TDG - Earnings call transcript Q1 2018 | TransDigm Group Incorporated

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Operator

Good day, ladies and gentlemen, and welcome to the Q1 2018 TransDigm Group Incorporated Earnings Conference Call.

As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Liza Sabol from – Director of Investor Relations. Ma'am, you may begin.

Liza Sabol

to XXXX welcome conference quarter and call. you, TransDigm's first fiscal earnings Thank the are Operating this Chief me James call With on morning and Financial Nick President Skulina. Stein; Executive Howley; TransDigm's and Kevin Chief Officer, Chief Officer, Officer, and Chairman of release available the A website transdigm.com. and weeks, on today's next in contained will will information our replay be broadcast this two be replay for and morning's press at be be also tomorrow that our on will XX-Q filed also noted Form and be will It found website. our should

we we that forward-looking Before historical which to the statements would are begin, like are remind made statements. facts, call, you during this not

the and will Defined, earnings per measures to or net presentation the Investors during you For further Defined, now advise sec.gov. the footnotes filings per over GAAP which will be EBITDA, Nick. our of with of expressed like could those or income actual information share. turn in all website referring the comparable implied and we the in and SEC, of directly company's results that, latest also EBITDA, statements, EBITDA that As would I measures. reconciliation to adjusted earnings cause net section to call, the or non-GAAP the to differ We most and financial the adjusted EBITDA release refer As share, adjusted are from available Please the related earnings at of to see the income adjusted important the of about course tables materially through forward-looking factors a call specifically please

W. Nicholas Howley

in. thanks and calling morning, Good for again

run off will for the the summarize first consistent financials of also key and review start the quarter And then with of discuss and through issues quick a As our then Kevin impact review the quarter. will market tax strategy. near-term the new operational Jim XXXX. law. the I'll usual, of I'll

until CFO January. is as early with resigned senior to former may has in the extensive Jim personal on the externally. call financial new we is as and operating company. As today, for Paradie, reasons and experience Jim are executive Terry TransDigm the have the Skulina, XX our comfortable find seen, agreed job CFO who and either you for for or has at an the a level, years internally both with fill

six Officer For number responsible Group has of and the Executive larger units President last operating years, an for Vice a Jim our acquisitions. been

also and In addition with through his to other Jim Unit among Controller Operating has jobs. been other President Corporate responsibilities, career the TransDigm

take have gross the we sales our generated its all products through and and which job margins higher create is to products, believe on. to of our lucky in both sole Aftermarket stability we cycles revenues sales. intrinsic and from X/X shareholder our are we historically why and our by half cycle. EBITDA downturns. over produced to come revenues believe of proprietary about our over this, believe ability To we higher aftermarket willing the the XX% percent for To Jim of much sales this available phases summarize through of have source come relative the unique consistency restate, are its model We in industry the value of business in from provider, are

aftermarket a We do Our the on of with this, liquidity shareholders careful as of goal focused value of management public businesses sheet. as We own well strategy. both have with our long-term content. a aerospace longstanding balance follow to the stay and is the returns our equity-like details to private operate consistent significant give creation, we To proprietary market.

upon driver our operating well-proven, simple, concepts. Second, we methodology a value-based based value three employ

strategy as acquire businesses capital structure we key and and view aligned where allocation to with our we see focused capital clear lastly, to shareholders. we structure system compensation fit unique shareholder and Third, organizational we a our a a And maintain value. decentralized of Fourth, PE-like part closely with path a create efforts returns. that our

would XXXX, of closely To four, our regularly third has and our for either think number In did the Accordingly, attractive between. our remind be far with first, three buybacks. the of cost of of and we to Though, last we maximize second, deal to to and allocation fiscal last candidates our given year know, through seen what or down to basically allocate conditions our also after at acquisitions, this business requirements; markets. as as and XXXX are back debt. remains In and a manner fewer special attractive accretive get have current return is a in about done of full consistently and capital. brings. tough buybacks; of to shareholders. about best we've XXXX in in examples the especially we mix money a In likely and businesses. of choice but past, $X our were we we we'll you've to the the look capital see you, return aerospace this choices primarily different $X dividends, our to We'll how always we strategy chance make We to through with shareholders. special in the acquisitions, them. almost billion our debt XXXX, of But invest the proprietary bought to capital still, allocate the our shareholders, existing billion chose stock saw capital the we some the you opportunistic return to business; As the follows: priorities dividend low stock pay fourth tax, consistent years,

Now, QX of summarize fiscal XXXX. year quickly to

XX% and guidance, respectively, quarters. is of the as about are roughly that have years. our revenue they on shipping remind you, prior other been operations right XX%, versus were about average three days percent less They QX full as the in adjusted Our EBITDA QX of XX% same the year about To our there in and were expectations.

QX tax review will earnings This as per of this both detail. GAAP share in primarily and more both Jim is the result up law. adjusted the very are Our substantially. new

of As I'm still aware, you not regulations the sure been implementing have rules are finalized. and many

So, we get XXXX. law reticent this to especially too do fiscal result of tax specific additional as roughly of expect time, to year million in $XX year generate will We a the at beyond new XXXX be changes. cash fiscal

OEM about aftermarket this commercial Defense for of prior Now, the average just in was versus were growth and commercial year majority on transport the QX, vast commercial the a XX%. overall up flat same-store the versus makes up year. prior QX Business basis revenues were roughly also revenue Commercial pulled about our versus aftermarket, helicopter softer, revenues prior jet and down was the aftermarket XX%. about to flat. which

However, were prior the substantially bookings will up incoming Kevin expand on year. defense all versus this.

at get and prudent Partners, located situation, in continue to This to approach cash disciplined on the midsized is Closings of we opportunities Although predict. are we for PE-like sale of after cash the been in move tight a especially respect the operations one the acquisitions, in PE behind Without completed most our a focused additional The trend, opportunities of generate to Schroth activity, about meet lot about we from in of us acquisition the overall requirements. make cash of But impact was that Perusa capital not $XX to Germany. good the firm the and or outcome. feel it this return difficult pipeline we practical a start given believe at is We at to remain opportunities. to aftermarket. can the considering With quarter year looking doesn't January recently. million commercial to any We and on. closer looking structure tax expect a now new great law. end the value $X active. We've the billion

continues this. the pay In estimating a increase we to summary, are in income the year. the and new of we're may and and leaving earnings law's the guidance give on we QX, as as looks was offset savings in at EPS conclusions, actual adjust refinancing, EBITDA year adjust LIBOR quarterly. due little holding roughly to be rate. soon impact. In similar will we recent another in as If net to unchanged. call, we that end in Since range, seems expect to As I the the draw so a outlook estimated far don't revenue year QX are the words, business for a year increase said we intend flat. well guidance full adjusted color our more at Jim The our guidance be the comfortably too situation time. full to our our tax modest long to start interest The the last by it expense our any the guidance good about from the rates are

fiscal strategy and year in mix intrinsic to over looks value-focused to any positive. our event, shareholders. XXXX long-term continue me consistent I'm And Kevin. our we value strong But with create of can with business for let that, hand far it So, our confident

Kevin M. Stein

Nick. Thanks,

fiscal our fiscal you've of to was year. QX As start an seen, year XXXX encouraging

Now, category. by revenues to market review our

fiscal of makes our up about year were flat basis and For XXXX compared as when OEM Commercial XXXX. compared prior transport our will color market, commercial the discussion of provide which the the business, our up pro OEM OEM which year to remainder prior-year our of the into year of down the when about compared period. will In to make XXXX. usual. market, slightly most we commentary on a call, I were QX split In OEM commercial revenue, forma commercial QX aftermarket of to revenues, XX% the fiscal revenues

to rate wide-body platforms, appears OEM management slower which OEM to the on commercial reductions created customers, our in headwinds We wide-body ramp-ups believe simply new of platforms continue on inventory market. have or much by due

the significant in commercial As can transport sales case occurred. no the and in was But, content have at be core, chipset XXXX, down OEM quarter-to-quarter. up changes

bookings were about Business simply up timing to of tell Revenues XX% revenues in helicopter what QX for dissimilar digits if in up too commercial So, when compared not to period. any high-single sustainable, year-ago the softness QX but are revenues. market jet to in OEM more, reporting. positive were the others OEM even our make this soon and but related. industry up sure, is

in a is on proprietary surprise the proprietary and powered our given freight performance and demonstrated in both nets strong by less driven about equipment the aftermarket, to freight XX% commercial quarter. over up Commercial Now, XXXX increase year grew total which about almost fiscal business; aftermarket were makes aftermarket, our QX commercial total revenues period. XX% up prior-year the in revenues of the moving revenue quarter. commercial This by in industry. our transport This our containers market freight was aftermarket reported in the XX% aftermarket on not from results growth handling the where Telair all the businesses Europe others

return in For our a QX a fiscal was year of XXXX. discretionary interiors welcome aftermarket, change modest to growth

However, market although QX period was a this a of of retrofit lack better, robust interior segment we after on visibility programs. new growth cautious remain and of prolonged

well as albeit same of quarters, go Finally, the have we've piece for aftermarket digits the low-single XXXX do the commercial in helicopter of which the this jet and OEM to for discussed still through up insight not takeoff peak were the Business continued of business final the we revenue the XX% off XXXX. of And an previously. landing modest in of market. aftermarket, The as timeframe. in jet such, this have year sales improvement segment encouraging our tends in from the total QX fiscal into accounts cycles sign aftermarket, prior

our industry, looking However, markets segment our of performance an demonstrating have some passenger this for favorable cautious total of all segment of year our and in on but shown strength; Business is it's aftermarket, our tell showing improved metrics QX stability but this if elusive. continued feel aftermarket, commercial XXXX, discretionary will early required. is freight summarize now helicopter usage there to optimism units; solid too continue. the the To as we interiors business level forward, in is yet fiscal jet market are

aftermarket includes prior-year encouraging Modest to an which market which both revenue. our grew quarter. versus while lowered timing-related remains for unchanged few QX. one-third businesses. market in strength to as and at by speak OEM our total defense of OEM were and defense about aftermarket aftermarket let Defense our flat slightly. due shipments, about revenues, The our defense than defense bookings Now, delays be a times the at XX% defense both can OEM me provide market, relatively business Today, only bookings continue expanded greater about narrative

be and distributed appear total revenue are However, businesses bookings in most well and defense segment. coming to the from

be must common points. are and always, these like a the caution As bookings defense data market, in forecasting shipments few used lumpy of in and off

not shipments. Specifically, these strong bookings QX to tie are direct a

being base that examples. value within as Recent to are our focus integrations value-creation business acquisitions continues acquisitions touch basis, but line of Device product are QX about progress Data find Jim part A at year-over-year and important is a respectively. percentage for margin continuing into profitability drive relocation XXXX, let for and numbers, integrated for XX.X% year The us indicates Margin Hills improvement more few our opportunities for improvement for AdelWiggins, Defined on our AeroControlex EBITDA product in the point operations came operating of and on to TransDigm. margin of an me Preece, Cablecraft of strategy, such will North just improvement an and drivers. line provide As Moving under reported acquisition These of always period. revenues the a for X fiscal same Corporation on these. especially to

All will within the of be completed moves year. these

ongoing take to structure, some better organizational locations Additionally, streamline and manufacturing cost focus we decision our drive to the to in improve effort an and consolidate productivity. periodically

business Fluid We Northeast recently line facility and lower Dukes allow and Ohio. Products Northridge, leverage product will relocation This customer Aero closure Fluid our further to us Products announced become in our business. what relations costs have our the grow California to will in expertise for of our to a Aero move and

our let Finally, to structure speak briefly. me organizational very

our Whippany EVP, moving Executive collection three has a created the the units Actuation before Rubiano, will will To President Jim the in operating has As Officer hole XXXX, President and, have from for backfill Skulina units TransDigm carriers reporting the action Rodrigo Vice with place succession Feil, ranks: you Executive with who since individuals so, Schneller; business of This on for provide doing has in units. of for EVP. two sales have President as of been are President, future Europe as Chief this Vice ultimately in Alex TransDigm and ensure and and of served Financial Systems we and promoted for Rodrigo our who in a following initially with aware, leadership needs. Both to acquisitions our need, of European accepted grow culture to are the future President TransDigm within eventually role take in years. working has becoming past business our a promoted to number been them to capacity have

all, recent and So, of Financial over would conclude our the drivers was Officer, profitable QX Focus set of will another of by year I let like XXXX. value me for now and fiscal solid Skulina. XXXX With strong turn us integration that, business, in all Chief stating, TransDigm. quarter a to value it pricing successful our acquisitions up to on productivity our for Jim new

James Skulina

you, some expand Thank in to provide few tax a included reform. Kevin. like and I'd results items quarterly color on the impact from financial regarding our

approximately prior year. greater or up million net $XX than X% sales million, $XXX First quarter were the

X%. gross Our an $XXX million, of quarter profit increase was first

XX.X% favorable profit points products was Our due strength and the to primarily of product X.X than our prior acquisition-related the of margin margin higher costs, non-operating proprietary mix. year reported lower gross a

Our the selling approximately up were in debt versus weighted for quarter XX.X% year. $XX.X interest quarter prior in and increase is an in had versus sales in XX% billion year. primarily of expense prior the of current in billion administrative compared million, of average of the We result the increase This quarter. the a prior XX.X% total expenses current the $XX $XX an to

expense X.XX% term savings to better $X fees to related annualized of before approximately take million re-priced we plus The to of plus quarter, expected approximately from LIBOR our decreasing rates, interest X%. this $XX is loans re-pricing. billion the LIBOR During advantage

since last increased has earnings LIBOR However, call. our

X.X% assuming So, we approach are end full now fiscal LIBOR LIBOR currently for the X.X% our year an the The of instead average of about rates X% X.X%. of by year. assumes

To start is we kick to this an analyze interest included rates, reminder, a once increasing our slides table X%, credit morning. in hit As swaps sensitivity there in. of rate impact the the LIBOR the rates provided

The our loans, in present rate. impact offset increase to opportunity are of fees actively was by itself. LIBOR to the should and re-pricing the related looking We also re-price net

full to As $X compared a quarter due this year in at the stay to Refinancing was interest to in year result, approximately we prior expense completed still $XXX of $XX expect expense the lower financing QX our million. million year. million in

international XXXX QX. XX XX.X% Now, Tax statutory The moving law of tax during not on reduced for Act will Act our a impact to fiscal on foreign December in taxes. and tax until XX% changes other with Jobs foreign to We fiscal changes XX% provisional to subsidiaries. earnings rates historical one-time a related The to blended the the a XXXX fiscal includes $XX for repatriation U.S. rate our Tax operations enacted on federal rate The dropped interest quarter for charge repatriation and operations tax recorded from Cut transitional and effective and XXXX. tax. The after. million the significantly

benefit a related we deferred to addition, tax U.S. to the In tax recorded the our $XXX of re-measurement million tax balances law of related changes.

provision Tax As between rate XXXX tax result, was a to adjusted less X% GAAP now U.S. of is rate year. the The effective XX%. little rate to a XX.X% and GAAP is XX%. Cuts to is quarter We around expected The benefit tax Act compared impact the estimated Jobs X% estimate and after be tax to year be our cash a XX% a tax the of the for to the X%, full to current in prior be to XX.X% rate clear.

Some yet regulations not are the defined. of fully

changes will rates equity answer the will the begin law us we capitalization be rate assume impact lowering not the the (XX:XX:XX) an see having than the do interest slightly strategy. still I will impact question, statutory purposes, XXXX. despite our tax to forward, as next planning GAAP significant tax in changes. be To going higher GAAP on Debt expense For would tax our cost obvious than

rate $XX net This increase XX% net a costs, primarily increases by refinancing net to compares the quarter to is lesser to year. $XXX interest to share were share Our compared XXX% $X.XX share lower EPS income quarters from sales, and to acquisition-related in costs per The of income which $X.XX net on the continuing of and increased $XXX operations quarter period. by operation the effective options was impacted the net current XXXX. offset million, we per related in or $XXX payments dividend partially million GAAP a stock $X.XX payments shareholders significantly paid per or higher dividends million sales. in continuing vested in or reflects year. the of to in degree of paid in sales low XX% fiscal $X.XX of or compared prior were paid and $XX last quarter Both in paid equivalent per primarily expense. the income to in share prior million current Both million $XX the

the deducted reminder, be this from before income the earnings is to net actual payment accounting calculated. requires a As treatment share per

Our per $X.XX tax to was impact adjusted reforms. year. This a $X.XX per of an compared share increase share includes $X.XX favorable last per EPS XXX% share, from

sheet. generated cash over compares quarter EPS Switching gears million almost tax and and increased release, which the per to adjusted of liquidity. million from refer $XXX favorable operating to table current X year. to Please X% cash reconcile in GAAP of the the with morning's cash We the press in Excluding and $XXX balance EPS. this ended activities prior impact, share earnings

taxes acquisitions the the to This fiscal our end between and estimated sale for We activities. and capital to of include for billion $X.X assumes X.X from cash additional lower the proceeds Schroth. no structure the are or increasing of billion expected cash balance XXXX be

net leverage the leverage EBITDA We will times pro XXXX quarter at additional X.X billion EBITDA X.X our capacity net pro to September acquisitions the times Our to over $X.X regard market as X.X to our both our $XX.XX guidance, related bridge slide gross We we $XX.XX. EBITDA. billion The our This or change adjusted capacity of per a still be Defined, in times In proceeds. per tax to share our earnings year midpoint now was estimate GAAP to per see assuming With debt a steadily guidance. adjustments X QX leverage forma adjusted ratio earnings to time, our XX, be adequate the As start XXXX. at be and in end to estimated of equity. was X.X between between transactions. to make share of fiscal billion share, capital effective tax forma estimate grew and summary, in $X.XX related EPS no to per was $X Increase $X have earnings we Please to acquisitions the issuing midpoint without GAAP currently times for detailing GAAP to good the rates due share and and of adjusted estimate was reform.

I'll to Now, back kick the Liza off Q&A. it hand to

Operator

Kevin. you, Thank

ready the we are lines. to open So,

Operator

question of Stallard first Vertical from Our comes from the line Robert Research.

now is open. line Your

Robert Stallard

much. Hi. so morning. Good Thanks

W. Nicholas Howley

morning. Good

Kevin M. Stein

morning. Good

James Skulina

morning. Good

Robert Stallard

I start can I aftermarket. Nick, Aerospace on thought – the we'll

it's a the good a you year? there this that to the caution for the quarter. had suggests from But in Was down very your of that are guidance given bit here. things is start You QX, year natural slow just of or unusual saw anything going first

W. Nicholas Howley

think just a I caution, it's bit Rob. natural of

of about if last the next doesn't few sort of point we move said, isn't some years, the believe quarter, it me bouncing the tend data that hang end there's after moved up. to one at quirky I But nothing enough it. around guidance over things the wouldn't surprise on if to As we in just, yet. – It's

Robert Stallard

strong moment. moment. wondering anything there of at in you bit the particularly the looking the give you in you're Okay. is of attractive little there M&A can us arena you Was terms if if And out a of color a active as then, what maybe properties, follow-up, mentioned weak the that's are at or seeing or

W. Nicholas Howley

close around we active the treadmill But looking I we're on Yeah. it's – a I guess obviously running circles Rob, you as we're I stuff. anything. what in the we're didn't same same of say businesses because active, of Proprietary kind when mean, or is sort – at.

quite or four We active have but in the patterns past. been our in, three different we've substantively not two than or

Robert Stallard

Okay. Thank you. That's great.

Operator

question Copeland Research. Carter of comes next from from Our the Melius line

line Your is open. now

Carter Copeland

guys. Welcome, morning, Good Jim. Hey.

W. Nicholas Howley

Good morning.

Kevin M. Stein

Good morning.

James Skulina

morning. Good

Carter Copeland

a I be to if we a timing. some wonder Just on of see did that might any down. piece. that of significance wide-body you But talked quick have able couple quarter. bit elaborate the other I ones about the know a destocking rates little OEM from couple any had I on more of are the mean, you AXXX? this I know guys

Kevin M. Stein

wide-body all the to lump down I'll that startup. some left Yeah. of into pushing a opportunities and slow the

side, the the board answer wide-body. to the content. we're across chipset not on OEM any change Again, in So, yes, seeing that is,

So, related. grow It's see That's opportunities expand. far. timing we just we have and the continue what so to

Carter Copeland

growth And just the or on bookings that any that either to us piece, on see was here. clearly, Okay. bouncing significant freight shipments? Great. in how bit encouraging you a give color little Can

Kevin M. Stein

with Well, to want the you in I some It's we don't what through color. the unlike I presented don't is trying guys to details just think the the year not to up last go give want It for we industry. submarkets. – demand all nicely. was We

out to the seen freight metrics grow. that FTK's there shipped You've tons continue

and are to our seen reporting, there's tie say in in freight X%. both and that, freight I and think in expanded business can't we orders but is it that shipments. the other from strength at there to I folks have the sector what just our XXXX metrics

Carter Copeland

guys. All Kevin. right. hop the Thanks, I'll in queue, back

Kevin M. Stein

think that, to it's anything, that's than... little probably I say better if fair a

W. Nicholas Howley

It is. It is.

Kevin M. Stein

Yeah.

Carter Copeland

guys. Thanks, Great.

Operator

comes question from next Kahyaoglu from line the Sheila Our of Jefferies.

Sheila Kahyaoglu

was grew X%. XX%, aftermarket? EBITDA the commercial thanks talk the Good we Can Hi. for and morning, your at very time. up nicely about It but guys,

maybe profitability just mix the and what some more muted of maybe So, drove growth?

James Skulina

Kevin, do to... you want

Kevin M. Stein

Yeah. Sure.

it's good a So, question.

X% up Our feel with should it some I profitability higher. in aftermarket, that, close growth would was the maybe know XX% that be year-over-year. to

a business. through the were margins shipments that some our whole we on look it, by had, the margin we lowered defense as side that softness we impacted As

Specifically, a look Airborne the some the have; impacted seen Europe. in bit and across that America I business has our lumpiness North parachute businesses to we've margins that we in Certainly, some shipments business. and

Beyond than we or to that's somewhat that explain the us the the thing we margin shipped, explain that I does can had would that might available we have see expected. lower shipments only

parachute came the QX headwinds can of on that specific which well. defense to the extremely seen past our lumpy the side pass and this be as we've business, business Some to in

the in I our saw in That's in just first what year, we for still Now, businesses, we those think plans. quarter. confident feel the

James Skulina

year, And under up little we're just that we comfortable get for our XX%. a still

Kevin M. Stein

Good that's Yeah point. right.

there. second that is guidance. ramping that first unusual anything impacting our have a in any half So, is to have half we us, usual. per and as there ramp the a year over us not full margin I we is don't for which XX%, close getting the year It's there's think that concern

Sheila Kahyaoglu

one for how... tax Does Kevin, – reform just then, color. it the change I capital How And more. guess, Thanks, deployment? Sure. does

W. Nicholas Howley

Can speak speak you. you you up? hear up Could can't a We little?

Sheila Kahyaoglu

But come or I always off... I'm it Nick, not, yelling. Believe

W. Nicholas Howley

All right. (XX:XX).

Sheila Kahyaoglu

reform deductibility tax change from change I'm loud. But how interest does your here? hurdles acquisition and rate

Kevin M. Stein

have how does it, rules, to tax I clear acquisition our criteria? change the change in tax just question, the laws be the Is

Sheila Kahyaoglu

Yeah, exactly.

Kevin M. Stein

mean, taxes we has less on I don't I you changes hand, it the all. we total. the pay you any impact. for pay other go always little it interest, more in think I it if material through same net at a go doubt maybe math through, but

Sheila Kahyaoglu

it. you very much. Got Thank

Operator

from Our RBC. of from line comes next question Matt McConnell the

open. now is line Your

Matthew McConnell

morning. Good you. Thank

dynamics seeing rates, OEM any sales just programs seeing their are portion of change your so you I'll Just ask, we that else the sales are production transport anything or or in content decline, about? thinking , biggest as increases on to your that the in should any there – be follow sourced up of most pricing are are sole probably

Kevin M. Stein

No No position. chipset can It's nothing changes. in on. to as look I Nothing clear business, that very source the there. sole content. put changes really I change No report my to finger across there's

Matthew McConnell

I maybe impacting impact that? seller it any are know don't any how it Okay, that is great. their sell. companies after-tax changing willingness tax way? to like M&A; and just Is another expectations way and it M&A flow cash changes one Thanks. market in better might seeing private on And if in the

W. Nicholas Howley

– This Not if suspect think a thin. it Matt. I is I too – slicing I it in mean, probably too soon that's Nick, is, to it's tell.

tell. think decisions large for than surprised. make sort it's issues to be and of but that, I'd too by I very more the people macro soon But

Matthew McConnell

right. All much. very Okay. Thanks

Operator

comes Seth Seifman line from JPMorgan. from question next Our the of

now is line Your open.

Seth M. Seifman

the to and morning. you can expect Thanks on conclude status and update when us you very success your negotiations them? Nick, for good much, of partnering

W. Nicholas Howley

where Yeah. can to in periodic really out – progress forward. at stand, end tell year great there's say We're runs contract no you I Kevin, going discussions. The calendar I we is, the we want XXXX. mean I – which

Kevin M. Stein

Yes.

W. Nicholas Howley

Calendar agreement we XXXX. be to right? until get if close report fiscal report typically says little conclude year there'll mutual to lot we recall, you which Not issue; anyway. that. they very will have XXXX, And I can't suspect year confidentiality with a still the a you

Seth M. Seifman

then, tracking business. a expectations your given of it's there might sales. aftermarket I start were kind – sounded makes I Right. was to retrofits of things And in sense. like the But That on you better kind to the large your Thanks. it interior would businesses think that has to relatively one backlog visibility get that relative you when of thought some wondering

W. Nicholas Howley

Yeah.

and lot progresses, on be teams are There's backlog, on, orders, upgrades I year to it a as we'll business, fleet on promising. visibility more splits the the retrofits that working out. think, continues that as get

lot tell placed. orders a there's are booked and But of the activity. So, as time will

the say, really need to gave of now. I to any We think that it's the don't mean, safe I guidance some beginning probably rough see change we in year.

Kevin M. Stein

That's right.

W. Nicholas Howley

Yeah.

Seth M. Seifman

much. very Thanks Great.

Operator

Stanley. Lalwani Our from Morgan Rajeev from line comes of question next

Your now is line open.

Rajeev Lalwani

gentlemen. morning, the time. for Good Thanks

Kevin M. Stein

morning. Good

Rajeev Lalwani

a interactions with front. you customer a seeing growing on some you take of at and Are of as there for over Kevin, the maintenance procurement a incidence given question aftermarket activities of the just Boeing push of airlines? the all their some to

Kevin M. Stein

of. past. we're different the that activity seeing say aware that is I would any Nothing any from there not I'm

Rajeev Lalwani

have I think, Okay. before, tax but rate then, what you are question That's guys that misreading going you side. just changed highlighting be to just Can a on expecting bit. benefit now. from the over tax tax just quick helpful. maybe highlighting seems you're Maybe forward? real a a clarification what no reform, to I'm a maybe or you're the go And

Kevin M. Stein

Let rest it. can the me And, least, try you I'll at answer just Jim, answer cash. of – the

we think, this year expect in XXXX. million extra cash as we said, I $XX

that's clear you one benefit. do And, Jim, So, want...

James Skulina

Yeah. I XXXX question or mean, is your going XXXX forward?

Rajeev Lalwani

just more a and Yeah, and perspective. then GAAP tax go-forward from maybe beyond, rate cash of and a rest XXXX perspective then fiscal and on both of XXXX of a the basis

James Skulina

fully the probably – yet of forward. to to rate in bit to But going most. The will believe piece should be where a than higher hard defined. going statutory historically. XXXX aren't regulations It's the at rate be little down cap EBITDA the that's you the us to We impact kicks a forecast that slightly XX%. XX% it's XXXX. been still That's in, be XXXX it's from going take look and it All to of has interest

be to going for positive still TransDigm. So, it's

the for rate So – suggest than XX% use. planning you purposes, slightly – to higher is if going you're what I of statutory

W. Nicholas Howley

(XX:XX:XX), say, significantly we safe will Jim, reasonably be And think that correct. I it's to

James Skulina

Versus what would it been have otherwise.

Rajeev Lalwani

Thank you, gentlemen.

Operator

next Herbert Ken question line comes from Our Canaccord. of from

Your open. now line is

Kenneth George Herbert

good everybody. Hi, morning,

Kevin M. Stein

Good morning.

Kenneth George Herbert

the defense first, mean, wanted were business business side, the book about relates portion should aftermarket. out or I just or not how clearly as mix? ship? the you bookings sales ask wanting a timing the and us I to this OE from get mean, what your and defense like too you OE bookings, we remind the of some are splits about just for called how to specifically, you to second strong But on the on think or maybe standpoint again and maybe really both between it aftermarket the I quarter. the highlighted sounded Can it excited

Kevin M. Stein

So, a things you asked few there.

OEM me being for less OEM about of than business, split slightly aftermarket the it of about rest rest Let – XX%, of the XX% the just the aftermarket. splits the our of – business, with XX%, defense to business XX%; for and like on

W. Nicholas Howley

What were the those? your question to Can again? you pieces follow-up repeat

Kenneth George Herbert

book cautious the it really and were a strong ship read-through little Just of or sounded the with second the much about to quarter? what's like is how timing direct bookings businesses perhaps the you because

Kevin M. Stein

businesses we booking the about we to confusion more the sometimes book I are try there's when that in bookings or that that give always put orders Well, – place we will into guidance to our because and allow come – some due do give orders – years. that in. two We system next

on defense the and you side. side, the the OEM So, future aftermarket on have more a lot into planning both

with the go due That's QX to was defense opportunities shipped. be well caution they're just to when our see and coming we on I orders number. the that. We're the seems and in guidance it's expect defense side, as the confident to So, book some of support up that order – as I and dramatic timing cautious wouldn't

Kenneth George Herbert

Okay.

W. Nicholas Howley

Yeah.

any it that I draw to favorable point. positive conclusion think, other than – yet got our we at can than a – as of year you versus it's it's a rather Kevin, kind data we know look don't a

Kenneth George Herbert

with I'm Yeah. And philosophy OEM in and distributors? going for I your direct the Has just just the a or one could business getting use aftermarket more distributors OEMs. aftermarket the maybe little the if versus maybe on changed anything types or distributors around thinking aggressive aftermarket, on curious you of bit your airframe of commercial sort

Kevin M. Stein

our That will They relations is significantly We do. by a units have always something we business a think do local We that a encourage use that part as of aftermarket. our continue. unit to distributors But culture. our key not that direct unit. what on in we evaluate TransDigm, business as autonomy business company, I

our make best make they XX% sometimes of and only So, decisions track that they The XX% up on, for on report to business. major business. what's distributors their we

So, we business our of considerable already take a aftermarket direct. amount

of small to the see individual is moving we to That's So, is on. units aftermarket really what part business. business we business and decide up the a the distributors and drive how

Kenneth George Herbert

Thank Perfect. Kevin. you much, very

Kevin M. Stein

Sure.

Operator

comes the of Michael line Our with next SunTrust. from Ciarmoli question

now Your line open. is

Michael Ciarmoli

taking Good guys. Thanks Hey. for question. the morning,

Kevin M. Stein

Good morning.

W. Nicholas Howley

Good morning.

Michael Ciarmoli

aftermarket on trended you about aftermarket the know have commercial strength in the you did talked the may how this. in color defense But commercial any I on bookings? missed I Nick, give But on details the quarter? OE the aftermarket. and

W. Nicholas Howley

bookings didn't ahead the revenues... in are bookings coming The The But give about bookings – didn't – are Yeah. specific of it. talk number. the a we we

Kevin M. Stein

is The up. book-to-ships

Michael Ciarmoli

of sticking then, provisioning just Okay, in the the aftermarket, the with we're seeing of okay. newer marketplace platforms. strength a And on some lot

this your provision-related quarter. good airframes? growth I know for to new rest you you're You seeing anything are where on any some a the obviously in have Are products that of you had those But positions you hesitant change seeing growth on – any aftermarket? of the year.

Kevin M. Stein

provisioning initial – for not significant provisioning a us. speaking, piece Generally is No.

And we a provisioning don't year. see given quarter to headwind so, any as or a tailwind or

Michael Ciarmoli

or it. last specific booking That's strength, the And one. on just helpful. product Got platforms? then, defense lines Any color

Kevin M. Stein

It's unit largely of the had a significant units business nicely all we our across on as spread or in bookings – business that's spread that well. there past, quarter, is our or a It called say. the across here I should the shipments In units, case. had not and out units of business been and our bookings both most

or company. or one nicely And It's not so, spread. product one to program one it's due

Michael Ciarmoli

guys. lot, I'll it. the a Got jump Thanks in Perfect. back queue.

Operator

the from Company. line comes of from question and next our Cowen Gautam Khanna And

Your open. line is now

Gautam Khanna

in seven in to right willingness eight you've market leverage here? that of Nick, you where with or we terms acquisition. still go the for in your talked morning. think Is Good I the given the and comfort of in Just level about your reform – comfort Thanks. are the cycle? comment to past, can times on tax

W. Nicholas Howley

changes that. you – substantially return. the question the side, the like equity think an issue don't tax the cheaper debt And business I a that. law you should than tax is the to after-tax be which there with it, don't ought want that equity its if basis. very very the view I I reform on to biased you're carrying changes is this mean, stability to on extent fundamental comfortable my fundamental on debt think maximize the

I be bit, fairly On there. times probably tell. say, it's limited a it's the practical leverage question? the year calculus was up in the the What may but you've seven marketplace, think loosening to to as so. small tweak last in would a around matter, That a been or soon other level, in the little too I

Gautam Khanna

larger M&A pipeline. active your you that mentioned an criteria... Are you properties seeing that's Okay. pipeline And than in

W. Nicholas Howley

more typical range say of size I are stuff. would

Gautam Khanna

Okay.

W. Nicholas Howley

I there's there's �� group I candidates. of large can't any can't say disproportionately say

Gautam Khanna

Got it. public? private there or also mostly is And some are it

W. Nicholas Howley

All of the above.

Gautam Khanna

Okay.

W. Nicholas Howley

Which as difficult. rates closing the all closures time, – predicting I does not or say is very

Gautam Khanna

you that Maybe you in role do the and to just the number that. or do you, just expect of on plans, bit for a one about see you in years thoughts years of of Nick. your agreement could same any a Last your with comp have kind goes talk be evolved Understood. firm little five next this what the if and

W. Nicholas Howley

all think Yeah. I have things I've thoughts don't changed my the shared people. from with

to capital disengage. to of think in that. I some and a I'm that. no and hurry maintain my role contract on runs activity hurry Chairman reasonable and like, out thoughts XXXX, changed Executive get probably be know, point through M&A you into allocation, As I have have I no amount don't like a transition out a that at would things an for that responsibility of that here contemplates would say,

Gautam Khanna

guys. lot, a Thanks

Operator

Keay the comes Our of Wolfe line from Hunter from next question Research.

open. Your now line is

Hunter K. Keay

Good Thank Hi. morning. you.

Kevin M. Stein

morning. Good

Hunter K. Keay

a about forming prevented and potentially Good opportunities How from JV risks the the do Embraer? morning. you Boeing think with

Kevin M. Stein

Embraer I -- customers there's being large airplanes, small. I really see that. not can't assess many don't one don't impact I particular of for us any or is that. whether to disproportionately

Hunter K. Keay

Okay.

Kevin M. Stein

I it risky, always say probably is I'll think but anyway.

we – our in is I content think Canadair content Embraer. larger with our than

Just to put Embraer context. a into it But good... is

W. Nicholas Howley

Good account.

Kevin M. Stein

– Good we account partnership good have.

Hunter K. Keay

bank off pricing been said seen impossible? revenues commercial XX% you on terms of growth way – guide – years. the about then, over guide have hesitant And even more aftermarket said and you that, are there soon you real start the improvements you're – X year you the aftermarket hesitant talked to raise they are that the about are given the you. in just in being in obviously got sort I May, you're up it's it? It's – But no seeing raised the bookings you suggesting are time revenues than pricing obviously. years in few that some of to of last you many and growth Nick, where so because maybe last But last early so pricing you you commercial hesitating haven't

W. Nicholas Howley

All pricing I seeing weren't never of we it. said improvements.

Hunter K. Keay

like no that growth thought or I pricing last it saying was was whatever X you're May? there

W. Nicholas Howley

What I years, minimis. ourselves, we road industry you through in the posted price, and on website for was a aftermarket last guess we our total referring year, that, I said the up growth de and out across is, if growth I five also over you're that's the the said is last organic the and it strip show commercial concluded to. across a went at What industry. look what

Hunter K. Keay

that, but... Yes. I misinterpreted guess I

W. Nicholas Howley

I that – just don't said I ever pricing – there to was be particular pressure. we clear think don't

Hunter K. Keay

Okay.

W. Nicholas Howley

that the better our real the up of underlying comps say was growth prices XX% is the The It went and we across through obviously when I competitors. saw than public industry all aren't XX%. whole that. we would

well, to are. last So not wary that we three four Hopefully, like Yeah, that's wouldn't guidance. if to much with And said, little hangs as because think in or be comfortable a if me volatility obviously is bumped we real up next are I it growth. we it And quarter. surprise we our the would quite the in of I pretty say it that's and years? very we wrong, feel

Hunter K. Keay

I got it. Thank you very much.

W. Nicholas Howley

year, guidance the – think of unless outside guidance with the beginning material until to reticent we as stick we a the of we we're have ranges, change. our we're going But said at changes our original

Hunter K. Keay

Thank you. Okay.

Operator

line the from comes Drew question next of Our Stephens. from Lipke

open. Your line is

Drew Lipke

XXXX. just you Yeah. on proxy, on after was think due look the number and impact ultimate five to May points was Good years your you point growth that a double-digit I service, of know growth coming question. my of of Maybe to aircraft that XXXX, high-single conclusion morning. that kind reaching in really as in there Thank if commentary just driving bigger using last XXXX you the And calendar the it volume factor. the that lease from longer I'm in about are a aircraft aircraft. that curious, traffic maybe digit for no just to market taking at last sticking younger and

that you curious, I'm or like seems can now. it and And a you to talk we little seeing So that fruition should not kind seeing are of just be bit? around that come

Kevin M. Stein

I what we in would one and doesn't first point want saw quarter, data make saw emphasize, we I a a one say to just obviously, view the But, positive. you – quarter think quarter. trend. as it – I the

Drew Lipke

was Okay. just Yeah, thinking... I

Kevin M. Stein

rates off. is fastest doesn't to changes. drop production just thing drop to doesn't the as something production went over This that'll look than I But, data year, point. this changes It'll – and good if is quarter sort this don't change that aircraft for I off, the five we rapidly. percent also gradual make last have that mean think think a of you it years that through of less step I happen. age mathematically, rates But the think five this we're over cheerleading as years, change at (XX:XX) a a that first

Drew Lipke

always And guys includes the quarters four you talk about commercial been X%, I rolling price. last growth. it's your think and averages that kind of organic I think aftermarket four And quarter for

for mid-single point mean, XXXX we And maybe a maintaining the growth to that that for so, is that guidance? I for fiscal should digit reason

Kevin M. Stein

of it, the we we'd year but guidance to then for the we're that's get and I more think right that staying would gave – you if we points just make now, see differently, we telling guidance with adjust comfortable If I you we're think data the think is think it. we continue with. stick I likely us as

Drew Lipke

maybe that earnings and Jim; talk just through that a it to missed then one clear but the I it, as adjusted perhaps bit? quite release EBITDA I adjusted you the lower can and December in little for a restated quick was, like wasn't why XXXX looks you just And Okay.

Kevin M. Stein

from Oh, QX?

Drew Lipke

Yes. XXXX, fiscal XXXX?

James Skulina

the our Yeah. balance we the Basically we Defined As our FX our is for EBITDA report that we we in sheet. credit right? agreement, adjustments basically QX XXXX, found disconnect revaluating we from Defined, right. – All including So, basically when the what were credit with did of As All per EBITDA a aligned As Defined agreement.

back went corrected that. we and So

Kevin M. Stein

periods. both In

James Skulina

that we so periods, both In had apples-and-apples, correct.

Drew Lipke

Thanks, Okay. guys. That's helpful.

Operator

now line from comes the open. of Our Sir, Peter from your Baird. Arment is line next question

Peter J. Arment

Thanks. Yeah. Good everyone. morning,

Kevin M. Stein

Good morning.

Peter J. Arment

quick Are the or start another guys that get it going impact again? And impact you guess just the one into feel extended would if to you like environment. Looks bookings CR out when defense extended from got a an I or to March. any we're Nick, on seeing

W. Nicholas Howley

the hard much. don't if down it's that you be dribbles we I buy, our by I to surprised to – see know, time level of see. awful would

Kevin M. Stein

down its is gets truth way way, waterfall going our before But that's the waters. to dribble the it to

Peter J. Arment

Okay.

Kevin M. Stein

now. change at much least see don't I

be start I made dislocation defense substantive going people that, saying spending see to to in a don't you If assumptions, we see that. some and but it's

Peter J. Arment

just one, then, clarification. Jim, quick And Great. Okay. a a

you of of to said You any M&A leverage cash sort no the net by the year if or end did shareholders.

James Skulina

It was X.X%. X.X% to

Kevin M. Stein

the year. what is Which beginning said of we at the

W. Nicholas Howley

no change. So,

Peter J. Arment

No change.

Nick. again, Thanks Okay.

Operator

Our next Stratton Lakes David from line question from your Sir, line is open. Review. of Great now comes

Kevin M. Stein

Hello. there? anyone Is

Operator

your David line is now Stratton, open.

W. Nicholas Howley

Hello?

Kevin M. Stein

Hello?

David M. Stratton

you Can now? hear me

Kevin M. Stein

Yes.

David M. Stratton

Okay.

swaps, debt Sorry do credit estimate about is debt? that. what The question total was, given your your you of the percentage fixed to

James Skulina

XX%, about fixed. XX% It's

W. Nicholas Howley

Yeah...

James Skulina

Thanks to our collars.

David M. Stratton

debt And derivative then base from increasing. fixed that is what given away you protection your transition At rate in and that point, general? do balance Right. to more LIBOR get sheet

Kevin M. Stein

it You're about exists future now where correct? a Not now? philosophy, talking

David M. Stratton

you interest the if rate? to exactly, continue Right, raise

Kevin M. Stein

until up. I have market very, we what see say I'm comes speculate as conditions we on to them. very situation – capital in We'd the doing evaluate would we're to that, just different

David M. Stratton

you. Thank right. All

Kevin M. Stein

for variable though debt on is essentially of is rising, enough, spread now, debt interestingly our the right As LIBOR dropping. the

W. Nicholas Howley

that the This paid isn't interest is far such net so changing.

Operator

turn call questions. And back Ms. now Liza to I showing currently Sabol I'm further like remarks. any no would for further to

Liza Sabol

earnings for morning's want that We today, everyone just call. concludes thank calling this and in to

Operator

thank conference. may program, you and great concludes and you Ladies day. This for have Everyone, today's a today's gentlemen, participating disconnect. in all

TransDigm (TDG) 6 Feb 182018 Q1 Earnings call transcript