ABB Asea Brown Boveri Ltd (RBC) Earnings Call Transcript & Summary

Hello, and thank you for standing by, and welcome to the RBC Bearings' Agreement to Acquire ABB's DODGE Mechanical Power Transmission Business Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mike Cummings with the Alpha IR Group. Please go ahead.

Good morning, and thank you for joining us today for the RBC Bearings, ABB DODGE Mechanical Power Transmission Business Acquisition Call. With me on the call today are Dr. Michael J. Hartnett, Chairman, President and Chief Executive Officer; Daniel A. Bergeron, Director, Vice President and Chief Operating Officer; and Robert Sullivan, Vice President and Chief Financial Officer. Before beginning the 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. The 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. Before I turn the call over to Dr. Hartnett, I'd like to note that there are supplemental slides for the call and they are available on the investor portion of our website at www.rbcbearings.com. Now I'd like to turn the call over to Dr. Hartnett.

Thank you, Mike, and good morning, and welcome to everyone. We have some exciting news to talk about today. And as you all know from the press release this morning, we signed an agreement with ABB Limited of Zurich, Switzerland, to acquire their DODGE motion control business on Saturday. I'd like to take time today to discuss the acquired business and what it means going forward to RBC Bearings. So why don't we get right into it? So this transaction creates a leading manufacturer with strong brand recognition for premium performance, critical bearing and motion control products sold to both OEMs and industrial aftermarket, doubling RBC's revenue and adjusted EBITDA scale. DODGE brand is well-known premium choice for bearings, mechanical components and systems, and it's produced primarily in world-class U.S.-centric manufacturing plants. Substantially increases the scale and depth and reach for RBC, an important market of industrial distribution, where over 60% of DODGE's revenues are consistently achieved. There's an extensive population of existing products used throughout the industry and installed over many decades, where like-for-like replacement dictates purchasing preferences. DODGE products are trusted in the market to perform. And when unscheduled downtime in a production facility is not an option, the choice is always a DODGE product or often a DODGE product. There's strong synergies across all aspects of the business enterprise capable of reaching between $70 million to $100 million annually in the first 5 years, and I'll be speaking more to that topic later in the call. Approximately 40% to 60% accretive to cash EPS in the first fiscal year and strong cash flow of the combined businesses is expected to eliminate all indebtedness within 5 years. I'll turn the call now over to Dan Bergeron.

Okay. On a transaction overview, the enterprise value was $2.9 billion. This implies a 10.6x to 11.9x multiple of adjusted EBITDA based on the last 12-month period ended June 2021. And of course, this includes estimated run rate synergies. On the financials, for the last 12 months, at the end of June, revenues were approximately $617 million and adjusted EBITDA was approximately $174 million. And as Mike already discussed, we expect synergies of $70 million to $100 million annually by the fifth year, which we'll go into more detail on the last slide. On financing, it's 100% cash consideration, financed with cash on hand and debt and equity. We have a bridge facility fully committed by Goldman Sachs, and now we'll start working on permanent capital over these next few weeks. On the financial impacts, approximately 40%-60% accretive to cash EPS in the first full fiscal year. And we expect the leverage to be around 4x at closing, with a really strong deleveraging story and by the end of fiscal year 2023 at or below 3x. On execution, we're expecting to close in the fourth quarter of -- calendar quarter of 2021, which is our fiscal year 2022 third quarter. And of course, it's subject to customary closing conditions, including regulatory review. And we're really happy with the leadership team that's coming along with the transaction. They just have a similar culture and will really support a smooth integration of these 2 great businesses. Turning it back to Mike to overview for DODGE.

Thanks, Dan. And all I can say is I wish we could buy all businesses valued after a COVID year, but it doesn't happen that often. So the DODGE overview here is a leading manufacturer of mechanical power transmission products with market-leading brand recognition. These are trusted products by the industry. And 48% of their revenues are generated by mounted bearings, 35% by enclosed gearing and 14% by power transmission components and 3% by a new digital product offering. The LTM June 2021 revenue was $617 million and an adjusted EBITDA of $174 million or a 28% margin. 6 manufacturing facilities and 2 R&D centers. 2,300 distributor locations. They employ 1,500 people globally. Headquartered in Greenville, South Carolina. And RBC increases their specialists who sell products into industrial distribution from 25 people to 175 people. That's a 7x expansion. And that's really the definition now of market reach. So the standard RBC products that we've made and sold over many years now have a reach into the marketplace that's unparalleled in RBC's history. By channel, 61% of DODGE's sales are to the aftermarket, 23% to OEM and 16% to channel OEM. By geography, 94% of their sales are in the United States, 4% in Asia Pacific and 2% in Europe. And by end market, 27% are sold to construction and mining aftermarket, 13% food and beverage, 14% warehousing, 13% general machinery and 33% to -- for other uses. So DODGE is highly complementary to RBC and manufacturing processes and customer base. Their products are different. Their applications are different, but most of the manufacturing and selling skills are the same. So the revenues doubled from RBC's $609 million trailing and Dodge's $617 million trailing. So there's a double of revenue there. Attractive profitability, $174 million of EBITDA for RBC and $174 million of EBITDA for DODGE. Low capital intensity. About 3% of revenues each company is for capital expenditure. Stable recurring revenue base. 35% of RBC Bearings is from the aftermarket. 60% plus DODGE revenues are from the aftermarket. And highly complementary product portfolio. Certainly RBC plain bearings, roller bearings, ball bearings and engineered products; DODGE mounted bearings, enclosed gearings and power transmission components. End markets. RBC: industrial, aerospace and defense. DODGE is industrial. Market position. RBC: strong customer relationships, long-term contracts, 65% of revenues, highly specialized products, 60% revenue from sole-source or single-source products. DODGE: 40-year relationships, the average top customers, large population of installed hardware where revenues are generated by a like-for-like replacement cycle, important consideration in this acquisition. And they're technology and innovation leader. And they are known for their premium brands, their trusted products and their service levels. So DODGE's comprehensive suite of products: mounted bearings, which generate 48% of revenues; ball bearings, roller bearings and plain bearings fill that to their requirement. Enclosed gearings: low horsepower, worm and helical gearings; medium horsepower, helical gearing; and high-horsepower helical gearing and planetary gearing. Power transmission components: mechanical drive components, couplings, conveyor components and solutions packages. I'll turn this now over to our CFO, Rob Sullivan, for a summary of financials.

Thanks, Mike. So as illustrated here, the addition of DODGE will effectively double the size of our organization. RBC fiscal year '21 sales were approximately $609 million. DODGE generated approximately $617 million in sales over the last 12 months, which leads to a pro forma sales number of about $1.2 billion for the combined organization. Importantly, these sales include periods that were negatively impacted by the pandemic. Despite that, as shown on the right side of the slide, we've maintained similar adjusted EBITDA margin profiles of 29% and 28%, respectively. Through the realization of synergies over the next 5 years, we're targeting growth into the mid-30s for our adjusted EBITDA percentage. Turning to the next slide. This illustrates a continuation of our track record of significant growth over the last 25 years, from $82 million in 1996 up to a pro forma result of $1.2 billion. This combination furthers our continued efforts to generate compounded growth of 10% per year. I'll now turn it back to Mike to go through the business mix.

Okay. So the current revenue by RBC Bearings -- for RBC Bearings is 58% aerospace and 42% industrial. The new RBC Bearings will be 30% aerospace, existing industrial end markets will be 22% and the new industrial markets brought to us by DODGE will be 48%, totaling $1.2 billion. The end markets, again, construction and mining aftermarket, food and beverage, warehousing and general machinery. So the acquisition aligns with our strategic objectives and build a large pipeline of important new products and platforms. The industrial end markets, the distribution for both RBC and DODGE. Construction and mining aftermarket, RBC and DODGE. Pumps and hydraulics, RBC. Semiconductor, RBC. Rail and high-speed and low-speed rails, RBC. Material handling, RBC and DODGE. Energy, RBC. Food and beverage, RBC and DODGE. And warehousing, DODGE. So our objective here is to prioritize programs with substantial economic scale, to develop new products for existing platforms that solve problems, increased aftermarket penetration of existing offerings and to continue to search for acquisition opportunities, both in the industrial and the aerospace world. Okay. So if you turn to Page 14, the key milestones. Today, we made our public announcement. We have our bridge financed and secured with Goldman Sachs. We'll begin now our regulatory filings this week, and we'll begin working on our permanent financing solution over the next few weeks with the anticipation to close in the fourth quarter calendar 2021.

On Page 15, these are -- both businesses have significant cash flow. And of course, this will definitely help deleverage the business pretty quickly over a 5-year period. You remember in the Sargent deal, we were levered up close to 3x with the target to delever in 5 years, and we accomplished that goal in 4 years, and we feel the cash generation of these 2 businesses is even stronger in this situation. Now I'll turn it back to Mike just to go through the summary and to spend a little bit of time on synergies.

Okay. So this creates a leading manufacturer with strong brand recognition for premium performance critical bearings and motion controls across a number of market sectors. Highly complementary product offering, capabilities and end markets. If you had to write a prescription for the perfect acquisition, this is what it would be: great management team, great products, wonderful reputation, world-class plants, great execution. How does it get better than that? RBC increases its sales force 7x and that sales people here are focused on like-for-like replacement cycle. Enhances RBC's scale and margin profile, doubling revenue and adjusted EBITDA. Compelling value creation, $70 million to $100 million of estimated run rate synergies fully realized by year 5, which I'll talk about more in a minute. Approximately 40% to 60% accretive to cash EPS and in the first fiscal year. And expected to delever quickly based upon significant cash flow generation. So I want to talk a little bit more now about synergy and what that all means. So again, these businesses have very complementary products and very, very well-aligned customer base. So with this acquisition, RBC's industrial sales force grows from 25 to 175 sales professionals who specialize in the industrial distribution marketplace. That's really -- that's a real significant increase in market reach for RBC Bearings. We see this adding $30 million to $50 million in sales of RBC products, likely more standard items, already tooled and stocked today. Contribution margins exceeding 50%. This is a great place to start. Market research. In addition to the many added listening posts that an additional 150 people add to you distributed throughout the North American economy and elsewhere, will identify OEM projects with meaningful scale and depth. That's how our industrial business works. This drives innovation, solves customer problems and creates intellectual property. All good. Finally, this forms a very strong base to serve as future add-on industrial businesses expected to be smaller than this one. So I think there's some extra bonus points there. So now let's talk about supply chain. 50% of DODGE's cost of sales are components. The other half is DODGE value-added. So let's call the component half with, in a normal year, $200 million of purchases. RBC is well equipped today to supply a meaningful subset of these requirements. In fact, we've been bidding to enter the DODGE supply chain for the past few years and know much of the mix very well. Again, the contribution margin to the corporation is strong and it produced in one of our well-capitalized world-class plants in Mexico, where we have over 1,000 production workers today even stronger. We will be looking hard in this area and know it will be deeply productive over time. Volume expansion. Underexploited products. Businesses always have products where they cannot -- they choose not to compete because of cost pressures or other priorities. DODGE is no exception. RBC's extensive assets in low-cost countries is just a solution needed to participate in parts of the market underserved in the past. We've had considerable experience and history and success in this regard. Enabling a company like DODGE is a fun part of this kind of a [Audio Gap] Margin improvement. RBC Bearings engages in their plants in low-cost countries such as Mexico and Poland to partner with the U.S. and European facilities to achieve cost structures that improve and significantly expand operating margins and support competitive market positions. Investments are made to drive market share and margins as the primary goal. If DODGE uses our low-cost countries to the same extent as RBC does today, same scale, I should think over 5 years, it would achieve the same extent of use. And I'm sure they will. By year 5, the impact on operating margin is material. So in summary, the synergy formula sells considerably more RBC Bearings standard product, and I hope the DODGE folks around the call are listening. Integrate RBC Bearings deeply into DODGE supply chain. Partner with ROLL's low-cost country to dilute cost structures in the U.S. plants and expand margins over time. Expand DODGE product offering of the underexploited mix. And of course, consolidated back office functions and rationalize accordingly. So that's our recipe for synergy, and I think that takes us to the end of the presentation. So now I'll turn it over to the operator for a Q&A session.

[Operator Instructions] Our first question comes from Pete Skibitski with Alembic Global.

Congrats on kind of a mega deal here. I guess you've been busy. Mike, I guess -- so just so I'm clear on the synergies, I didn't -- I saw the slides late, but it sounds like $70 million to $100 million is sort of half-and-half revenue synergies and cost synergies. Is that kind of the right way to think about it?

Yes. I think that's close.

Okay. And then we have a new kind of target out there now of mid-30% EBITDA margins, which is nicely above where you've been. So that's -- it kind of makes the deal very -- I could see why you'd be interested in the deal. So congrats there.

Thank you.

How about -- help us understand kind of the growth outlook of DODGE. You alluded to a down year because of COVID. I wasn't sure if you were alluding to RBC organic or DODGE, but how did they fare through the downturn? And are you thinking double-digit organic growth for DODGE for a couple of years coming out of a down cycle or single digits? How should we think about that?

Well, that's a good question. I think DODGE held up better than we did -- RBC did, I mean, because our aircraft business was down so much. And the industrial business, that kind of languished for the first few months of the COVID also. And actually, for our first 3 fiscal quarters, they had languished. So I think they held up better than we did. I think what we see going forward -- right now, it looks to me, given the fact that the Purchasing Managers' Index is over 60, which I don't -- I can't remember in my career, the Purchasing Managers' Index being that high for so long. And right now, I'd say both businesses are having trouble making it fast enough. And so I think if this economy continues for the next 12 to 24 months, yes, there'll be significant growth. It will be as fast as we can make it. I mean, you'll have to listen to our conference call next Thursday to get the whole picture of it. And so I'm not going to give you an early indication, but it's kind of unbelievable.

Okay. That's great. I guess last question for me, Dan. Just on the debt-equity financing split. It sounds like you're targeting roughly 50-50. And is there a rate on the debt that you're expecting?

Well, Pete, we're going to determine that as we move forward in market conditions. We're targeting 4x leverage with synergy. So we'll see how things work out over the next 3 weeks to 6 weeks when we're out in the market and, again, ready to replace our permanent financing.

Our next question comes from Steve Barger with KeyBanc.

Just looking at the slides, DODGE runs similar margins to roll now with U.S.-centric manufacturing, and it's almost entirely industrial. How have they been able to run higher margins or margins at parity with your business? What's the secret? And how do you drive $50 million of cost synergy there?

I think you asked 2 questions there, Steve. So the first question was what? How do we...

Yes, they're industrial, you're aerospace. I think the aerospace business has a really attractive margin profile, obviously, yet they run similar margins to you being all industrial and U.S.-centric. So what is the secret to their margin profile?

Well, part of it is the industrial distribution channel, which is 60% of their revenues. It's generally a high distribution -- high gross margin channel, number 1. And number 2, they have a premium product, and they have a like-for-like replacement cycle. And if you're running a factory and it has a mile-long conveyor belt and you need a new gear drive and the old gear drive lasted for 12 years and you want to replace it with something that fits the bolt pattern, right, and has the right horsepower and maybe is a little updated on its technology, but other than that, it's like-for-like. And so there's no advantage to do something else for you. It's only risk. So they have -- that's just a great franchise.

And Steve, I'll make one other comment on RBC. Our margins between the industrial business and the aerospace business are basically the same.

Okay. And so the second part of the question was, how do you drive the $35 million to $50 million of cost synergies? Is that all through the shift to low-cost country? Or what else do you see in there that can drive that? And what's the...

Well, if I go back to the synergy page, let me just go back to my notes. Steve, were you listening?

I was, but it seems like it's already a really well-run business with high margins. And so I'm just wondering what the buckets of synergy are that you can drive from the business.

Yes. Well, one of the bigger buckets is supply chain. So at their current rate, I mean, they're buying $200 million worth of stuff a year from others, not from RBC, to incorporate into their products. And RBC knows a lot of that mix, can make a lot of that mix, does make a lot of that mix, and we'll make a lot of that mix. So -- and obviously, when we make it and sell it for what they're buying it for, our contribution margins are very high. And so that's one significant source of synergy.

Okay. And just one last one. The cadence of the synergies, is that -- I mean, can you do that essentially day 1 if it's all supply chain? Or what -- how should we think about the timing of the cost side synergies?

No. It's evolutionary, not revolutionary. It'll phase in year 1 or year 2. It will probably be pretty light year 3. They have contracts with suppliers now and logistics. And so we don't want to disrupt any of that. So we're working in over time.

I do have one quick one before I get back in line. Can you tell us what DODGE's calendar year '19 revenue and EBITDA was? Just trying to get a sense of it pre-pandemic.

Sure can. I think...

Yes. So the 2019 revenue was just about $600 million, and our EBITDA from that period was about $170 million.

So very similar to now. Okay.

Yes.

[Operator Instructions] Our next question comes from Michael Ciarmoli from Truist.

Congratulations on the deal here. I guess just to kind of stay on the synergies, maybe first on the internal supply chain and the purchases. I mean, can you quantify what those cost savings potential could be? I mean, how much are they seemingly spending on components that could be replaced? Is that a significant piece of the bill of materials for their DODGE's product line? I mean, any color you can put around that?

Yes. It's, as I said, we go back to that sort of normalized $200 million a year of purchases. There's a significant amount of that, that RBC can produce and supply. And if we produce it and supply it for what they're buying it for, we probably -- we'll probably end up having a 50%-plus contribution margin on it. So if we can supply [ $50 million ] of the [ $200 million ], that is [ 25% ]. If we can supply -- right? So if we can supply more than that, we're kind of targeting the 50-50 kind of level.

Okay. Okay. And then can you elaborate, I mean, what are you expecting on the sales synergy side? I mean, is this tapping into their customer base, I mean, presumably, there'll be a lot of intercompany eliminations now, but what specifically are you thinking on the sales synergies? Are you acquiring an expansive customer list that you haven't had access to before? Or any color there?

Yes. Well, I mean, typically, in this industry, if you take DODGE's sales, and I haven't done this, so maybe I should do it before I say it, and you divide it by 175, so what's 600 divided by 175? Yes. Okay. I'm just doing it -- I'm using my phone, so hang on.

It's about 3.5.

3.5, yes. Usually, sales per salesman in this industry, it kind of normalizes around $4 million, right?

Yes. Okay.

Let's say, just for mathematics, that each one of those DODGE guys sells $0.25 million worth of RBC's standard product a year to people that we don't normally -- there are customers that we just don't get involved with. We can. We don't have the numbers. So what is -- so I think the $0.25 million a year comes out to something like $40 million, something like that. And that would be kind of -- that would kind of be a Clark Kent mission, right, because it should -- some will sell nothing and some will sell $1 million, and it will sort of average out somewhere between $0.25 million and $0.50 million, I suspect. But there's -- they have to be trained in the RBC products and features and benefits and so on and so forth. And so that -- there's a time lag there.

Okay. Okay. What about -- is there room for geographic expansion here? I mean, they're pretty much dominated in the Americas. Is that part of the strategy?

Well, certainly, you want to be places where they mine copper and lithium. So you're going to make electric cars, then you're going to need a lot of copper and a lot of lithium. So that's Australia and Chile and Peru. I don't think they have extensive concentrations in that area. But certainly, with this scale, I mean, we can revisit all that.

Okay. And then just the last one. I mean, I know you guys -- we've been kind of asking you guys about M&A, about the pipeline, about closing the deal. And it always seems finding the right target, finding the right valuation. I mean, how do you guys get comfortable here, doubling the size of the company. This business is already back to its pre-COVID peak. I mean, how do you get comfortable to deal with this magnitude, considering you haven't really done anything substantial since Sargent.

Well, number 1, we wouldn't have -- if we didn't have a high degree of confidence in the management team, we wouldn't have done this deal. So we feel that the DODGE business is very capable of executing their plan with our -- in conjunction with our plan. So I think we have a lot of confidence in this management team, number one. We are very impressed with their facilities and the industrialization of their facilities, number 2. So it doesn't look like we need any extensive overhaul or capital treatment. They have a strong brand and a strong franchise. And they've had -- I don't want to be -- they've had sort of absentee owners. And they -- we won't be absent.

Got it. Okay. Last one for me, and then I'll jump back in the queue and get out of the way here. You talked about projected $400 million in free cash flow in '23. I think RBC stand-alone best cash flow or even if we were to go out, maybe you guys do $160 million, $170 million. I mean, it implies some pretty substantial free cash conversion from DODGE. I mean, was this a strong historic cash conversion business? And is there going to be any required CapEx to augment your capacity in these -- in your overseas low-cost manufacturing facilities if you are successful, bringing all that business to lower cost?

Yes. It's a very strong cash flow generator, just like RBC Bearings. We'll get the benefit of some synergy through that period of time. And we don't expect anything unusual in the way of CapEx over the next 24 months between RBC Bearings and DODGE. So we both should be running around 3% of sales.

Our next question comes from Steve Barger with KeyBanc.

You show the ROLL 25-year CAGR, growth CAGR at 8%. What is the DODGE historical growth rate?

Yes. We don't have that in front of us, Steve. So we have to get back to you on that.

Okay. Well, I guess, how do you think about the growth rate going forward for that product set?

Well, I think it's certainly a GDP -- GDP is an important contributor to their growth rate. And I think they have some impressive new programs starting up. So I think there'll be high single digits. And we have -- our friend inflation is going to give us a free ride for a few points, right? So I mean, yes, it's going to be high single digits.

And you know for RBC, that's where our focus has been -- is on growth, and that's not going to stop, that will continue.

Right, right. How much of the purchase price is goodwill or intangibles? And will you permanently shift to cash EPS for reporting?

Yes, we're just fine-tuning what the allocations will be. So we'll give you more clarity once we got that tied down. And I think in the future, we're not going to -- well, we'll start reporting cash EPS to give everybody a good idea because of the amount of amortization and incentive comp expense that we have and things of that nature. So everybody gets a better feel for the cash generation per share.

Got it. Any thought to changing how you report with this acquisition, more along the lines of industrial and aerospace rather than the current 4 segments, just to give a little more transparency?

Yes. I think we are looking at that. But right now, it's not on the top of the chart, right? We have a few other fish to fry over the next 2 months, and then we'll start deciding how that best fits into our reporting structure and how we shift our segments around by the time we're ready to incorporate it in our fiscal third quarter or fourth quarter.

Yes. That makes sense. For the $400 million target for FY '23 free cash flow, are there any -- I know there will be some working cap benefit and things, but are there any one-timers or are you expecting that the business will generate plus or minus a 30% free cash flow margin going forward?

Yes. No, there's no significant one-timers that are factored into that at this point in time. So that's just what we expect it to run at.

Okay. And one last one. I think there -- you said in the slides, there's 3% digital product offering. What is that?

That's a new product that they have that basically -- it wirelessly communicates between, say, the mounted bearing and a computer system. The situation, [ think about ] mounted bearing, whether it needs lubrication, whether it's overheating, its mechanical function. And so if you have bearings in places where it's dangerous to go service them and pump grease into them or do other things, this is kind of a godsend. You don't have to send people into harm's way with a grease gun to apply lubricant. So I think another benefit of it is that you don't have to schedule downtime on a production system to service the bearing or replace the bearing if the bearing is functioning properly. So it allows you more production schedule time.

So kind of a predictive maintenance thing. Do you -- does ROLL currently have any operations like that? Or is this something you can spread across your product line?

No, we have nothing like that.

So nice potential product addition across the legacy business as well?

Yes, yes. I think it's got a lot of potential. We kind of brainstormed with the DODGE people, where it could be used, and it was a real eyeopener and where it was needed for safety. It's a real eyeopener.

And last one for me. You talked about the permanent financing, debt and equity. Just doing the rough math, it sounds like you'll need a little over $1 billion in an equity raise. Is that about right?

It's about right. All options are on the table. We'll move forward and see what the market conditions are like.

Yes. And that would be around -- just from a timing standpoint, would you expect that to be concurrent with the close in 4Q sometime?

Yes.

Your next question comes from Pete Skibitski with Alembic Global.

I'm actually all set. I was just going to ask Steve's question about the GAAP versus adjusted EPS, and it sounds like you're going to probably move in that direction. Thanks.

Okay.

Our next question comes from Michael Ciarmoli with Truist.

Just back on the synergies. You've got the target out there, I guess, $7 to $8 per share in the first full year. Can we assume that it sounds like you're not expecting much in year 1 and year 2 for synergies. So is that just merely both companies continuing to benefit coming out of the COVID recovery with some minimal savings and years 3, 4, 5, we see significant -- I guess, a significant step-up in the synergies?

Well, yes, I think we pushed the synergies out for a couple of reasons. Number 1, if we get involved in the supply chain aspect of the synergy, there's existing contracts with [ Dubai ], which we're not going to interfere with. So that's not possible for us to enter any quickly -- any more quickly. And the other thing is, just the logistics of getting all of the materials in place to produce what needs to be produced is these days is getting tougher and tougher. I mean, you're talking 40, 50 weeks. So there's -- realistically, there's limits to the physics of the thing that delay the implementation.

Got it. So it's safe to say year 1 synergies are pretty minimal, and it's just kind of both companies riding the momentum of a recovering economy?

That's -- yes. I think both companies will be taxed with keeping up with demand.

Okay. Last question I had, just on the margin profile. I mean, you talked about the, I guess, 60% exposure distribution aftermarket. Do they -- does DODGE price accordingly? I know when you guys, ROLL, stand-alone sells into the aftermarket, you don't really price differently. Are they more of a traditional aftermarket supplier where they're pricing much differently than the OEM? Or is it the same?

Well, yes, I think to a large extent, there's probably not an OEM that they're replacing, right? I mean, I think the guy that may have made the conveyor system 30 years ago, he's gone or he's been bought and sold 5 times. So I think a lot of their business on the replacement cycle is DODGE for DODGE just because that's the option. The -- and I think the replacement pricing is reflective of that.

I'm not showing any further questions at this time, I would now like to turn the call back over to Dr. Hartnett for any further remarks.

Okay. Well, I appreciate the interest in our call today and in our new acquisition and look forward to discussing it more, I'm sure, with you next Thursday in our scheduled conference call for RBC Bearings. So thank you for participating.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.