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Date
Oct. 31, 2025 at 11 a.m. ET
Call participants
Chairman & Chief Executive Officer — Michael J. Hartnett
Vice President & Chief Financial Officer — Robert M. Sullivan
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Takeaways
Net sales -- $455.3 million in net sales for fiscal Q2 2026, up 14.4%, driven by strength in Aerospace and Defense (A&D), and steady performance in Industrial businesses.
Gross margin -- 44.1% consolidated gross margin, up from 43.7% in fiscal Q2 2025, with adjusted gross margin at 44.9%.
Adjusted diluted EPS -- $2.88 in adjusted EPS, a 25.8% increase from $2.29 for the same period last year, while diluted EPS was $1.90 compared to $1.65 for the same period last year.
Free cash flow -- $71.7 million in free cash flow, with 119.5% conversion; prior period was $26.8 million, and 49.4% conversion.
Segment revenue mix -- 56% Industrial, and 44% A&D, with A&D projected to reach parity next year (fiscal 2026).
Aerospace and defense growth -- Total A&D sales up 38.8% year over year; commercial aerospace up 21.6%, defense up 73.3%.
Organic A&D growth -- Commercial aerospace increased 21.2% year over year; defense grew 22.4% organically.
Backlog -- Up from $940 million in March (fiscal Q4 2025), and $860 million in the prior year; approximately $500 million of backlog increase from the VACCO acquisition.
Industrial segment -- Modest growth of 0.7%; distribution up 3.3%, OEM down 4.7%.
VACCO contribution -- $24.7 million in net sales from VACCO; initial margin lower than legacy, but targeted for improvement through operational synergies.
Q3 guidance -- Revenue projected at $454 million to $462 million, representing 15.1%-17.1% year-over-year growth; organic net sales expected to rise 7.4%-9.5%.
Q3 margin outlook -- Adjusted gross margin guided to 44%-44.25%; SG&A to 17%-17.25% of sales.
Debt management -- $45 million term loan repayment, $40 million repaid post-quarter; revolver amended and extended to 2030.
Interest expense -- $13.4 million, down 14.1% year over year due to debt repayment and lower rates.
Backlog mix -- Over 90% of backlog attributed to the A&D segment.
Boeing and Airbus contract renegotiations -- Sullivan noted, "We should see most, if not all, of that right away, on the shipments that start after January 1."
Capacity constraints -- Airframe business operating at near 100% utilization; incremental capacity and workforce being added each quarter.
Capital allocation -- Management prioritizing deleveraging through continued term loan and revolver paydown, using operating cash flow.
Engineering resources -- Around 100 engineers in a two-year internal training program, and further additions through recent acquisitions.
AI adoption -- Hartnett said, "AI is something you almost can't avoid using. Right?" and recounted specific engineering use cases where AI expedited problem-solving.
Summary
RBC Bearings (RBC +1.75%) delivered double-digit top-line growth and significant margin expansion for fiscal Q2 2026, propelled by exceptional Aerospace and Defense performance, and disciplined expense management. Operations are capacity-constrained in core aerospace plants, prompting ongoing investments to expand output in response to record demand and a sharply increased backlog, largely attributable to both organic contract growth and the strategic acquisition of VACCO. Management’s near-term focus remains on expanding manufacturing, integrating new assets, extracting operational efficiencies, and promptly realizing margin benefits from recently renegotiated aerospace contracts.
Management confirmed an expectation to approach $2 billion in backlog by year-end, positioning the business for further revenue visibility and multi-year production commitments.
Aerospace manufacturing output is currently capped by plant capacity, with incremental additions planned each quarter to enable margin expansion through overhead absorption.
The VACCO acquisition is expected to bolster A&D segment growth, but margin contributions will require integration and synergy realization over time.
Repayment of debt remains central to capital allocation, illustrated by sequential reductions in term loan and revolver balances, and the extension of credit facilities to 2030.
Order book composition is increasingly A&D-centric, as management disclosed the industrial segment comprises a minor share of backlog, and is exhibiting only modest growth overall.
The company leverages AI in engineering and operations, expediting solution development and stimulating design innovation, but does not see immediate headcount impact.
Industry glossary
MRO: Maintenance, repair, and operations services for maintaining and supporting existing equipment and fleets, particularly in aerospace and defense.
OEM: Original Equipment Manufacturer; refers to companies that produce parts and equipment that may be marketed by another manufacturer.
SG&A: Selling, General, and Administrative expenses, a key measure of non-production operating costs.
Backlog: Value of contracted orders not yet fulfilled, serving as a forward indicator of revenue visibility.
Sole and single source products: Items for which RBC is the only (sole) or one of very few (single) approved suppliers under long-term agreements.
Full Conference Call Transcript
Mike Hartnett: Good morning, and thank you. So good morning, everyone, and thank you for joining us. As usual, I'm going to start today's call with a short review of our financial results with some comments, and I'll finish with our outlook on the industry in fiscal 2026. Robert Sullivan will follow me with some more details on the results. Second quarter net sales were $455.3 million, a 14.4% increase over last year, driven by continued strong performance in our Aerospace and Defense segment and steady performance from our Industrial businesses. Consolidated gross margin for the quarter was 44.1%, versus 43.7% for the same period last year, and adjusted EPS was $2.88 versus $2.29 last year.
Clearly, our performance exceeded our expectations for '26, and the company is showing good momentum moving into the second half of RBC's year. Free cash flow for the period was a strong $71.7 million. 56% of our revenues were industrial sector, and 44% aerospace and defense. With the aerospace and defense sector now racing to parity, we think, next year. Total A and D sales were up 38.8% year on year. Commercial aerospace expanded 21.6%, and defense expansion was 73.3%. Organically, the performance looks like this: commercial aerospace increased by 21.2%, and defense increased by 22.4%. Demand across the A and D sector is impressive, and momentum is strong.
Backlog is up to $1.6 billion today, from $940 million in March and $860 million last year at this time. We fully expect to approach $2 billion in backlog by year's end, which will be an amazing milestone, especially when you consider that more than half of our revenues preclude backlog production. Although revenues are currently capped by production capacity, we are working hard to expand manufacturing capacities in our marine and aircraft RBC plants, adding more capacity each quarter. Clearly, this will be impactful to margins. Primary drivers here are submarine aircraft and engine customers. Proprietary components are quiet valves and actuators for submarines. That is the Virginia and Columbia boats, as well as MRO supplies for existing fleets.
Both Sargent and VACCO are the RBC contributors here. On airframe and engines, as Boeing and Airbus and Embraer continue increasing build rates to unprecedented levels, production of our products, of course, must follow. As most of you know, we have substantial contracts in these airframes and engines, where we supply precision and line bearings as well as integrated structural components across aircraft and engine spectrum. And with Boeing's recent FAA approval to expand production rates, business is good and about to get better. It's important to understand that building rates of submarines and aircraft are at levels not seen in over a generation, since the early 1980s for submarines, for reasons both good and bad.
We are currently booking some orders for deliveries into the 2030s. RBC is dead center in the middle of this effort today with a considerable number of proprietary sole and single source products governed by multiyear contracts in the majority of cases. Let's turn over to our industrial business now. Overall, our industrial business was up 0.7%. Industrial distribution was up 3.3%, while the OEM sector was off 4.7%. Continued weakness in the markets of oil, semiconductor machinery, and European machine tools continue. Our industrial OEM business is a 70/30 split with 30% being the OEM content. We are encouraged to see the continued demand in the industrial aftermarket across many of the markets that we monitor.
These include aggregates, metals, grains, food and beverage, forest products, warehousing, to name a few. I'll now turn the call over to Robert Sullivan, who will give some color commentary on the financial treatments and the Q3 outlook.
Robert Sullivan: Thank you, Mike. As Dr. Hartnett mentioned, this was another strong quarter for RBC. Net sales grew 14.4%, driving a 15.4% increase in gross margin. Gross margins were 44.1% for the quarter, or 44.9% on an adjusted basis compared to 43.7% in the same period last year. During the quarter, we delivered strong performance across our business segments, specifically within A and D, which has been seeing strong growth as Dr. Hartnett previously noted. A and D gross margins during the quarter were 38.7% or 42.3% on an organic basis, and industrial margins were 48.2%. Included in the Aerospace results were $24.7 million of net sales from VACCO during the period, which was acquired on July 18, this quarter.
On the SG&A line, we had total costs of $77.4 million or 17% of net sales for the quarter. This ultimately resulted in an adjusted EBITDA of $145.3 million or 31.9% for the quarter. That represents an approximate 17.7% increase in EBITDA dollars compared to last year. Interest expense for the quarter was $13.4 million. This was down 14.1% year over year, reflecting the impact of debt payments made over the last twelve months and lower interest rates, partially offset by the impact of borrowing $200 million on the revolver in July to assist in paying for the acquisition of VACCO. During the second quarter, we paid off $45 million on our term loan balance.
We made an additional $40 million payment on September 30, which will be reflected in next quarter's results. Diluted earnings per share were $1.90 compared to $1.65 for the same period last year. Adjusted diluted earnings per share were $2.88, representing a 25.8% increase over $2.29 for the same period last year. The tax rate in our adjusted EPS calculation was 22%, compared to last year's 22.1%. Free cash flow in the quarter came in at $71.7 million with conversion of 119.5%, and compares to $26.8 million and 49.4% last year. The higher conversion rate was due to the increased earnings and working capital management during the quarter.
As we have previously noted, capital allocation strategy going forward will remain focused on deleveraging by using the cash that we are generating to pay off the term loan and then the revolver balance. This week, we finalized an amendment to our credit facility, extending the revolver until 2030. We intend to pay the term loan off by November 2026. Looking into the third quarter, we are guiding revenues of $454 million to $462 million, representing year-over-year growth of 15.1% to 17.1%. This guidance embeds an operating environment that's been fairly similar to what we have been seeing over the past few quarters with the additional benefit of owning VACCO for a full quarter.
On an organic basis, net sales are expected to increase 7.4% to 9.5%. On the margin side, we are projecting adjusted gross margins of 44% to 44.25% for the quarter, and SG&A as a percentage of sales to be between 17% and 17.25% for the period. We continue to remain well-positioned to achieve our objectives and drive sustainable growth leveraging our core strengths in engineering excellence, operational efficiency, and innovative product development. Looking ahead, our focus will remain squarely on executing on our organic growth strategy, further integrating VACCO, driving operational efficiencies, and delivering strong free cash flow conversion, that will create long-term value for all our stakeholders. With that, operator, please open the call for Q&A.
Operator: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question at this time, you may press star 1 from your telephone keypad. You may press star 2 if you would like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you.
Operator: Thank you. And our first question is coming from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.
Kristine Liwag: Hey. Good morning, Dr. Hartnett. Good morning, Rob. Morning, Kristine. Maybe following up on the backlog, you had a very strong backlog growth of 60% in the quarter. Can you provide any color regarding how much of that was just from the VACCO acquisition? Also, what were the key drivers of that increase? And then also, you know, you alluded to actually, actually said that a $2 billion backlog by the end of your fiscal year. That's a significant step up from where we are today. Any sort of color on what you're seeing there would be helpful.
Mike Hartnett: So approximately $500 million of that increase is due to the VACCO acquisition. And then the remainder of the business is up more than 20% from this time last year. You know, we're seeing extraordinarily strong growth in the A and D side of the business, you know, approximately 90% plus of our backlog is really all A and D. The industrial side has a much smaller component when you look at our backlog. And we expect that to continue through the rest of the year. Yeah, Kristine, we're currently, you know, we're currently negotiating contracts with and we're very far along. They're very mature in the negotiations, and we expect to conclude those, you know, within the month.
Which should kind of round the whole thing off to that $2 billion level. At least that neighborhood. You know? Maybe it's $100 million less. Maybe it's $100 million more, something like that. But it's, you know, to some extent, we've had rollover of aircraft contracts, which I'll begin sort of next year. And there's still several marine contracts that we're working our way through. And, you know, really for the most part, have worked our way through and we're waiting for the conclusion of the signatures.
Kristine Liwag: Great. Super helpful. And then, you know, I think, you know, Dr. Hartnett, last time when we talked, it seems like Boeing production rates are starting to move up to the right. And, you know, from Boeing's earnings, quarter, it seems like that's really truly materializing. Can you just remind us regarding your production rates? You know, what's the utilization of your aerospace plants? And when you when we think about this volume finally coming through, how should we think about incremental operating margins especially with the changes in contract that you've had and then, of course, you know, the inflation that's gone through the business in the past few years.
Mike Hartnett: Well, I mean, it's right now, in terms of capacity utilization for the airframe business, you know, we're pretty much at 100% everywhere. And so we're adding capacity, we're adding shifts, we're adding manpower, and we're adding some capital to continue. And we're gonna be stepping up capacity every quarter going forward in several of the plants. Demand is strong. So you're gonna see obviously, when you add plant, when you add shifts, you get better absorption of the overheads. And so you get some margin expansion there. So the outlook for margin expansion overall is it just couldn't be more positive.
Kristine Liwag: Yeah. That's very exciting to hear. So I'll keep it to two questions today. Thank you.
Operator: The next question from the line of Michael Ciarmoli with Truist Securities. Please proceed with your question.
Michael Ciarmoli: Hey. Morning, guys. Nice results. Thanks for taking the call. Questions. Maybe just housekeeping. I think I may have missed it, Rob. What was the Arrow OEM growth in the quarter and the aero distribution growth in the quarter?
Robert Sullivan: So the Arrow OEM for the whole you're commercial, or you're talking about the whole segment? Just commercial.
Michael Ciarmoli: Sorry.
Robert Sullivan: So commercial OEM grew 27.9% this quarter. Got it. And commercial distribution was basically flat. It's actually down 2%. But more or less flat.
Michael Ciarmoli: Okay. Okay. Got it. And then just looking at industrial distribution, it looks like it was, you know, I think you had it up 3.3%, but down 8% sequentially. Anything happening there? Was that any sort of seasonality, the lumpy orders? You know, I know it's usually down a little bit sequentially on a seasonal basis, but anything jump out with that industrial distribution side?
Robert Sullivan: We had some really relatively strong performance in the industrial distribution business in the first quarter. Some really strong orders on that end. So the fact is it's still growing. It's just probably quarter over quarter that's what you're seeing there.
Michael Ciarmoli: Okay. Okay. Got it. And then I think you guys called out the dilution from VACCO roughly 306 basis points or so. Can you give us any sense as to how we should think about, you know, the VACCO margins expanding? I know you kind of just answered Kristine's question with couldn't be more positive on the outlook for margin expansion. But how do we think about that maybe VACCO drag dissipating and getting those margins up to and in line with historic RBC margins?
Robert Sullivan: Yeah. So, you know, look, they're running in the mid-twenties at this point. You know, on an adjusted basis, that's their normal run rate. It's gonna take some time. But we think there's tremendous capacity for some operational synergy there over time to get those margins looking like the rest of the RBC business. That's what we picked up on when we were doing diligence. And that's kind of the internal objectives. But, you know, these projects do take time.
Mike Hartnett: Yeah. I would say on that too that, you know, as far as VACCO is concerned, we're still in the getting to know you phase. And very encouraged by what we see. And lots of manufacturing synergy with Southern California plants. Which is needed because VACCO needs to substantially kick up production rates. And that manufacturing production will be done in the West Coast plants that have the floor space and they'll need some added capacity. So we're working on that right now. So that's gonna be very positive too. Margin absorption on the West Coast.
So and I think the, you know, right now we're looking at some of the existing space contracts and renegotiating terms and conditions that are more aligned with RBC policies. And so we're just working through that one at a time. And that's part of the process. So we expect next year for VACCO to be a star player in our lineup.
Michael Ciarmoli: Got it. Helpful. I'll jump back in the queue. Thanks, guys.
Operator: The next question is from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your question.
Steve Barger: Thanks. Good morning. Morning, Mike. You talked about adding capacity to support all these aerospace and defense programs. And I'm sure planning for that growth is a moving target, but what revenue level did you direct the team to plan for?
Mike Hartnett: For that group, yeah. Let's start with A and D and then maybe talk about the whole company.
Steve Barger: Well, you're talking about, you know, needing to substantially ramp production across multiple programs. I'm just wondering, do you think that you need to be able to support $1.2 billion, $1.5 billion, you know, and I'm just talking A and D now. Or is this gonna be a $3 billion capacity plan? Or is this gonna be a situation where you're just continually kind of tacking it on and, you know, chasing that capacity as those programs evolve?
Mike Hartnett: Well, I think that's a good question. There's, you know, we're doing it sort of business by business, and I haven't rolled it all up into, you know, what the final number is gonna be. And a lot of that depends on how quickly we can, you know, add the capacity and get the throughput. But if you look at one of our businesses, on the marine side of Sargent, I think two years ago, we're in the mid-thirties in terms of annual revenue out of that marine program. And we need to be well over a hundred as quickly as we can get there. And so it's a matter of how quickly can we get there.
So that's kind of what's going on in Tucson. And when we look at VACCO, we're still trying to figure out what the mature steady-state production rate needs to be in order to keep the MRO business and the shipbuilders happy with the hardware output. So we haven't, we have differences of opinion on what that number is right now, so I can't really be more specific about it. But it's much bigger than where they are. So yeah, we're gonna see substantial improvement in both airframe, air engine, and marine over the next couple of years. There's, you know, just almost no way to avoid it. If they keep building airplanes and they keep building submarines.
There's just no way to avoid it.
Steve Barger: Right. No. I guess that's the key takeaway here is that RBC has the potential to have a, you know, pretty significantly weird top line based on the slate of opportunities you see in front of you.
Mike Hartnett: Correct. That's how we see it.
Steve Barger: And when you look at those programs and opportunities out there, do you have enough engineering staff to support underwater, ground-based, aircraft, space, like, is that a capacity constraint as well on the engineering side?
Mike Hartnett: Well, you never have enough engineers. And you certainly never have enough good engineers. I don't think it's a capacity constraint. I think, you know, I think the design engineering work and the testing engineering work for the most part is done. And so there's probably incremental staff increases needed. Although when we acquired VACCO, we got quite a few very capable engineering team members. So that's gonna be helpful. I think on the production side, you know, we have our MET program where we hire college engineering graduates every year and put them into our plants into a two-year training program.
And we've been doing this for years, and I think the last time I looked at the numbers, the number of people that were in the two-year training program was probably a hundred folks. So, I mean, we've been salting engineering talent into the company for years. So we have a very deep bench of expertise and actually looking at that yesterday. And who's in the ten to fifteen-year group with us. And because that's, you know, that's the emerging management of the company, and it's quite salty.
Steve Barger: That's good to hear. I don't remember ever hearing an AI-related question on one of your earnings calls, so I'm happy to be first. Are you leaning into AI from the engineering side or anywhere else in the organization to try and help optimize manufacturing or engineering or anything else?
Mike Hartnett: You know, I think AI is something you almost can't avoid using. Right? It's just you get too many good answers quickly. When you go to chat or you go to Grok or one of the suppliers. And I personally, I mean, I ask my five questions every day. I never subscribed to chat GPT, but they do give me five questions every day, and I use them up every day. I think there's many, many of us that subscribe and use it productively. So, yeah, it's having an impact. To measure how to measure exactly what that impact is right now, we don't have a good grip on that.
But, you know, the other day, we were talking about designing a component that was failing in our tests. And so I personally asked AI, you know, what kind of tribological coupling did beryllium copper make on steel and how would I improve that coupling through design? In thirty seconds, I got a report that would have taken me a week to get from one of my engineering teams. That was excellent. And we actually debated using some of those recommendations within the hour. So that's the impact it's having here.
Steve Barger: That is interesting detail. Thanks. I'll get back in line.
Operator: Our next question is from the line of Scott Deuschle with Deutsche Bank. Please proceed with your question.
Scott Deuschle: Hey. Good morning. Rob, when you restrike the Boeing and Airbus contracts, do we see the full benefit of that hit in the calendar first quarter? Or do you have to honor some preexisting backlog ordered at lower prices such that it takes a few quarters for that benefit to show up in gross margins?
Robert Sullivan: We should see most, if not all, of that, you know, right away. On the shipments that start after January 1.
Scott Deuschle: Okay. And in terms of what you all have been targeting to get out of those renegotiations, are you generally tracking to what you hoped for in terms of your ask, or is there any just general update as it relates to the status of those negotiations you can offer?
Mike Hartnett: Well, you never get what you're asked. I mean, the airframe people are very tough negotiators. So let's just put it this way. We negotiated with them for two solid years. And that negotiation was scheduled every week for two solid years.
Scott Deuschle: Got it. Okay. And we're we're And I
Mike Hartnett: And we're reasonably, you know, I think neither side was completely happy with the results. But we weren't disappointed.
Scott Deuschle: Okay. And then just following up on the prior question on AI, Caterpillar reported results earlier this week. They have an Investor Day next week. Big topic of conversation is the demand on these smaller and mid-sized power generators. I don't think on a large combined cycle, generators you have much content. Correct me if I'm wrong. But on these smaller and midsized reciprocating engines, is that an OLED area that RBC plays in?
Mike Hartnett: No. No. We're not in that area at all.
Scott Deuschle: Okay. Then last question for you, Dr. Hartnett. There's now a publicly traded company out there that's generating 30% EBITDA margins in their fasteners business. And the industry appears to have some supply constraints. And I believe you'll have some capabilities here. You got through Sargent. And SharePens. So just curious, like, is that an area of strategic interest for you as you think about organic investment? In the business just given the margin potential others in the industry are demonstrating?
Mike Hartnett: We looked at fasteners many times. And, yes, we have a business that sort of overlaps that market. And we don't see it as productive a market in terms of proprietary protection and what our current capitalization is tooled to produce. Let's put it this way. There are more interesting markets that we pursued.
Scott Deuschle: Okay. Thank you. I'll pass it along.
Operator: The next questions are from the line of Peter Skibitski with Olympic Global. Please proceed with your questions.
Peter Skibitski: Hey. Good morning, guys. Nice quarter.
Mike Hartnett: Thanks. Bye.
Peter Skibitski: In defense, just with this government shutdown, we're about a, you know, a month into your third quarter. Just wondering if you guys are seeing any headwinds on order flow from the shutdown.
Mike Hartnett: None.
Peter Skibitski: Subs are pretty protected.
Mike Hartnett: Okay.
Peter Skibitski: Then just on the triple seven x delay, shipped to the right mic, I know you guys have a lot of content there. Is there any meaningful impact to your prior plan over the next few quarters from that delay?
Mike Hartnett: No. It hasn't been part of our plan at all. Just because, you know, the uncertainty of when that ship is gonna be produced. So we just, you know, if it's produced sooner, we'd call that plan insurance.
Peter Skibitski: Yeah. Last one for me. Just on, you know, your Mike, your bullish comments earlier about gross margin expansion. Are you still within the framework of the kind of your typical 50 to 100 basis point annual goal? Or are you moving kind of beyond that organically and or with the VACCO opportunity there? What's the right way to think about that?
Robert Sullivan: Well, we ended last year, you know, at about 44.04 for the full year. Our first two quarters this year, 45.04. 44.9. Obviously, VACCO is, you know, a little bit lower than the rest, so that will impact the second half of the year to a certain degree. But, you know, organically, we're right in line with that level of expansion. And even with VACCO, you know, I think we're still gonna be able to expand our margins year over year. So I think we're very pleased with where we are.
Peter Skibitski: Okay. Thanks, guys. Thanks, Rob.
Operator: Our next questions come from the line of Ronald Epstein with Bank of America. Please proceed with your question.
Ronald Epstein: Yeah. Hey. Good morning, guys. Has there been any impact from, you know, critical minerals, rare earths, on what you guys do and if there is, how are you mitigating it?
Mike Hartnett: No. We see no impact at all. I think our products don't use it. We saw more of an impact from the availability of, you know, the more exotic stainless steels, which that problem seems to have corrected itself. But that was a problem, you know, twelve months ago, that was a bigger problem.
Ronald Epstein: Gotcha. Alright. Good to know. And then if I could follow-up on that AI question, I found your answer fascinating. You know, being an engineer myself, you get that answer from Grok or whatever. What do you have to do to review it to actually trust what I mean? Like, and then when you get to a point where you can trust it, does this have an implication on the number of engineers that you're gonna need? Or you know what I mean? It's just how do you get confident that the AI is giving you something that's useful?
Mike Hartnett: Well, you know, I think when we if we use that the answer that I got for that tribological coupling, you know, it came out with suggestions that if we were thinking about it, we would come up with those answers. But it, you know, it really, you know, it sort of gave us a reminder that said, hey. You could do it this way. You could do it that way. There's three or four different ways to improve it. And did you think of these? And those were all sort of known and comfortable solutions for us. So it sort of centered us a little bit. And, you know, stimulated our thinking on the subject.
So that was, you know, I think it's a place you start. It's sort of like when you're researching a company, you pull out a value line and that's always the place you start. And then from that, you know, you say, well, that's an interesting company. Maybe I should dig a little further. So that's how we're using AI right now.
Ronald Epstein: Interesting. Interesting. I mean, can you imagine a world where it's doing more than that for you, or is it just you're just kinda how it goes?
Mike Hartnett: Yeah. You know, it's funny because when we have our operations meetings, we'll have 30 people in the room and we'll be asked. Sometimes, you know, they get into how do we solve this problem? How do we solve that problem? And, you know, everybody's going to AI. And coming up with suggestions on and so it sort of feeds on it. Then it's itself. So you know, you have three or four engineers that are using their phone to figure out how to solve a problem. All of a sudden, you've got suggestions on the table that you wouldn't have had. You wouldn't have thought about it that quickly.
And so, you know, the old days of driving up to the university to go through the library, I mean, that's over.
Ronald Epstein: Yeah. Interesting. Cool. Thank you very much.
Mike Hartnett: Okay, thank you.
Operator: The next question is a follow-up from the line of Kristine Liwag with Morgan Stanley. Please proceed with your question.
Kristine Liwag: I mean, I guess, with that comment, Dr. Hartnett, it sounds like you should pay for CHAT GPT. And just stop doing the free stuff for now.
Mike Hartnett: You know, I guess I guess I tipped you off on how we manage expenses at RBC.
Kristine Liwag: Great. So with that, I mean, look, you know, I think there's some pretty interesting going around in this with AI. And then you've got this full theme of embodied AI. And so I wanted to ask you a more I don't know. A different question. We haven't really discussed before, like, have you guys how do you think about humanoids? You know, you're starting to see some pretty interesting machines out there, but right bearings are to machines as elbows and joints are to humans. How do you think of that world? Do you think that's a commoditized bearing, or do you think that you have a role in something like that?
Mike Hartnett: Well, you know, I think if you've been through some of our plants and there's a healthy amount of robotics that are sort of co-robots with, you know, working beside a person who's doing work. Right? So as that technology proves itself, we will adopt it. There's no question about it. And so I think ultimately, there'll be humanoids in the RBC plants doing what? I'm not sure. But it'll be, you know, it'll show up as a capital requisition. It one of our ops meetings in the not too distant future. And that's how it'll begin. Right now, we use we're making use of liberally of robotic and non-contact measurement technology.
Kristine Liwag: I see. Super helpful. So you see yourself more as a user. But I guess my question is more as a supplier to that industry similar to as your supplier for a lot of those robotic systems. Is this a potential business opportunity for you? As a supplier if that industry matures? Because I could imagine if you are using it for those kinds of industrial use case, then quality and making sure the humanoid doesn't break down is gonna be similar to the value that you add for other industrial applications where your small dollar amount, you know, a critical portion for functionality.
Mike Hartnett: Yeah. Well, you know, I think today, we supply bearings for robotics that are in some pretty sophisticated applications where there's either high temperature or vacuum or a little bit of both producing computer chips. And the way this always starts is somebody that's designing a robot doesn't have any production volume, and will go to one of our distributors and buy one of our bearings, and use it in their prototype.
And once it proves out, and they start getting into production, they'll continue to use that distributor until production gets to a certain rate and then they'll trace back to the manufacturer or we'll find out about it from our distributor that this is an OEM that's using a considerable amount of volume, and that's how all of these every one of these markets is developed.
Kristine Liwag: And do you see this as an exciting market?
Mike Hartnett: You know, I really haven't thought that much about it. You know, I think Elon Musk thinks it's an exciting market because he thinks cars are less of an exciting market. Right? So he's gonna turn Tesla into a humanoid robot machine. And I guess that works.
Kristine Liwag: Great. Thank you. Maybe we'll spend another time talking more about that, but thank you for your thoughts today.
Mike Hartnett: Okay. Thanks, Kristine.
Operator: Thank you. At this time, we've reached the end of our question and answer session. I'll turn the floor back to management for closing remarks.
Mike Hartnett: Okay. Well, I think that ends our conference call for today. I think I'd like to thank everybody for their participation, and I guess our job now is to go back to work and make the third quarter happen. So thanks again.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.