% of our revenues are outside the direct bearing line. Great. Thanks. Those were all my questions. Thank you. Our next question comes from the line of Michael Ciarmoli with Truist. Please proceed with your questions. Hey, good morning, guys. Thanks for taking the questions. Nice results and margins here. Maybe Mike, just a lot of this talk on supply chain and aero. I mean, as you look at the year, you know, you said double-digit aero growth. I mean, how do you risk adjust that for not getting access to supply? I mean, is there a big threat there to meeting your objectives for the year? I mean, I think we keep hearing in some cases bearing lead times are stretching out like three years. How do we just think about the risk of you guys executing if you don't get that supply? Well, we do get the supply. You know, it's more than 90% of our bearing products. Probably 95% of our bearing products use, you know, materials that are readily available. There is that other 5% of not only bearings but structural components that are more difficult to get. I think it's a bigger problem for somebody like Boeing, who uses these materials widely across their aircraft line than it is for RBC. Okay. Okay, that helps. If you're exposed, it's about 5% of your product and where you're seeing some of that tightness on alloys? Yeah. maximum 5%. Okay. Then just back to the gross margins. I know you called out, you know, some of these learning curves and startups, but, you know, you got a little bit of, I guess, volume step down in the Q1, but what else is driving the gross margins to step down? I know you guys were pretty enthusiastic a couple quarters ago calling out, you know, a new floor and, you know, now we're gonna see, I mean, still phenomenal margins, but is there anything else to read into? I mean, is it just conservatism? Again, I know you called out, you know, some of those subcontractors purchasing parts, some of the moves. Is that kind of the driver or, you know, how should we think about that in the Q1? You mean for the revenue projections for the Q1? Q1. The growth margin projection 41%-41.5%, stepping down sequentially from what you just did this quarter. Yeah, I, well, I think that's probably a little conservatism playing a role there. Okay. There's no supporting mathematics behind that estimate, believe me. Okay. Okay. That's, that's good to know. What about, you know, you talked about the synergies. I think you talked about the COGS kind of slowing down. I guess, you know, going back to when you made this Dodge deal, you did talk about, I guess, $200 million or so of material and supply you could source in-house. I mean, is that... You know, where are we there? I think you maybe said, you know, beyond the next 12 months that kicks in. Can you give any color in terms of how much runway is left on that? Yeah. We're right at the beginning of that. I mean, that's, you know, we've only been doing this for a little bit over a year plus a quarter. Yeah, we're right at the beginning of sort of looking at that mix, identifying, you know, what part of that mix could be best made in in some of our lower cost plants. Okay. What part, you know, what part of that mix needs to be made in order to Support the volume demands that we see. Also, you know, at the same time, you know, as we got into Dodge, we found a lot of areas of growth potential that could be achieved if we made this product or we made that product or we insourced certain materials that our supply chain had always had problems producing. If we capitalized and insourced those materials, we could see upside to our revenues and our margins. It's, you know, sort of the outside the synergy concept. Clearly there's plenty of upside in the Dodge product offering if to take advantage of by incorporating some of these product strategies. Okay. Okay. That's good to know. I mean, again, the margins have been fantastic here, but if, you know, we look at, I think you kind of said mid 30% EBITDA margin target by year five, and certainly it sounds like you've got runway and levers to pull starting with that COGS. I mean, you're still confident in that mid 30% op or EBITDA margin? Well, that's a good goal. I mean, you need to have a you know, a, what do they say? A, a humongous goal. I think, you know, we're making our way towards it, let's put it that way. Okay, fair. Last question, I'll get out of the way. I guess the implied defense, you didn't give the defense revenues, but I guess they look to be down 7%. I mean, you know, I know you talked about Marine not being a contributor. Presumably lap and some easy comps, you know, get some of that product flowing on the subs. Should we expect a pretty good rebound in defense next year or this year for. Yeah. fiscal 2024? Yeah, probably it comes in later in the year because, you know, first of all, I think the Marine business gets, you know, gets its mojo going and it looks like it's on track for that. At the same time, we have a lot of key product that has to be replaced, that was used in the Ukraine situation. That'll probably start phasing in at the end of the year. Okay, perfect. All right. Thanks, guys. Thank you. Our next question comes from the line of Pete Skibitsky with Alembic Global. Please proceed with your questions. Yeah, thanks. Just one follow up for me, guys. I don't think all the data is out yet, but it looks like probably fiscal 2023 ended up as a big, you know, big inventory build year for you guys. I imagine some of that is, you know, safety stock, maybe some is to support the growth. Just wondering if you expect inventory to build, you know, at a similar level in fiscal 2024 than it did in 2023. Thanks. Hey, Pete, it's Rob. Inventory build for the year was about $70 million, a little more than $70 million. Some of that was at the Sargent business where, as we've talked about in the past, you know, we do get reimbursed for some of that material purchase on the, on the Marine program. The rest of it was Dodge, primarily. I don't expect that level of growth in the next fiscal year. Okay. Okay. What drove the Dodge growth? Just curious. Supply chain. You know, when you can't get it from supplier A, you order it from supplier B, and then supplier A delivers, and supplier B delivers. Gotcha. Okay, sounds great. Thank you. Ladies and gentlemen, there are 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's the end of our conference call. We thank you for participating and look forward to speaking to you again in the July, August timeframe. Good day. Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.