TDG - Earnings call transcript Q1 2020 | TransDigm Group Incorporated

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the First Quarter 2020 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] As a reminder, today’s program is being recorded.

to and host Director like Liza today's now Treasurer Sabol, of would introduce for your program I Investor Relations. ahead. go Please

Liza Sabol

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

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

For could please available website Investors section differ implied to further filings to important or information expressed the through the at in about latest factors SEC refer cause actual or the our those from that of the results statements, sec.gov. forward-looking company's materially with

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

call Nick. over now I'll the turn to

Nick Howley

performance will calling and outlook Good on Kevin with operating give some usual, and comments our few then in. morning summary and capital and Mike consistent again and and I'll more thanks for the on comments as allocation, Today, start off expand strategy; color. a

products of provider. To the significantly the relative of which of our have about the XX% believe for generated typically revenues source intrinsic we value consistency EBITDA higher believe our of we three from by downturns. create and and are sales unique provide cycle. stability this, shareholder margins we're our our Most in comes products summarize aftermarket the are sole in phases all our ability reiterate, due industry why about which from both to To proprietary reasons come sales we through to quarters the and

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

see clear fourth, one a consistent with operate we and very own long-term and a allocation businesses follow proven We unique value a capital fit system strategy, value-based our aligned significant we path a we specifically, operating clear we path with of aerospace where third, simple PE our acquire we to like to that content; portion a businesses significant methodology; shareholders; proprietary decentralized closely well structure utilize second, have structure a strategy methodology. returns; are organization and and compensation this and creation our aftermarket lastly,

off a As performance you quarter. saw operating EBITDA we release, from are Revenues substantially. start good our the in in XXXX to as fiscal year press are up solid defined and with

prior revenue acquired and year up the of this base performed was margins were the were up nicely. well. to is businesses Esterline margins EBITDA course, as growth organic legacy much but acquisition, Of all also the versus the due both TransDigm

We investors. value continue real for generate to intrinsic our

very in our largest driven the QX aerospace revenue, was away and our about commercial up the strong worldwide aftermarket a by commercial of primarily revenue Far portion year, X% prior versus growth.

QX. defense see this clouds though Defense look At year like we be up. bookings strong also bookings little, lumpy. time, The down continues was TransDigm revenue defense worldwide but a for fiscal possible quite to year XXXX can the was were horizon. commercial on good a smaller aftermarket Our in

ripples production guidance full around are China and unchanged. leaving rates, attendant possible year uncertainty program in the our given we uncertainty However, related inventory the XXX travel,

cost. begun our have to We trim

XXX timing. this the difficult more uncertainty to closely more little if are a prepared and is this We're usual react required. However, watching in the than quickly given

it MAX for year at of TransDigm XXX program the rate, of our the full and production will somewhere perspective OE more smaller and put discuss quarter EBITDA. between into up our Kevin in detail. X% the makes percent revenue To a production and X%

With respect months, businesses about last sale payment $XXX our group capital received allocation business both on closed we to and and the million the and M&A million. $XXX EIT in for Souriau about of the six of for

aftermarket last content. as As today expect sell there some that do with so, aerospace proprietary smaller may we still I of If I be in quarter, said don't businesses less size. we would significant and

paid share substantial months, about special $XX.XX or payout. share start at $X.X $XX year a allocation a XX.X% roughly capital The dividend. dividend the we is This to is in last respect per combined and the per share value special equity the pretty billion a With of special of fiscal XXXX. of both per six $XX.XX dividends

to divestitures to with Due make and still liquidity firepower. substantial payments from operating combined the businesses, our to and shareholders generation solid these our we're maintain able cash

As usual, see allocation capital over and the of year. balance we towards of the year our the we review the end will stand go-forward where

over billion fiscal at We to cash have XXXX. now of year $X expect of the end

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

requirements, financial or in the We future. have foreseeable market the with deal access any capital other and currently capital readily to allocations flexibility anticipated opportunities

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

a have decent We pipeline.

are closings I As can't in and on mid-range, predict comment business. working M&A still said to in possible any or usual I as but open we're for small steadily the mostly before

XXXX hand to items. now over this performance And and me our Kevin outlook other some review to let

Kevin Stein

also operational items. the the Nick. and Thanks I'll profitability market results review quarter. some then business review by year key for the other Today guidance our of fiscal I'll on comment the discuss

up up prior year, approximately GAAP revenue XX% quarter were year seen, Mike as XX% good were as you was will financials, in and the versus a more specifically, on good EBITDA, to we operations, quarter our over approaching revenues and and year. part EBITDA, as had due the and to the margins well substantially start QX organic integration strong As of have defined, performance. prior revenue. a versus acquisition year with up growth, first provide as last defined, first details XX% continued QX but

Now, we category. will review revenue by market our

remainder of discussion will to that of a the is the the prior period mix own this compared quarter, businesses. businesses results former the XXXX. in market beginning Esterline color For assuming I year we of the provide pro periods. That note same the commentary basis forma analysis in on Please both includes this now call,

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

with QX revenues, Our were commercial total commercial OEM up majority compared when QX fiscal year XXXX. of our business, make market versus approximately prior X% the transport year in OEM flat OEM of increased which revenue Commercial QX.

outpaced period the sales solidly QX bookings current XX%. more than However, in by

of impact did production quarter. minimal XXX We MAX headwind see from halt this the

However, fiscal for from impact we year. currently issues the any impact the should MAX our EBITDA believe a full not anticipated have on material

platforms worldwide, very in are all the material to MAX across diversified of the so XXX single not the any TransDigm We or impact aggregate. should program be

with issues aerospace as significant mostly few consensus a isolated the platforms, remains remains industry general OEM favorable industry. across from Aside backlog long term,

jet as for rate of other near-term the Boeing, and platforms. currently business assessing well as reduction, MAX the cuts production smaller We impact in XXX Airbus are

headcount, are and evolving X% a in global be certainly reduction we year the As unit. of a the production the business necessary second implementing and the felt by and will result changes impact XX% in other of of half concerns, to indirect which recent will rate direct vary

outperforming Now interior to expectations. jet transport business moving commercial the the passenger In commercial transport revenues aftermarket commercial aftermarket markets. discussion. the over offset the declines transport business and our and on were with by commercial market passenger very prior our quarter, quarter, XX% Total in the significantly freight growth by modest markets grew transport in commercial year commercial

long-term remain impacted is still continue average. and economic weaker bear to fundamentals a Global relatively transport geopolitical albeit watching. worldwide. although passenger near items decelerate, growth This commercial might be still disruptions activity growth continues strong, by multiple Overall, revenue to few the

high jet business stagnant pointing jet XXXX and create Cargo demand reaching data as aftermarket. could a all-time FTKs headwind from utilization have is in weaker, business the is for an that growth to declined

the as unclear aircraft utilized will situation but more. our aftermarket, prove a is to has be impact MAX it older Finally, it net are may TransDigm, for XXX how or commercial positive

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

defense As bookings given most recent in OEM a a year we robust are reminder, growth of bookings fiscal comparisons, restocking defense decline declined the slightly accelerated prior pace. bookings in tougher defense and lapping unexpected quarter aftermarket not as by driven revenue Defense in the XXXX. our

versus was defined million prior as of about in to Now profitability. operating the for negatively primarily was up EBITDA impacted QX of dilution moving XX% EBITDA I'm by XX.X% our defined going defined. Esterline. as from to $XXX acquisition quarter about as margin performance QX. or EBITDA talk

legacy and in as sequentially year were well quarter. the margins prior over Esterline, business our XX% Excluding improved over as both

we progress post by continues improvement value improvement acquisitions. the our indicates using opportunities On this to our and continues for progress. and is over to important expectations date, Margin now largest acquisition is our base months of To find for integration that exceeding us XX are always to drive in drivers. close. business growth Esterline TransDigm The

part fabric we have in to of the refer the businesses now any these longer Esterline-specific TransDigm. we will no As past, as have stated become metrics now of

on Slide the to X now XXXX Moving found presentation. in guidance, also the

evolving We we guidance. XXX or results. end achieve previously us the issued MAX a are meaningfully not with this changing exception our make revenue quarter situation the saw it have conditions our strong although of and could not EBITDA production EPS adjusted at for an year market revenue This the halt. full of that first time, guidance is grounding General changed challenging high to

mentioned, XXX be impact upside to from potential the EBITDA us a not previously older may in material our in fiscal as year. MAX aftermarket resulting There's MAX utilized issues as However should more. issues be the believe for commercial aircraft the also we this any

our items consideration are After and to issued. expected our be react expect as range this at necessary might still as fall We time, within will the revenue previously continue adjusting we these monitor steps business guidance, any not the them we prepared impact the to full year EBITDA MAX of XXX to warranted. preemptive be that on situation further including and closely to

crystallizes. We will update situation again this as

this it quarter at too could we there just with assumptions addition commercial time. growth close rates market some only changing We not original our one growth be to realize however aftermarket data. OEM do call and shifting of In is between are but

caution also may next would margins quarters. EBITDA few the fluctuate was be to lumpy over like I that quarter, first strong can margin in the our and although margins

QX fiscal quarter TransDigm. by of conclude me let XXXX stating for So that good another was

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

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

Mike Lisman

Good of Kevin morning, very quickly on the elaborate everyone. some I'm going just financial discussed. that results to

therefore is call, including the that which We're reminder earnings planning with or and of around TransDigm. TransDigm. units the performance comprise last separate mentioned office the corporate to specific now business for details part color much our give used from as Esterline's Esterline to Esterline too independently into a is As gone reporting to the not used legacy on exist organization most it

mid-March as the a we ended first quarter for few a last reminder, notes quick on how closed And FY business, of consolidated the year. Esterline TransDigm XXXX. of So,

So, any XXXX fiscal to it's I'm the about reference. included that in stats not of

still Nick strong mentioned, Esterline. was growth up excludes were sales both completely at prior X.X% versus approximately As net Organic year. Kevin and quarter the figure first this sales and XX%

the TransDigm for Esterline drove it's the increase. the XX% remaining only. So, legacy business acquisition of The

XX%. defined On $X.XX then million year XX% but until not the a of of December, little $XXX this messy January. cash $XX.XX in and last quarter, per gets it the share the early was up and adjusted that dividend liquidity, timing the to On EBITDA as dividend. versus pay We due EPS did up for was declared

the you that's give forma So, what stats I'm since just to financial pro going matters.

per forma that $X.X share pro that paid was and billion $XX.XX Xth, So, debt-to-EBITDA dividend cash balance is net January our times. now for is on X.X

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

guidance. about and a update this XXXX on quick in from be is unchanged Interest fiscal prior billion Now, our and to expected interest expense estimate's $X.XX taxes.

billion As repricing of we're seen, completes. once currently repricing finalized This with reprice the in $X.X interest process update of next market the some of and of you loans. have being we'll still the in expense our may a guidance term the quarter is

billion to expected and of which GAAP, are all end end we transactions, the additional XXXX to a the reduction adjusted fiscal XX% cash $X.X unchanged our now cash, liquidity from is of taxes, market guidance. assuming rates of XX% from regard no dividend fiscal of for hand in capital slight billion in just to prior over the at leverage be year. XXXX, the to With still of guidance $X previous On on expect have or This week at the and range January. acquisitions first to the we paid is account

first was to closing, to the Q&A. quarter with the for I'll turn it In start good the TransDigm. the a start And operator back year to that

Operator

[Operator comes Noah of from question Instructions] first Sachs. Our Poponak line Certainly. Goldman the from

Your question please.

Noah Poponak

everybody. morning good Hey

Nick Howley

morning. Good

Noah Poponak

fundamentals Because the step the to than ask and compared these wanted take your but I you provide the some telling a much aerospace the long MAX kind for company. situation, out current airplanes there's are aftermarket all we've coming history the us got to where all of and a facilities we've try try period. back to if at longer Nick wait then to the you MRO of got of us we've could got also context ever warranty

number the you printed just You printed.

good this So, that. else? it? seen as average love curious you ever as you've on time of hear Is it to with line something kind I'm from just it in Would or is is good your

Nick Howley

worse put better the I great no, attention have always side a takes the any that Yeah. for I little though puts rather on your I all I too. of don't mean, see I those than RPM the know you. insight – slowing bit. ledger mean to and I'd gets The it have

of that As sort be you can sometimes. indicator know a leading

the years pretty or that a be the quarter model a situation situation knows significant guess The had that And closest in where of who ago. The number I China SARS would that was goes. whatever -- two for impact. some

– from going to change come down of obviously, I as view sort We're the place I think I our Kevin. same beginning the year. -- we're of the

six So probably to there's than I there say ago. wider it months been have have around band a might

Noah Poponak

the business. a just Okay. little year for from quarter, the you looking think basis that framework? while has level? a Can you the do still been in even performance core points higher continue And at in right the a not XXX acquired the Is I from framework to margin that recently

Nick Howley

to want take Kevin do you that?

Kevin Stein

that. can magnitude think we Yeah, the and that's think still I right I continue do to

Noah Poponak

Okay. Thanks so much.

Operator

Thank you.

from question from Credit line the next comes Robert Suisse. Spingarn Our of

Your question please.

Robert Spingarn

morning. Good

Kevin Stein

Good morning.

Robert Spingarn

chart so Nick to cycle low-margin higher the have past different you're need run it in colors the the positive? forth. costs before and these XX or program. for platform Kevin, a question development like you've of service years I TransDigm much and Nick of a had get you how MPV level. to relates it's does long life zero stay to When the that the OE, MAX you a in you're and How until a always black? about It's but

Nick Howley

many number. economic give can I and now a different think situations. different We numbers don't I so part many got so

essentially aren't think Rob. can much. on don't some I upfront that a and number you give very Some are good I significant

a I to would it's you goes on say three, years six Pick that the look program, if five, going situation. development your a at number seven on. four, have depending

a not until if warranty because You're not much get or first much on or four, years. much practical matter the or even four money you break a don't you're warranty it's going make period don't the either five in things get five-year first to you through as

see say whole surely the you're you're out net production positive any starting four, before I’d thing. after significant, five to So years on

dependent it's specific I on in just the part that -- program. Beyond too just

Robert Spingarn

I had then on one Esterline. just And Okay.

you the deal. either you think being XX business to the there be in Kevin that Have I versus more said anything bought? specific companies positive post found it's it, you've a traded months publicly got you've more negative that interesting under or Now hood private Anything us? would that company

Kevin Stein

diligence As front. we've up limited about due get you talked

find. not sure in So would we that went we all

that I yet, a acquisitions anticipate or didn't we to It found future we there front news, is better this. emboldens to things us hasn't than continue look been anything been, think, certainly assumed for in the and up have at that we've bad anything expect. general, really that like

Robert Spingarn

their there the private companies that pricing smaller about aftermarket public, because in bought Was they versus anything Okay. dynamic different the were you've past?

Kevin Stein

that No, seen, we no. no. have Not

Robert Spingarn

you. Thank Okay.

Kevin Stein

Sure.

Operator

Thank you.

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

Your question, please.

Gautam Khanna

Yes. Thanks. morning, guys. Good

Kevin Stein

morning. Good

Gautam Khanna

I had two questions.

in of or the First, lumpiness IG given in I terms point was whole noticed of placing have or you orders, wondering, to bookings the defense Does hesitation department overhang anything of there? explain that by continued the investigation? you just any can incremental anything

Kevin Stein

we first slowdown. one, we So that to answer initially off, some -- have saw

We stakeholders a I communicate, to continue pent-up DoD, the think, DOA, in with doing to of demand some to little started that, answer the to questions. started frequently important meeting other we have IG been the and flow Once bit. process,

a not that up anything you're a believe. in still driving bins than aftermarket we think, I at filling to is slowdown I'm around that defense of more That's the believing bookings to So point, a ranch. slowdown get what the the

have interaction and with through We positive. issues that DoD, the time, going DOA positive. communicating, the our has seen spending been it's We're

Gautam Khanna

aftermarket, by any on what various and versus Okay. you the comment you? maybe in subsequent can out. can quarter, coronavirus quarter anything That's air channels, the region? that you then, to the impact on non-distribution mean, helpful. have you Asia-Pac I seen commercial parse the in distributor just and and/or If And transport have between

Kevin Stein

business our sold. our distributed And that like a from geography. that products at way are and look the don't We No. it's also

You the and based is to all where distributor over can that's it and one the region world. sell goes

or have great by platform. data on airline don't country we or -- So we're consumption individual

offer that don't you. kind of we have visibility to no, So,

Gautam Khanna

in any in Any between quarter? restocking? -- any distribution the direct And disconnect change channel the Okay.

Kevin Stein

into any businesses, flow-through TransDigm far. a POS We don't It use No, tended they on us distribution the to useful comment combination partners the not our composite made so that -- as because have longer sales no. metric Esterline after we from that for the of can distributors. different the

granularity region. distribution any able to in to don't a there keep at to I to slowdown, on in any have have in that well commentary. the related be of pickup we by don't I specific for if So MAX there's that see as you aftermarket looking are POS you're good comment that we regions, give driving kind XXX what know but and

Nick Howley

the we're distributed add the across mean is pretty fleet. only I'd I well thing

So I reflect you if look the look at around some flowing world, fleet are around ultimately where you the mean, weighted at will the on demand our miles world impact where that of and point. the is change, if the those at

Gautam Khanna

Thank you.

Operator

you. Thank

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

Your question, please.

Carter Copeland

Hey, good morning, everyone.

Kevin Stein

Good Carter. morning,

Carter Copeland

or around you anything guys Nick if just or mean, last learned over – wondered sit you idle. the that Kevin it's I've about let decade resources don't plus I

the in backside even So the are thinking you've coming up resources intent overstaffed would to situation the of you about this have on temporary you end that? in on that those a this do MAX any on with your if extent some productivity basis your meantime? you – got you efficiency How And perhaps could attacking it's of folks in uncertainty better are factories? factories using because with

Kevin Stein

look We in to the these announced of mindset. are Of headcount driver call all our an at value XX% of a part drive X% opportunities so to productivity. far. Productivity reduction course, is important we

impact and what see business. half year. book by seeing impact It'll We'll think like. depending going by of the vary of on looks the to that they're out that's in order I and what far the business vary the second

productivity PET I as efficient let the productivity. to see extra thing very run We at to we end? we sit businesses the around, And drive better not already out working aim be know. looking or opportunistic? the do other aggressively. Is don't it way we're certainly in other productivity after right So go this projects. We're labor our to will not programs

be more our the putting way. manage want So all our by but nothing efficiently productivity to additional correct of to gained in there's people maybe headcount we on resources

Nick Howley

Kevin just headcount. I'd thing factory. X% And It's add believe the is not the only across to I is Great. XX%

Kevin Stein

to indirect. direct It's Yes.

Nick Howley

Yes.

Kevin Stein

it we're split And early is it Absolutely. how And you in because on implementing. the know I will I'm that. giving a still probably range of don't reason will this process out why

plants, But I – think at at the they people have our happen this and don't notified. actions decentralized corporate. most been given already nature happen the

hear waiting of all I'm back that. to So on still

Carter Copeland

But impact just about that I I end, think there back sort through Is mean, me right. correct? on serves thinking the the past Nick the a if memory was measurable history in a of

Nick Howley

mean We hope out expect case. would Carter is ahead be would not it. that hope behind so. the I our to I of be would this

Carter Copeland

Yes. Understood. Thanks, guys.

Nick Howley

Sure.

Operator

you. Thank

comes Strauss from the question Barclays. from next David line of Our

Your question please.

David Strauss

Good everyone. morning Thanks.

Kevin Stein

morning. Good

Nick Howley

Good morning.

David Strauss

is the XXX to less EBIT on about you Nick in magnitude? of talked MAX X% the being X% similar revenues basis, an

Nick Howley

XXX's I we I a in I that that But units looking a month not in front bit early that believe I'm think modeled at have or But less. -- little four of by don't the it's me. drop would XXXX.

that's yes our So, thoughts. into factored

XXX Okay. at I clear is that production. like X% more on X% to be And the the as or full said just

Kevin Stein

that's your to production Yes, full point.

David Strauss

the I their gave know of approximately can us want just margins for are. don't based average, margins Can where EBIT underlying too talk approaching about but where mean gave to company anymore, you much their away on enough maybe out from into and for margins of EBITDA are bit just a the talk on to kind get the separating a back you Esterline but now views detail -- you obviously, some where could having I year? corporate into broad-based -- you Right. go you Esterline

Kevin Stein

at. hampered is see is in the we time, remains that obviously, fullness business not the to it -- this know. fundamentally. but that direction or fullness that way the it But Yes, should there in to be we don't of all time, gets seen, a Whether move don't any the of continue in TransDigm that's in way

David Strauss

year $X.X billion it this backing flow, billion on everything you're to Mike like roughly. And looking cash at looks free Okay. $X.X into

Mike Lisman

tax quarter That's this right. interest just than That's next of was payments. be will quarter and of the stronger because it It timing right.

payments fewer quarter and have We taxes. double interest next on payments fiscal and quarter this our QX

little a the right it's for So, bit year. less. that's But

David Strauss

guys. right. All Thanks

Operator

you. Thank

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

question please. Your

Robert Stallard

so Good morning. much. Thanks

Nick Howley

morning. Good

Robert Stallard

Kevin the in disconnect is you maybe underlying I so strong the was think still quarter. strong FAA I perhaps biz quarter, could perhaps you jet that aftermarket why there the mentioned if explain activity number but that flat. was wondering was this

Kevin Stein

Yes, -- I better to had as I wish it's some us surprising well.

the the landings few just we take-offs recently and Given levels back to not a strength pre-XXXX after still gone of it's negative. but years haven't seen anything and

So, little don't it our of long -- what last. have we're I'll seeing and here say how surprise bit a is a to know I will

Certainly, the solid we're industry be fundamentals of the still but appear to seeing demand. don't good,

but So, coming it's will to ship where better you explanation a from. had wish on it, why we continue for I I or

it's across lumpy I given What business part this of think. that seeing aftermarket orders nature we're is its commercial, it's what aftermarket we defense, and the see bizjet whether can be that's

Robert Stallard

I some I MAX heal? -- of products. you issue, you're actually so taken at you chain supply Or whole you products down you zero? know have taken on the to your running then can of keep still your rate making have mean of And Yes. rate lots are different some to sort your

Kevin Stein

have this we on look with Boeing will had Yeah, like. communication some what

is now. where communication build in are the Boeing again We what early us, to And or we rates down more right this less on out it days have which gradually based taken zero is will our process. to communicating

on this, hedging following their I’m it further. not we're So guidance

Robert Stallard

you. Thank great. That’s

Operator

Thank you.

of the from question Walton UBS. comes Our Myles line from next

Your question please.

Myles Walton

morning. Good Thanks.

Kevin Stein

Good morning.

Myles Walton

maybe or you cost I can clarify on EBITDA? was taking. action you're cost net the little negative to wondering a bit XXXX the effect Is neutral Kevin to positive action

Kevin Stein

think now. I right to too tell early it's

headwinds this out. out about balancing downside figuring the of of We are still talking some the we're

I need whether it's to year. that on think, for more a the little or the time EBITDA will to add on comment I anything neutral

that. a So, on year change the It's little need more I too early in time that. to just

Myles Walton

Okay.

Nick Howley

reason But negative. there's adjustments think to could no be the

Kevin Stein

way I'm other. going I one idea you don't to it's to want just be not an the that give or --

Nick Howley

Yes.

Myles Walton

mindful is That's in mean half the there quarter on a all. front-loaded I you the that back to to achieve should up we Sorry, quarter year? for cost the be the benefit catch or will be and that third of second

Nick Howley

Myles severance are talking about you charges?

Myles Walton

Yeah exactly.

Nick Howley

We don't be expect No. too to material. those

Myles Walton

Okay.

Kevin Stein

-- But hit yeah they'll earlier. they us still would but

Nick Howley

next They hit earlier quarter. us

Myles Walton

bit Okay. off but a And then relevant. little Nick topic, think I still

you're talk -- think Your that may curious stay role just look over your roles or I'm about as matures. same between as -- Can time? and just the how you you business your time Thanks. dividing you at at here change

Nick Howley

My activity of here is Yeah. primary course.

active probably I'm know you As an and I'm there. a not Chairman an investor. manager

Myles Walton

Okay.

anticipation at no of any all? So changes role

Nick Howley

No.

Myles Walton

Okay. Great. Thanks.

Operator

Thank you.

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

please. question Your

Ken Herbert

Hi, good morning.

Kevin Stein

Good morning.

Ken Herbert

calendar there just else just recent you've terms year or follow-up dumping wanted end around of the aftermarket distribution – like Kevin quarter. I up mean quarter? sorry, that or anything fundamental growth in that have the could wasn't anything the XX budget I commercial time it been of you but signed on just any and unusual anything airline sounds but beyond didn't the wanted of the the in to one I see more in maybe one-time agreements I just to confirm

Kevin Stein

legacy, although headline business been still this to legacy everyone I a -- said a was highlight that's would it that solid that of to. the have say quarter refer We just the some have a surprise as It acquisition. the it reassurance was. strong the it. I for will that you isn't I that I to in XX give an number would TransDigm No. artifact wanted was look reacted TransDigm -- wouldn't a

that a board. across in due any to not It's strength It's to wasn't seeing really saw there. single we due a business not we're So the program. it one-timers unit and

Ken Herbert

you That's a could talked – you as if you're mean, helpful. picture, year I Esterline. And into I almost bigger closing just about,

you'll or some moving about pipeline bit good you of potentially very about talk differently think do was, outside, learned what a from acquisition the better? opportunities you forward you about just the apply you acquisitions, maybe even can your that moving what as on forward, make lessons and think As little process, a would already can which

Kevin Stein

in. I jump in and of so don't conservative much it a we and that modeling. our learned, on Nick start I'll that some we're maybe little know I'll if there's let except Mike

It's good for So that's Good good. for of you. us. all

a we've fold, bringing them after moving what think business a And handle fabric what operational many them into can side. I significant into the we I've I and the that way think we on so that integration from of do the multifaceted, That's job learned seen with of we can the learned pieces. and model go TransDigm. and I've nice the tackle our

in a the and folks team lifting the now the incredible I morale, that anything? as think some and real quickly. Guys on is why employees winning this we're team, also positive so it's And of the heavy being amazing, company accomplishing perspective acquired really interested have, it's they're pretty in the are part very the attitude,

Mike Lisman

right. thing it forward might published. the what think and the acquisition the standpoint, the years because I'd way think to going the that XX% Esterline finally M&A company just tells make we add I they not be from on in rate that's XX% one might before an tracking on point. put couldn't too happened We is, thing looked aftermarket and less aftermarket at of a I is, would. just looked from due at One the outside for low sense diligence And was TransDigm faith us,

Nick Howley

I'd guess, couple things. I Yeah. of say a

that operating year. the lifting plus units you separate to I in done that it with buy be think, or months heavy our lot organizational of method so, many first keeping I think, there's of and and – XX a something the was there's first a for

we something leak And and a keeping like business, again repeat so think that model it's a I probably So didn't I to if for was into good us. it call think, that. our bought think we over confuse base

I luck say, I'd good management well. combination I'll what think By we and in management. also had space good of, the call, we a good know we're a pretty

can well when numbers we operating over. and of don't -- our So make judgments, even think sense. is methodology And and I over some proven make the works

to be is conservative a in I'd you – didn't and were bump get. good turn as something when get there And big say, in I'd usually buy don't in you the we say luck good luck out much the information we you because category there, somewhere. as category, forecast

So I have. that's the comments

Ken Herbert

you That's much. Thank very helpful. very

Operator

you. Thank

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

please. question Your

Michael Ciarmoli

in Esterline for Hey. you mentioned remarks I expectations. tracking there. across just past? maybe bit was But mean of think, your knowing the Was of more are not going to little ahead there you you're in parse give Good taking just just I Kevin, a more aftermarket morning, the can some color out? Nick you give that seeing execute on there, execution? if it questions. Maybe Can end the you're or is market guys. it all pricing, that a prepared bit was general seeing capture Thanks that growth Esterline line? maybe that little the that better it of color you strength didn't product

Kevin Stein

maybe Yes. a insight. and then I'll Mike more has it take some stab at

productivity commercial I think great what the think I on seen. encouraging the It's on pricing and value-based both we've specifically opportunities the side. in seen – we've

down. There There inject to parts improvements. business. cash addressed. in Beyond capitalization issues get be to that that seen some significant we delinquencies We've need delinquencies seen were some certainly opportunities were of the to have productivity

said operational on best like focus on drive operations they much can front being business the TransDigm best on opportunities. Esterline business. been We've delivery, equally to being business really on. having approached we've price think an count the legacy this you we've can be productivity performers we split past the quality, organization focus, best the the an And and in on-time new I and the That's that really here. winning seen our

any? do holds. have still you that think I Mike

Mike Lisman

Yes.

I right. think that's

In Esterline seen addition Kevin points, has productivity business all the the and good to some of the growth. made,

TransDigm of sort for referenced is growth that ballpark. X.X% same Esterline the business So we business that legacy growing organic the in the

volume. from revenue mix of it's strong both and a price and pretty growth So

Michael Ciarmoli

last Got process? the Mike here And helpful. as impact might one. debt full today expense you I just then it. through The billion, one $X.XX That's maybe expense to how interest the that any as and color go sit think year repricing

Mike Lisman

up and the Yes. expect this to an X-K, Thursday We're we'll issue should term week. wrap finish or the Is slightly down tick it crossing with crossing to on loans. Ts rate but we Is It this

also that we amendments. package of got Now

Michael Ciarmoli

guys. Got it. Thanks,

Operator

Thank you.

question next Greg Jefferies. the Konrad from Our from comes of line

Your question please.

Greg Konrad

Good morning.

Mike Lisman

morning. Good

Greg Konrad

clarification really Just just to MAX quickly back go question. the to a

is of capacity capacity just OE later this to you year. sales headcount of and idle fungible reductions versus it said some You had that can on how X% be MAX today? was mean, much aftermarket I programs to or X% and reallocated

Kevin Stein

lines extent. it. say Yes. I products the Aftermarket largest for of is same the on OEM would not much the built as

So the volume occurs on the OEM side.

You can't aftermarket. make up it in

You processes. or people around of can't move necessarily. They're on equipment trained certain pieces

around. where certainly people. try are that to see out those have reduction – a when So not try so take first. or we needs We fungible you And riff move I there. to do you It's can would there certainly don't move that that opportunities it's say to you people easily

Greg Konrad

it's know I you aftermarket. then And in decline a Thanks. but small the interior modest mentioned

about talked forward. wins as kind end that market? move sales are seeing What particular of we you converting quarter some in last think you I to international

Kevin Stein

it -- The for for a Yes. the soft. quarter was QX little

commented for the growth The we slowing made freight a seen negative and So, saw I on I it side. side that some there sense. FTKs freight think then We've while.

previously some would On orders And the grow business, see that think bookings the the the side interest were to to at for the look starting they're here case future interiors, turn I again. our I things I noted when of we that's some interior starting and around.

quarters interior an will that So, the be the of better be that side indication future may aftermarket. on

Greg Konrad

Thank you.

Operator

Thank you.

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

question Your please.

Mike Maugeri

Hi, Mike for this actually is on -- Mike for Maugeri Hunter.

product color due large cuts any transitions, mentioned those programs. market cuts end Are is segments, to or market some weakness, help. you would multiple it big cabin, So, some to production

Kevin Stein

were that I cuts in seeing don't think we any I said bizjet.

side on important on what business shipments think programs. in. jet all new we're We're of the we're come OEM on programs here that. seeing seeing bookings new is I the seeing the and side We're on

that is I small over so even and jet has a biz said. to but it other the difficult business given On and to we yes, been we've is side, -- sector part sectors It's predict as pleasantly well business been aftermarket now tougher the what our have of holding jet It's market up a think grown faster, aftermarket the of understand. That's anemic. years. think a cycles surprised the landing the couple last I takeoff

Mike Maugeri

you And I'm next thinking And to five you. are three like about then Mike. years. thinking for taxes? Thank helps. That the How over one

we are are or how Thank you. beyond about about code any XXXX to you need So, to thinking changes that there? things be tax thinking there

Mike Lisman

don't into point. looking I in all rates long-term stick plug range guidance And three The across to model, on you think encourage were that a something is just so. you I'd for still at XX%. XX% this if to to

Operator

you. Thank

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

Your question please.

Seth Seifman

good and morning much very everyone. Thanks

Kevin Stein

morning. Good

Seth Seifman

having is not keep else material, whatever is that would regard in sequential else MAX aware improvement supposed With world? seasonal there be the be improvement QX other But trying margin pattern see year. out of the to of given the of severance that guidance just strong the unknowns versus guide, happening given than the the relatively to we the the anything amid guidance. this there and to all idea from is off in be caution happening margin some that kind cautious to that is appreciate should was QX very for I Coronavirus that of

Kevin Stein

guidance margin hopefully reflects judgment cautious bit your the just being and best to a conservative point. little that think I we're and our

Nick Howley

there. It's don't There's modify them agree with the known wrong in signals cautious be we this. and on them. that. of send isn't change completely lot to and information a rather We'd or want have I to caution

Liza Sabol

QX. grew But also to expected we remind you though what that the of for ahead aftermarket

the could And be from QX. that QX so margin a to well very decline there sequential in

Kevin Stein

point. a It's good

Seth Seifman

Okay. follow-up Great. quick Nick. a And Thanks. then as

the think might apt thoughts over more looking Do maybe be that when you have MAX to on M&A impact be might to about the time. that on situation now? who have opportunities sell any suppliers Just you initial

Nick Howley

know had me much No. it if Not that surprise would I of. It impact.

stuff good times People decent buy words, aerospace of aftermarket. As businesses businesses. down a other you we don't sell cycle. usually In in with know good temporary we buy proprietary

period was Now long businesses. to to surprised a drop be the they what changes that But that if like of I'd -- some people. for the either a for if go today, good this rock you say on view time going might and or exists whole of anyone's or given situation I'd told down sell me want period the buy it stress

heavily non-proprietary businesses for XXX, would the stress not buy. hell OEM say that typically it could that's are kind weighted them of very we of stuff particularly the I Now, that or towards out the but

Seth Seifman

you very much. Great. Thank

Operator

Thank to Sabol I'd back like the you. conclude hand any question-and-answer further of Liza does And remarks. today's for program. session to this the program

Liza Sabol

that morning this you call. our just We'd like Thank and thank to concludes all calling for in you.

Operator

participation thank conference. your conclude and today's gentlemen and you, does the for Thank program. in you ladies This

Good may You now disconnect. day.

TransDigm (TDG) 4 Feb 202020 Q1 Earnings call transcript