TDG - Earnings call transcript Q4 2019 | TransDigm Group Incorporated

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2019 TransDigm Group Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Instructions] [Operator

hand Relations. to now Liza speaker conference Investor Sabol, the will your over today, I

Liza Sabol

and to TransDigm's supplemental obtain you Kevin Please call. replay Howley; Thank visit welcome call and slide Stein; Presenting earnings fourth President at Officer, information. this deck conference and quarter our Chief and morning Mike Executive website a are Chief Executive Financial Nick TransDigm's Chairman, Officer, fiscal Lisman. XXXX to transdigm.com

this you we are call, we'd during to statements Before are which remind historical statements. that fact, begin, in not made like forward-looking

actual further to or important For statements, company's about factors information the with in materially that please expressed could those filings cause to the SEC. latest results from refer forward-looking differ the implied

the be adjusted share, we the course of earnings presentation like of related financial also and earnings the and are measures We'd the for non-GAAP footnotes referring a in As reconciliations. Please Defined, EBITDA, measures. directly during will GAAP specifically net EBITDA comparable income of which most per adjusted see to advise all that, release and to call, applicable tables the you

turn to the call now Nick. I'll over

Nick Howley

a comments in. our morning some thanks with usual, consistent operating summary and on comments Good I'll capital and business start as Today, allocation. the calling for strategy, performance few and on outlook

some intrinsic products we we our summarize To source value of net proprietary and To sole through quarters products about which industry provider. in consistency of our XX% by the believe of due from come over believe create sales net aerospace the ability we the generated are this, are reiterate, sales cycle. to shareholder three for unique and all we're to reasons both our our the why phases of

in which downturns. EBITDA our aftermarket from stability margins higher of Most and provide relative typically have the revenues, significantly comes

value details Our focused allocation capital. of our as the we both to the creation public careful returns is liquidity stay have to shareholders of on do a the goal To as give of well equity-like with private market. our this, long-standing

We follow a consistent long-term strategy.

aerospace aftermarket businesses we and Specifically, with proprietary content. operate significant own

proven, methodology. Second, utilize a simple, well we value-based operating

a unique closely have decentralized team aligns interest. we Third, structure system and with compensation the our that organization shareholders' management a

a to strategy returns. Fourth, we and And are see lastly, businesses PE-like fit simple structure and allocations path that our our we creation a value of part clear, methodology. capital acquire our our key

up XX% our release, operating solid had XX% up As up where pretty EBITDA performance a press As Including about about was the Defined Defined basis. XXXX, almost last the from in our year. August, a good dividends year and you return on up a in XX% Organically, and saw we XX%. As a year, paid the our fiscal revenue made fiscal revenue XX% EBITDA in is shareholders reported

no our strong our also well. The did worldwide portion of longer XXXX, performed business, model businesses away, fiscal to include Esterline Esterline worldwide XX%. XXXX. out and core Far the we smaller acquisition acquired exceed The of in in well. will with break over EBITDA our aerospace QX The TransDigm businesses largest were As markets, margin Defined In and year the commercial businesses defense a segment legacy it separately. continue

are in be in pretty Revenue like looks be As shape. to All TransDigm. are XXXX good appear detail. year significant up clouds segments but we're and estimated both we're potential for more horizon and this aerospace and market required. XXXX discuss EBITDA Kevin commercial another closely quickly Defined to react year in our market, the to good Fiscal will XXXX the There watching nicely. some on prepared if

received about Souriau closed EIT agreements about group to the businesses previously million, as deal September. both sell million. cash M&A to for We business in for of $XXX respect and announced, the With allocation, $XXX executed the and and capital the we EIT

We so, close at will fiscal -- do with sell of Souriau but today, if I quarter smaller XXXX. as the may aftermarket still less significant we divestiture they don't content, businesses business by our least some still be in think hope of to first We size. with proprietary the end aerospace and

We financing We About credit other on general market and attractive a extend to completed an rates. accommodating for advantage to wanted balance corporate billion $X.X also is roughly purposes the billion payments $X.X the and used is of take some recently. and refinance debt.

in paid of we dividend XXXX. respect a $XX With to QX allocation, capital billion

review the and calendar see will the allocation the where of stand our We quarter over year. end capital we situation towards

assuming almost $X and of market a at expect or activity of the cash in timely closes new on QX fashion, any That's we'd Absent XXXX. billion our recent about divestiture have capital XX/XX/XX. to end

borrowing We credit credit under significant our our additional a line also have agreement. capacity and

We that liquidity opportunities other arise deal and flexibility to have capital financial deployment, may any currently the substantial anticipated the allocation or readily foreseeable with future. in

We and evaluate opportunities. M&A continue to actively seek

as usual and still predict the in small closings, cannot M&A we possibilities, and comment we're possible of I mid-sized. pipeline said on as but for business. I working or decent a at steadily mostly have open before, We are

review Now, outlook, some XXXX hand items. and XXXX over let it other me to our Kevin to performance,

Kevin Stein

some Thanks review and Nick. quarter, key results will Today, discuss operational I fiscal the profitability then the the by guidance, provide items. of review business other and markets our for XXXX

on good a year. another very had more will fourth strong financials. we seen, details to provide you've end the As Mike quarter

Nick continued year growth EBITDA said, As to full As organic part up has above-average year integration due and as substantially last well in Defined performance. and as acquisition over were revenue

will we revenues our Now, by market category. review

to forma is commentary market analysis the same in we XXXX. on own of Please periods. For this That note Esterline pro excludes fiscal basis provide mix in period both for the of businesses remainder the assuming will call, year I section XXXX. compared the prior color a

businesses we XXXX. fiscal to in However, the Esterline our analysis begin market former will include for

close In into the our of market, discussion and to split makes revenue, which aftermarket. commercial our XX% we up OEM

QX periods. both XX% and increased in approximately for year the year over commercial XXXX OEM full Our fiscal market prior revenue

XXX expectation MAX revenue to OEM mid- we The guidance impact from MAX grounding. growth is occurred last continue of one This situation despite our monitor. headwind the in limited single-digit growth closely XXX full of a high to This growth range. the exceeded year

Now, commercial moving aftermarket commercial Total fiscal X% the grew X%, business by line guidance with quarter. over Total to XXXX grew single-digit high growth. full in revenues our about expectations on year discussion. of prior aftermarket our year percent

for the and In a on continue noting. Telair offset items igniters commercial submarket. markets business retrofit GXXX relatively the Champion growth Boeing for the the International slightly XXX although areas for commercial retrofits interior strong Overall, freighters decline freight a remain in passenger few was watching. worth were quarter, transport by Repairs and a and strong, few transport of fundamentals bear aftermarket jets to from commercial in

albeit few past average. Global revenue decelerated has the growth long-term growth in near still slightly is passenger the months,

cargo is Additionally, XXXX. have weaker as declined demand reaching FTKs in high from all-time an

our speak defense year defense OEM XX% just over is up the approximately revenue. revenues, of total about our which me which market, QX. includes both prior X% over market, let Now, The and aftermarket was

year As began accelerate to tougher grew this prior a quarter, Full in to defense last reminder, year lap year. we our of revenue comparisons revenue QX XX%. defense as started

was defense into well sales most support strong reported materialize defense-related bookings growth year. saw we robust businesses from This this we driven to that platforms. that be distributed year, and appears Last

by XX% QX, $XXX or moving As EBITDA $X.XX full operating prior dilution million Defined XX% of Now, to talk was negatively margin Defined XX.X% impacted was up about billion acquisition up the QX EBITDA going Defined. in profitability. year primarily of EBITDA for Esterline. versus or to on I'm basis. about performance a and As quarter our As from

as Esterline, to our base as were well drive find year's margins opportunities our continued sequentially progress by quarter. over drivers. us is over our that indicates business to both always and improvement prior the Excluding in and improved Margin important improvement business using value to legacy XX%

Esterline eight Now, let integration close, you give progress integration and post Over well. expectations. the on continues an to Esterline months me the update

have down activities The former moved business or Cleveland have performed migrated the to office. used over functions in that to We the corporate largely been units be wound Bellevue, here Washington. corporate our to now office

who units. senior have culture teaching around generation TransDigm we legacy new before, EVPs model noted integration Esterline operating team value equipped all to our the business with are As and

be are exceeding expectations this constant our requires change here, acquisitions. We TransDigm know, and of progress you can in largest making To-date, are but we culture growth for reinforcement. as slow

XXXX to growth, the mile found passenger also on favorable generally for revenue positive a a success marketplace. in global growth continued now general, slide in spending, guidance, and Turning In both seven provide economic defense backdrop the internationally, continued environment and presentation. for conditions and domestically

XXX events have could global negative MAX for other or impact market conditions dynamics, delays, exogenous continued trade grounding risks, political shipping on Certainly, a TransDigm. and

any as preemptive as we always these, and watch including warranted. closely might will necessary, that be taking steps we'll We react do,

our The up XX%. is fiscal year in is and on revenue guidance year fiscal assuming continuing guidance XXXX follows. approximately our Based acquisitions of operations or billion as for no this XXXX, initial midpoint $X.XX

Esterline. As proportion in are assumptions. based days channel forma past roughly XXXX, of include growth EBITDA the following year revenue to market working EBITDA, lower XX% on one, anticipated and lower now roughly in margin the to three less revenues, in the fiscal fiscal be This other year is years, days. assumptions guidance pro quarters Note market these XXXX with working than quarter

range revenue to versus We year, defense low range to mid-single-digit single-digit growth in commercial revenue single-digit prior the mid-single-digit percent aftermarket revenue prior year. expect the range, growth mid-single-digit commercial versus in OEM growth military percent in high the percent

The of fiscal This XX.X%, EBITDA margin Defined from an midpoint guidance XX%. around points X of up margin of year As is with $X.XX almost Esterline. XXXX almost expected billion includes dilution

we Mike adjusted EBITDA lower in lowest The and being anticipate factors midpoint $XX.XX. the impacting margin Again, QX. previous is detail EPS. will to have anticipated EPS and years, we move in up QX as of the discuss throughout be than more seen year, will with -- sequentially shortly the

would review changes. like briefly executive now Finally, I some management to

As to our work strength focus know, succession bench promotable of continually a on improve planning. keep to you we talent

role. and Marko promoted Executive to President recently we such, Patrick the Vice Murphy Enderlein As

team. worked to Europe, Airbus has be President International the roles. TransDigm XX EVP will three and joining European our the over at spent for Marko over of years our Telair years for footprint. in he leadership Marko financial much responsible first us, prior for And of in as

career. worked for in roles TransDigm held has variety at now Corporation eight-year Patrick and years an over of prior X senior HarcoSemco as a of the leadership for Danaher over President

group at expanded of acquisition need Esterline end These the backfill of who the is we well oversee business promotions to give the as calendar the following Skulina, for units year. Jim as us the to resources retiring

was me let XXXX fiscal good by conclude year So, for TransDigm. stating another

expect to We to you strong us. to continue Esterline XXXX consistent the We have forward performance be from with the look continue acquisition our value legacy the and businesses. provide as operational expect in come integration strategy as well that very pleased our will to

Mike CFO, our With I to Lisman. that, now it like to turn would over

Michael Lisman

everyone. morning and hit really financial Good highlights, quickly going to I'm the on covered just Nick few Kevin a additional so details.

First, for Kevin second, year that covered. XXXX then the FY and for XXXX full FY guidance just

used comprise last exist, the don't TransDigm into from corporate largely TransDigm. used and our around Esterline plan organization within on now Esterline's to Esterline earnings therefore give mentioned As as that non-aviation specific color airframe independently any office, the call, legacy including separate is segments. our business which We of units it gone, report the to and to power, performance,

the were you the items discontinued completely and ops these change, the disc individual get collapsed and moved the When During both line. accounting quarter, this from EIT line make Souriau removed onto business from the P&L of units operations. results into

discontinued owned never the So, it's we net like was the them, except line. for result that operations almost

onetime Now, Adjusted the And for EPS EPS reform our implementation X.X% muddies U.S. FY few FY we for year-over-year comparisons. tax EPS $XX.XX, XXXX business, that saw notes ended of the quick up a year how benefit XXXX. from XXXX. was the as reminder, significant consolidated on TransDigm any from a FY a

of rates than net an FY approximately year and came and On XXXX rate On cash XX%. the with adjusted debt-to-EBITDA sheet billion of taxes, tax and of cash and times. liquidity, X.X of ratio we slightly we with $X.X in expected better on the balance GAAP ended XX% an cash

just and our cash Pro second billion. last proceeds the forma we'll XXth, expected increased we to on cash raise, receive $XXX under almost close FY during debt XXXX, have Souriau balance cash just as recent $X $X week under of billion. Should balance closed which the subsequently for quarter of million the our of

$XXX our have access to revolver. million We about of also currently

yields This and then quickly Next, of details of assumes FY curve an in average around interest about rate XXXX. the average of billion the count. FY really weighted year, currently. on to is just the which estimate This Interest financial interest be going X.X% give an to guidance, rate I'm the about a LIBOR consensus forward some X.X%. taxes, cash for full share average on $X.XX is expected the assumptions more expense, XXXX the expense

GAAP adjusted be in rates On fiscal cash to range. to XX% expected our the XXXX are taxes, and all XX%

to Similar vested to increase shares We in $XX.X and FY our at average stock from XXXX. to that weighted is occur during expect XXXX in buybacks outstanding fiscal year. the no million our assumes $XX.X to FY that prior outstanding increase shares of years, options the due end the million employee

liquidity to FY of regard no on net or have EBITDA end the year. This the as estimate the Souriau leverage cash expected. below at XXth, we and With and of will five the divestiture end capital defined of expect September roughly market assumes as And XXXX. acquisitions times our at closes leverage be hand at assuming we additional $X transactions, XXXX billion to

for XXXX over operator it Q&A. With the to the closing, we fiscal kick-off expect good be I'll that, a to turn In year TransDigm. to back

Operator

[Operator you. Thank Instructions]

our first UBS. Myles question go from ahead. is Please And with Walton

Myles Walton

Thanks so much. Good morning.

Nick Howley

morning. Good

Kevin Stein

morning. Good

Myles Walton

dividends? think in wonder the pipeline. enough that debt the just tee markets liquidity you you, off. fair to point right additional at would deals to you as not the maybe, relative may open towards to is your to Or satisfy you that markets want pipeline to now? to debt have special the are it have can, rich you'll open think I is be But or more the that you been if you as us of do as excess I pipeline just you the Nick, how precision touch look on know didn't

Nick Howley

question I the don't that. there. on I goes Yes, to comment obviously, I don't know -- want

do won't I mean I something at the in do have on we we'll think, sight gun as $X the the we you know, either that. if else. we'll billion we'll or sit year, end -- significant of something have

to a little -- make the know, we're bit. some and to type some shareholders As you we'll going of return we're just that decision delay

Myles Walton

light or Kevin, know which, enough. the XXXX on little sorry, then, Fair fiscal -- free XXXX. of fiscal fiscal Mike And flow, cash I a don't XXXX came

comment free think I And give to if I XXXX? for as the also, flow if you you don't for be a were on can then divested not good, know your that's for looking cash it properties. better. expectation

Michael Lisman

about Yes. look to the integration. to We on at $XXX is a cash of XX% FY related was interest, XXXX, the of that's light cash charges it result little XXXX, expect million onetime and in Esterline, that it cash bit regard -- FY a be we items generally taxes to EBITDA mainly about of EBITDA. less way With we less CapEx, less

mentioned to guys. we've think you I the XX% stat

Historically, about we you the FY XXXX the same. expect and and stripped Esterline out XXXX FY looked about hit be we at XX%, stuff, if to

Myles Walton

Okay, all Thank leave I'll right. two. Thanks. you. at

Operator

Thank you.

America. from Ronald Our with Please next Bank comes go of question Epstein ahead.

Ronald Epstein

Hey morning. good

Nick Howley

Ron. morning Good

Ronald Epstein

can any covering? what When if you M&A, you capital, is portfolio you some area you I clue were to areas think some of? about need more you coverage that do mean would that potentially there more in us? be give the of think deploying are there And you

Nick Howley

Yes, looking interested aftermarket say very a what same aerospace for one down private If -- I businesses it our an than another. or part content. that. that product towards equity-like one return, part -- we're we clear not always we're with criteria, would hem the biased the is I or buyer. looking it we're and see don't we path more for: a of thing We're our really to or meets any airplane significant another of airplane proprietary And

Ronald Epstein

service around, a it Got kind it. which to airplane into provisioning, going a you airplanes the how back flying into be a would kind there to it's you of possible think would if have or be will on headwind guys? a you fewer there new little right? XXX be Meaning, you. tailwind, return When of a you'll going the to tailwind? suggest is about MAX And just would So, older impact headwind. onion bit. which But expect service, of the a balance, maybe service, peeling return Got then the

Kevin Stein

as somewhat we Yes. at neutral. it Ron, look

we the aftermarket's else -- But difficult if ramp the business. it's happens noise actual business. is MAX XXX that anything good. -- on The OEM de OEM a as whole, on XXX. of whole the rates, enough It's course, small impact well with the to as a the not Of -- impact do noticeable there, would its the any or minimis have

good we I push. planes its have but model kind older more minimis this. we of flying So, and us, de OEM so that's as is how content a think well, for it's Certainly,

Ronald Epstein

may. you. Got I you. if one to follow-on And that, Got then

air this because maybe as remarks, Are maybe on change of smidge bit into you reverting expecting a long-term mentioned below So, of really seen mean, we right? in demand next the the haven't impact year? prepared aftermarket But that. much we're has that a mean. a to traffic As we slowed year, kind go but you to

I I mean pretty of aftermarket performance. it traffic year some think it? for can your traffic because booming what has outlook about has a conservative air has across mean is mean air much how been had there doing? in that next we slowed industry, the be everybody I

Kevin Stein

RPM of Yes, by the I has of availability the impacted XXX. think lack been the growth

So, impact may and us. how I the overblow it to don't to that industry want

looming So, problem close I at in to XX-year it's RPM, I average. see look the the don't a industry.

aftermarket market I'm optimistic still about future OEM. whether whole, as So, it's a the for or this

indicator, high aftermarket see that. is can at year, be times nice think certainly which a orders POS, we that up forward-looking single-digits. lumpy Last I the and was

put into we've play. to necessary this and of and mid high the feel we to But the hence comes to growth forecast, single-digit mid we about our conservatism how reinforces high that why certainly, So, guided kind aftermarket. year in into

Ronald Epstein

you Great. so Thank much,

Operator

you. Thank

go comes question Barclays. from next Please with David Our ahead. Strauss

Unidentified Analyst

David. on guys, morning actually for Matt good it's Hey

Nick Howley

Good morning.

Unidentified Analyst

there was And data. the DoD is -- summer, it can you? Inspector General you And also, requesting quarter, the any for this on over any see extent last then impact memo that requests I having you you say that to about still data? can anything audit -- you are update there of more is to wanted share pricing Is it? pricing guys the the mentioned I was kind on that that getting meaningful think

Kevin Stein

Yes.

question. IG, TransDigm-related DLA So, two of The parts of IG to products. update. audit the The buying that an is and its your practices

IG. estimate through. the appears working and I audits. really work an be will as but now, update We complete, to a with prior are we them. closely that It That's actively continue closely with really of engaged similar we're have don't when have right to to all yet I working scope but

we situation. met this. DoD some the costs We're or the we memo, on requests pickiness with additional, on say, put The pricing memo have hopefully to was would On clarify pricing directly for or the out pricing information. different seeing

DoD the whole, to a on as whole, as purchases. DLA on a we don't with some work But of business. slowdown bit -- any the little we see the noticeable their and hasn't a continue on There's closely but impact been it orders,

generally These orders, dictated rules we and completely. and tend process the and work by with DLA those are acquisition within fair busy -cooperating speaking, and small we is be to that reasonable the on laws,

closely directly. cooperating so And working meeting them together we're and with and

Nick Howley

don't I least what there's -- I of had to these, at -- I mean might couple times last but a one just Kevin, don't I the that know would they've complete. XX -- of this take, say, we taken months to XX add, benchmarks. will so we've couple

Unidentified Analyst

then, Yes, on that's Thanks. it. guess, helpful. And Esterline. Got really I

what expect kind you'd that quarter some commented loss-making forward the you Can and last is that? say what level on you going write-up. there quarter, the of So for was contract was level

Michael Lisman

$XX million in was it QX. Yes,

going next, year, more should out quarterly. expect that level just out be the to years the We the years million over four with kind of say, $XX The three, about, rough, as continue earlier average it in than in years. per

Kevin Stein

tapering gradually off, right. It's

Michael Lisman

Yes.

Unidentified Analyst

Thanks. it. Got

Operator

Thank you.

comes ahead. Herbert Canaccord. Our next Ken go question with Please from

Ken Herbert

morning. good Hi

Nick Howley

morning Ken. Good

Ken Herbert

of some ask, prior just for in on pessimism or other, too market Kevin, a to action to point or Nick take commercial wanted adjust reasons maybe that? cautionary it to started broader think see the to you cost is your ahead you've outlook, think early you've bit in that. structure periods I when your of maybe signs quick about the been Or you and at way fairly might start where about Are to that?

you the some passenger near the your what outlook if would think term horizon to Or mentioned And about we've as is growth so, on of want the clouds specifically? you in you see lower of and some seen traffic? how

Kevin Stein

Yes.

we book, our weak do provided that I so is question okay. order and your year far, I market feel we're -- guidance, point says the that indicate We've are cautious think, our guidance doesn't really, we what a and with so see. how starting the on on

I but act this decent, the We've I couple look frequently. indicators, something last know strong. about us of about second and we talk bookings look have it's Jorge Valladares it on over weeks, see together talk something as and to forward-looking we neither this been specifically, the often because

debating don't something think but have we're So, that don't that so it an yet, I actively behind. we take fall adjustment to we is

that you up catch behind, recognize productivity. you once can never We on fall

certainly business but don't deliveries making do don't that jeopardize too by we and the to we jump soon. want to So, want that,

is We continue discuss, I answer. think, to the

Ken Herbert

sort the Or you still and like that bandwidth for to and the and wanted it operating significant legacy to the helpful, term Esterline as of around realization now maybe the a comments to corporate acquisition? Kevin. fair I of to follow-up the of around Okay, on your transition Cleveland. wind-down over lot And excited about integration that in Is do businesses you'd not the Bellevue you'd your of near upside that's there just there's have office sort be a say Esterline deal? larger a of larger feel capacity

Nick Howley

of very we'd the restricted opportunities because we we bandwidth the don't where I expected. say than value trigger sort think progress might think be. of more saw moved pull And on Yes, right making would Esterline. and we're where it's the if by we're -- the I frankly, don't good now, reticent I be faster opportunity, to

Ken Herbert

you Thank much. it Okay, I'll pass back. very great.

Operator

Thank you.

SunTrust. go Our from Michael comes with Ciarmoli question next ahead. Please

Michael Ciarmoli

Hey good guys. morning questions. my for Thanks taking

Nick Howley

Good morning.

Michael Ciarmoli

just Nick EBITDA or XX%, you and mean think long Kevin, come pretty I I running a that's said Maybe, above way. Esterline, on margins were

I to think is on implementing even maybe some drive improvement of us color really maybe you Is productivity excess the execution initial it? guide just low-XX% compartmentalize price, Can just there? mean it is what's and it mean better I maybe getting it was the level. give helping I rid better initiatives? overhead?

Kevin Stein

I is opportunities to think, to wins answer Yes, that. see Michael, on we that. business We've to We've that seen productivity, structure important. new in Certainly, price. yes important on have the already better leveraging is overhead That's the place business at continued in Esterline. this

modeled of Esterline even had XX% from modeled XX% one reported is was public the directionally, think conservative. than similar, was company. what recently that we Esterline around XX%, when was to found that that's we that better a the most we to be We up points the a somewhere TransDigm. I maybe most It's little that and at aftermarket reported important that

reason a the we price. It's our been business growth has seeing one improvement planned. balance it's had But areas including or thing and why new productivity improvement. that We emphasize of we're so not And a other. all what in great originally than faster

Nick Howley

have chance we pretty bought sure continually are I'd -- be our to in The other it. good conservative fairly when is our modeling when going away, give I'd we thing our as we're we said is making think of money -- add I darn to only goals we acquisition. We if add we to make it, thing be a the want -- an don't we

Michael Ciarmoli

do the That life taking eye that XX% place exposure? off sort you track Esterline having of not better cycle attribute just you I guys attribute better turnaround mean not to than the anything good aftermarket expected than systems the the its I exposure, of mean, ball, expected can what was products, having to? times? that their in

Kevin Stein

think very understand because valuable define I carefully we how the we market that is. segment aftermarket on

so I understood data definitional, product mix opportunities our and So, well it's and mix. the the for market think combing those we very largely we our through time that spent

Nick Howley

I'd repeat the And just same. like

is unsure, Going we to into we're when unclear data something this, Yes. like conservative. the be tend and

Kevin Stein

Yes.

Michael Ciarmoli

it. Got

last guys paying to law that capital restricts think guess, the you do whether Just deductibility deployment. the you it's guys are XX%. interest below get maybe have XXXX any I still for as a percent where I that XX% of expense, at But on interest one, down? plans housekeeping tax the threshold, with I EBITDA, expense mean fiscal

Nick Howley

No.

Michael Ciarmoli

Okay. Got it.

Nick Howley

it way. the No, The is we X.X% cost think now. of of the same debt

So, an in it's our -- always equity to basis, PE-like we after-tax like depending is cost of give X.X% to that you to We we on deductible, X.XX% or return. how compare something a cost the range. much isn't that that the after-tax is which or say want on

So, the that still return. looks pretty XX% good PE-like to compared XX%,

Michael Ciarmoli

Got it, perfect. Thanks guys.

Operator

you. Thank

from with comes Greg next question ahead. Our Please Jefferies. Konrad go

Greg Konrad

Good morning.

Nick Howley

Good morning.

Greg Konrad

an order you and what activity are you Overall, from as head in type perspective the defense, you mean I do that XXXX? into how didn't call out bookings like think backlog seeing other we two about markets. end of

Kevin Stein

OE defense that the will aftermarket, sequestration, refilling We on defense bookings strong in the in mid-single-digit which of That's by bookings defense a spares defense, to. bookings our stronger total some and we tell. were up. before, had as maybe and much that like sector a activities strong Time maintenance-related guided may in but indicate produced as not caught slowdown the side year has the bookings in in year of been up range, the

Greg Konrad

And then Thanks. more. just one

type visibility or are helicopter called you is activity what it's being And aftermarket driven? market? out I of seeing that, business quarter. jet that mean what up driving whether XX% You in the mandate in and

Kevin Stein

Your question was and jet business around specifically helicopter?

Greg Konrad

Exactly.

Kevin Stein

and We see and Yes, is the support like how the jet about takeoff business, monitor of I the on all think we're surprised, you. on side certainly the performance. a cautious little don't the surprise there cycles, follow which bit business we much landing

aftermarket surprised the the So, pleasantly strength be on business continue the and defense. the we OE jet to by of

the It's commentary. side small helicopter worthy mind On don't much to a sector of comment. really business, jumps of as that nothing have I the pretty and

Greg Konrad

you. Thank

Operator

Thank Instructions] [Operator you.

go Gautam And and is from Company. with Cowen Khanna Please question our ahead. next

Gautam Khanna

Good morning Yes, guys. thanks.

Nick Howley

Good morning.

Gautam Khanna

give distribution direct, saw you us Maybe some color channel versus there? Maybe or differences inside numbers, discretionary the air granularity transport region by you any by could nondiscretionary? or aftermarket any if on

Kevin Stein

Yes.

give can by we we freight I of -- stocking interior bit The did any the was packages saw freighter. side to So, earlier. submarkets, strength in put you saw the -- the some before. we in We that had XXX year a like little an weakness was in artifice that largely were largely due area

for businesses and had our we packages some just stocking repeat. So, big of that interiors didn't

out will in time. come So that

jet pretty Business strong. continued

of right we the where commercial segments and about Our expected passenger average it is aftermarket the multiyear to right on be.

are segments less more we performing or as the expected. So,

The freight through a won going actually future. recently business as the and interiors whole, to international right interiors translate growth for OEM a been the They've now. -- and on in that they're opportunities aftermarket surprise and will of has number the cycle side pleasant a a projects is

I are So, these of these see aftermarket submarkets side. that think on the the lumps we of some

Gautam Khanna

on Have if Kevin, Thanks just you aftermarket. you pricing could separate -- question on And of that's had--? comment helpful. you a value-based the in implementation maybe are where Esterline's

Kevin Stein

talk way. really we Yes, about that it don't

Our and journey is We reached drivers are at look don't we've a value us. Nirvana. it complete for constant focus the as

part it's of these, process. work We continue our to discipline, of part it's our

that's airframe non-aerospace actually Esterline like be kind in ongoing just forward. stop we on opportunities part the to But our how it It'll it. businesses, power, see we them we TransDigm old we'll our as of and see of sectors just and the Esterline So, side, see we go referring as legacy businesses.

Gautam Khanna

of is I of That's a asked much of you Esterline's a sense how aftermarket, appreciate will, if better XX%-plus do off or, the it. Maybe way, a answer, spot for have you aftermarket sort contract? is revenue that fair

Kevin Stein

I that No, I as have here, knowledge do sorry. sit not. not do I

Gautam Khanna

That's appreciate okay. you very it. Thank much.

Kevin Stein

Sure.

Operator

JPMorgan. our line your sir, And question Seth with go open. you. from ahead Thank next Seifman Please is is

Seth Seifman

Thanks very much and good morning.

Nick Howley

morning. Good

Seth Seifman

I think billion. like when it reasons And $X.X and XX.X% back the to at of business, at Nick, at you was growth the was one the the and XX% XX.X% think about in that at point, I the I XXXX return was from it in XX% target guys to down that the top down took guess bottom. kind time maybe of

here, guys framework we're probably that now you own have now above $X exceeded work? does bigger that and -- much your that else's billion much, think Obviously, everybody I still expectations. and return Does

Nick Howley

We me do forward what do to don't sure I change your -- plan? expect question. to with Or is you our it it the to understand growth plan what plans any any not we Well, shares in we let Is we do do now. -- be? go make compensation what have question have do your

Seth Seifman

the is say think plan And the I -- compensation intended right? well, then. reflect so, I shares guess the to shares, the let's

Nick Howley

Clearly our continue a the goal say XX to I done I'll public going forward. -- more we I hope I say, PE-like that. be to shares the to been XX%. And a still, think we don't we right. or XX time. return, is give has won't somewhere year think define this, the equity-like over last, questions want to is market do expect. the XX% period our the is, would growth still a All long to on to is as private both will whatever in and that's goal years answer XX% for it's continue reasonable that say Each in as you it I like anyway. that And return. of

we X On top -- PE is, the what roughly funds the targets, return. it's the XX.X% where what about quartile -- compensation

as XX% know, right someday? we that's to like sense it have So, and made bigger, years. we perhaps, to now. top Should get went that's that a we the more gun targeted in fund XX.X%. it's not -- go the I and PE don't sight to And we quartile how but look through the why

Seth Seifman

Got Got it. it.

a then quarter And like aftermarket XX% and follow-up, the the of contribution of to pro was just forma quarter looked Esterline, revenue, sure it last make company without I this it's commercial understand, to Okay. as XX%.

And so aftermarket. Or is on incorrect seem that my reading is it would coming piece like the in commercial an XX% that with below Esterline part?

Nick Howley

I'm guess math. know sure not we your is following not contribution that's not Esterline correct. that's the I We're below correct. if XX%, well

Seth Seifman

Right.

okay. Okay,

last the more and But ones. quarter. at slides this looking from I just quarter cleanup maybe quick two Okay. was

split and defense between total and the the there now, the with what's that's TransDigm On defense piece rough XX% pie OE? Esterline aftermarket

Kevin Stein

think we that. commercial as it's as our similar but guide I much that's business, on to

Seth Seifman

Right.

Okay.

the Yes. year-end. guess talked $X the is cash leave about at And then of you billion it I actually piece there. Okay. yes, I'll -- last

Operator

the any for showing Liza not I'm further back And final queue. you. remarks. turn to the Thank Sabol in her questions call like to I would

Liza Sabol

thank in. our Thank to you. would calling for concludes today. That like call just We you again

Operator

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

TransDigm (TDG) 19 Nov 192019 Q4 Earnings call transcript