TDG - Earnings call transcript Q2 2020 | TransDigm Group Incorporated

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the TransDigm Second Quarter Earnings Conference Call. At this time, all participant lines 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 comments are being recorded. [Operator Instructions]

to Please conference go like today your now Sabol, Liza ahead.. would turn to the speaker I

Liza Sabol

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

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

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

now turn over With that, call I'll Nick. to the

Nick Howley

an these. allocation. the start COVID-XX to comments Kevin of calling the everyone short quarter, on morning deterioration, about Good thanks our capital and some to in. off Today, efforts market will respect and comments consistent Then overview and most for on expand and quickly last little of on the I'll strategy. with with our usual as related some Mike hit a

cycle. of our what products are good bad the create value To protect net ability unique by intrinsic all the the three come provider. of source from of times, industry we our as reiterate, the are products, our our we quarters the in why believe are aerospace of as sales of generated consistency we and we and phases we to through shareholder proprietary some sole To net XX% and from this, reasons well in in strategy believe believe about sales over summarize both

typically relative the Most from over provide sharply. most happened the of our significantly stability downturn. revenues, time any to comes our higher aftermarket, likely severe and shots. in profitable period very extended the of largest has drop aftermarket, In have aftermarket demand margins of commercial portion the This during other and appears EBITDA which

in start take to aftermarket However, our unique recover, again. commercial longer start this simply to likely won't fly people could until much circumstance, stated it to recover

our to the of both equity our is give of on with proprietary public and aftermarket have a capital. returns We to allocation businesses we focused careful well utilize the private goal simple, we consistent shareholders like concepts. a strategy stay aerospace We long-term specifically operate own with follow value value-based creation market. as details longstanding well a do Our proven, liquidity To significant of this, methodology. operating as

while aspects situation, we the value creation of move had to methodology. our a maintaining costs, current our adjust In other past to

closely system aligned And shareholders. capital structure our and key our part that see lastly, with strategy are path a methodology. have fit creation with of clear our structure returns. compensation we and PE-like acquire decentralized unique a organization to We We allocation and businesses value where

year as EBITDA and solid from we fiscal the performance XXXX. saw and Revenues defined in a have quarter press of the first release, up substantially. were half you As both our second

travel of both aerospace the signs slowing. than a expressed continue concerns different has for the environment Pacific We Rim early and Last investors. air that all upon production real the commercial in our we XX this value durability happened the intrinsic days. to us been in of thrust about generate which last Unfortunately, cycle quarter,

down world February situation in substantially structure yet around As the the of March, our actions the we became year. worldwide and a In this COVID-XX how Exactly badly, aerospace government for result, we can't January know will just it that sure. related began negatively and and cost adjust business. clear commercial the to impact

also moving for wait perfect However, information. can't situation as fast we the adjust we and not We're clarifies. will

And cost have addition items be severe that downturns. the experience safety, substantial costs to than in two significant might get first, dealing quickly In focused on were. as liquidity expected. our address important as these One, things reduction, most immediately we we worse reduce the assure with possible. To two

a is is whole then perhaps down pretty EBITDA run process run to usual We defined This more estimated six in at best rate. make get our Our We rate. consistent. our than margin estimate situation. difficult as this for try now month can costs the we best the that enough

in we to know cutting be sure not I our detail. that structure, thing enough, exactly we size as more order new and Kevin our market regarding These made only are aggregate, meant that In down. The we these our right guidance. size, adjust won't conservative. assumptions the only appropriately I’m segments. organization explain for cost major will cost We just to some know certain but have are don't in we'll hopeful and efforts. In is upward this revenue

these ratably the believe in addition, revenue costs in EBITDA place the out earlier cuts structure costs these reduced so sizing assumptions. minus We costs in quarter. to estimates. can quickly cost these with reduced define we everyone are our made We we with as defined. already of revenue get our as actions line remind second in are cost Most We

the aftermarket margin in We think highly short drop This there EBITDA there. a get the the if will profitable make way tough. likely come as this. defined It close can be be However, run hard all the mid-XXs six reasonably will headwind, the significant rate holding months. range mix commercial will we to to full continues for the in

appears to respect the liquidity we've based to be any With of the liquidity, seen. fine forecast market on

period extended payments. over including any cash principle covering We positive all expect and interest required to run

additional However, has money given to debt in April. the we borrowed billion $X.X XXXX. new decided maturities no and maintenance This covenants substantial and market no raise uncertainty, until

is, quite these is is money we new positions. insurance or your only in it. a can here market This products unlikely need out situation the much It's get standing We're a great than an reasonable filling policy This our in without at cash. we fuel times. becomes of a as run you in The way as company expects uncertain for worse if anyone trouble tanks price. full

sorry Pro a of X/XX. lot X.X forma hope doubt the need this we as new of money, to than X/XX/ come our this environment is with this Again, cash for we balance firepower. safe of billion but and out better I will debt,

for to are the especially capital attentive the possible M&A and opportunities We are at to look M&A world and continue our always difficult world always market today. allocation. them, capital Both

As we fairly be will rule, the tend a until smoke clears cautious general a bit. to little

too guidance. uncertainty. just We have XXXX withdrawn much our There's

guidance We clearer feel have we will a when our re-institute picture. we

fiscal Our strong. off year started XXXX

The we good, half We'll situation are be how first we will can positioned for develops about We well second right half but was now. rocky. accordingly. as react the as be pretty believe watch and the

to COVID-related our Now and review recent hand and activities. to performance our this assumptions expand on over Kevin

Kevin Stein

and provide my profitability key some then related and regular review Nick. by topics. COVID-XX Today, first of cover and I Thanks market quarter, for of outlook the will the business results

to pleased difficult sales we QX, increasingly approximately aerospace commercial impact commercial particularly global industry. saw the quarter economy are In modest and negatively We weeks aftermarket, COVID-XX were last pandemic, the with the unfavorable and solid a as three for QX our considering results, impacted. OEM of

as to acquisition actions. QX continuing with revenues margins Michael expanded and versus compared up headwinds, operations QX year will our revenue and specifically reduction approaching versus prior more on year financials our were last organic EBITDA second QX quarter in up defined due defined EBITDA later. these announced XX% prior of GAAP was Despite as positive the cost provide details XX% part approximately well the XX% preemptive and to growth, year, integration revenue.

Now, we revenues by will market category. our review

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

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

the commercial The OEM market with compared X% revenue related total declined in decline MAX reflect OEM of declines to XXX haltand in a Our pandemic. production XXXX. did ongoing QX, when from year impact the approximately of the quarter fiscal minimal headwind early the QX

clear already commercial OEM have is the impact significant pandemic on a will COVID-XX market. negative the It that

impact to due be will demand the We fiscal commercial during impacts on airlines are XXXX, evolve, canceling continues the some of negative of rates COVID-XX products new fluid our OEM or market time. in but the assumption aircraft for under deferring for period and second orders. of the commercial that reduced OEM and is Longer production significant we half significantly uncertain OEM reductions term, anticipate to

growth over quarter, market. by aftermarket In and revenues discussion, the aftermarket aftermarket passenger the freight submarkets, commercial year total prior to business decline stronger interior Now on approximately our by driven in commercial by commercial in the moving grew transport X% was flat quarter. offset a commercial transport

does the March Our the we aftermarket not year as came but half. Most remainder of the the year, year, expect of decline in bookings picture XX% second the for of prior over versus quarter. in down were quarterly likely decline sharper correct paint commercial this a fiscal

hit unprecedented flight dramatic COVID-XX QX, into reduction restrictions of the This significant There went decline and in as travel was a revenue air to across for few miles To business our pandemic. aircraft in response rapid parked of passenger and on as are global global place during a the to these a result global at COVID-XX. shelter orders in a points, led capacity in effect lows into demand world.

compared in the miles in forecast to year recently XXXX. IATA calendar XX% XXXX revenue decrease passenger

crisis For prior STKs an as cargo all-time this declined already was XXXX. weaker in reaching to from have COVID-XX high the demand,

belly COVID-XX cargo a could due some flight unexpected restrictions to provide However, of loss opportunities. passenger

to the and more during utilization this the aftermath, jet so outlook and stagnant already Business downturn, now jets before pandemic data unpredictable in weaker. is this for was pointing growth business economic certainly

COBIT the unclear long-term aftermarket impacts and duration still and of pandemic ongoing, the predict. the severity for situation are to hard are As XX is commercial the

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

our our lapping of booking driven we as As growth. surpassed a robust defense Year-to-date, XXXX. year tougher in most bookings have reminder, primarily OEM expectations revenue defense accelerated defense comparisons fiscal prior very are by the

any anticipate although solidly in were good bookings trends With booking immediate parachute-related outpaced defense come flow and this APKWS and businesses, defense, across bookings as we continued from especially the segment. year-to-date sales quarter. of favorable grew Total strong most the in will future order

moving going Now profitability, primarily performance talk for defined. to I'm to our EBITDA as operating about

XX% for EBITDA as million EBITDA up the about in of under just margin QX defined XX%. versus defined QX. prior quarter XXX was was

sequentially efforts, any period, mitigation Our result both EBITDA margin the consistent as operating focus and prior defined of strategy. as a expanded cost our year our over on

Esterline, TransDigm year to post-close. The business well acquisitions. sequentially in Esterline this expectations both date in quarter. exceeding is year improves now to growth Excluding On largest our integration over for as of continues and margins a we legacy are progress the as acquisition our prior over

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

time. around In XXXX. forward and the still global looking aerospace early to half provide second of and fluid light too is the uncertainty the guidance ultimate commercial impact highly conditions to at on market feel of we the industry, it moving economic current COVID-XX the Now

better once we guidance. a As we picture will Nick said, have reinstitute

guidance. We rightsizing again, assume detail structure drove half However, half a end second to the completing right have XXXX. when the size bias organizational following the to act of in we reduction bit to market that with XXXX, a for sizing organization our when regard implemented the We I fiscal provide sizing. second is needs the quickly wanted This the not and date, of assumed to required, conditions. cost for more always analysis the organization on levels fiscal force the

the and declines end which defense aftermarket XX%, approximately prior guidance the to for to in XX%, digit, of XX% commercial with mid single our declines Commercial OEM in growth line is defense market. of XX%

and I detail. Next, response COVID-XX expectations our like in to would more review

and EBITDA their commercial aftermarket. services sales, our XXXX in currently net mentioned, during and a COVID-XX that products COVID-XX negatively our we As as our of of adverse second have impact the to customers fiscal Under half demand for significant the expect XXXX. half on the income fiscal a defined assumption the non-defense outbreak impact for particularly will the second

in confident long-term days we Since have and our As and prevent earlier, focused customers the Nick said while from of guidance the mitigating World on virus outbreak, the employees the globally. the business and our impact employees. to are over of of to all Health the Organization model U.S. our we the the supporting COVID-XX facilities protect for business within Disease early of Center following been and Control spread remain

actions critical entities the they shift alternate we of screenings platforms. Most for reduced remain since operating by are facilities are operation, in for programs, deep by include employees. provider including time even government deemed pre-shift Some implemented levels, work-from-home of as scheduling, law, and sole our quarantine PPE, businesses if the some defense cleaning social are allowed essential many impacted flexible temperatures appropriate were and distancing, schedules, paid facilities

to to meet certain the while fight begun our customer In businesses of the the assist critically needed We our that effort are safety and continuing commitments. medical during to committed global employees, equipment is against health pandemic. have our an preserving of in COVID-XX, producing

Our while is gowns, Mason surgical is producing respirators shields. and face AmSafe Restraints business producing

fight this grateful ability to contribute against are to COVID-XX. the We for

before costs it production high half very related to volumes. that materials machining. with Roughly move services costs Nick spending EBITDA. or to should our is less plating, largely we variable. production related measures subcontractor of painting mentioned, a percent and as cost of specific revenue flex including our cutting Those we including that are materials important understand to Now that meaning Cost view is

uncertainty the or The benefits next than include taken items XX% to some XX% costs more related have let highlight specific such from we And direct big remaining less and all other. is class the third, We but costs pandemic. is people to to XX% than monitor and bucket our employment and the closely of response reduced savings these COVID-XX resulting actions one me and of in as costs. demand

cost the mitigation mainly bring our to efforts with cost planned rate response our call second since These and customer MAX to efforts workforce in quarter operations of previously disclosed the implemented fiscal XX% XXXX, XX% earnings XXX headcount additional force but were versus changes total in to reduction production last These align previously to in approximately reductions the incremental are reviewing worth to levels. demand. and mitigation actions

to the and response the for to many X over fees. in their next the And balance a retainer situations. six X Board implementing forego at we're reducing XXXX months fiscal Furloughs, week compensation substantially specific furloughs of Directors businesses cash the will team for senior of annual management

We market keep operations appropriate. and Excuse as on our will events monitor external vigilantly the developments to updated and continue me.

stating. So let by me conclude

term. the the industry COVID-XX pleased to from with the reality harsh pandemic, near responded commercial actions which dealing aerospace with the spread the I speed am immediate has taking at to confronting protect the TransDigm employees in of while the broader also virus

that implement, endure the more broad are position reductions from of employee current will no base from in we end I actions weakness circumstances that the doubt cost difficult and and furloughs, a better to primary ongoing the strongly to rightsizing the our markets. While commercial Company the ranging to have emerge require,

With Financial Officer, that, our I'll Chief it turn Michael over now to Lisman.

Mike Lisman

then as the today. the any and to release I'm quarter updates included and slides growth. elaborate I morning on details call defined sales, quickly further, in as the expense rates the on you on see EPS highlight going not everyone, Good results tax press for the can just for interest the to adjusted in want EBITDA

benefits percentage tax of than from LIBOR rates expected act, the EBITDA. year. new fiscal the due XX% to by the deduction will it's pick debt included to X expense primarily will XXXX taxes, be fiscal Interest mitigated previous average points balance cares expansion to the slightly issuance, the in lower of adjusted XX% our but and our X to cash of in EBITDA guidance the the due interest limitation for GAAP decline On partially up and

ratio the X.X net at of end, the liquidity, to debt stood EBITDA over times. our second balance to Moving sheet as and quarter

issuances, than penalty, due rates an two the in tax point expansion and repay debt we the included use much points at recent Nick of and in the to the without capital the too that Act; our billion that policy CARES interest worth insurance were On the debt on then slightly are it refinance that we mentioning. like, would terms The deduction years such while time. thinking The in the to that's second, of can debt basically or decide higher it should quick we interest three look two best is here. X.X rates mentioned after limit better

end sizing While overall the Kevin there's an to we right cash, under in and our fiscal cash assumptions commercial sheet we're in substantial the liquidity positive year, of run do expect markets position that uncertainty for good here. detail. standpoint, half free back in now, think flow balance we the describes From

and sizeable cash months maturities of big we We $X.X have until reserve face July any don't a billion so from now. XX XXXX, debt

that find aerospace its expect industry then. commercial before will footing the We

With that, off back I'll operator kick it turn Q&A. to the the to

Operator

question line the of Copeland Your [Operator Carter Instructions] Melius first Research. comes of from

Carter Copeland

of of of We're couple at we're crisis, platforms, the kind point. out guys. the on end of platforms the service you of questions of impact several on mix the back take to what for I this products foresee Just a and do going unprecedented. business? you in One, this realize terms effectively

anything product appreciated? understand can help there be some there lines not, offset particular do is to us, from would shutting so, that And or you what

Kevin Stein

the in platforms So, leaded market that our believe waiting. we a related to We market business support. this across is we're

on platform to profitable been planes as become they to So, other. we've them. ourselves value able speculation. right think or market since how anyone But slightly we're our work do plays Obviously, see Right overtime we're get not it's out. now, get weighted, as have We'll concerned drivers to older, overexposed all of as as as now. platform older not we more this

the the just But accordingly are impact it to we Our and market to this, across overexposed at platforms there's this believe side to us be of or as weigh but to we is plan rationalize. for in as future, and always as Carter, hard distributed speculation we're The about. are look book, to in not today, react stream that and to in revenue that use have follow closely the is order quickly the aggressively again, anyone. Certainly weighted going sold going to some possible.

Carter Copeland

And up you'd downturns the does be we've follow-up, then you to dust the quick on pop Nick, myself if compare small you if settles, but normally what's this wondering before the are just comment gone and towards as find And M&A I settles. waiting dust through, till just thought How those? scenario, a about process? prior in this the that How alluded opportunities there go? this thinking the

Nick Howley

I I'll of six down, have our we're looking business, we're you -- We're now kinds would good. than you I try been the valuation address we're and say be to to and buy. amount quarter, it's we up we come but unusual but very months businesses not be bad for of to One, off more probably would Yes, cautious while. for but we're shut past aftermarket. stuff here little stuff kind in things of then definitely cautious we'd a we're But sell a that uppers of that say, think a if with skeptical someone to or because businesses, of more any Generally, of to That's the say Carter, we buy, proprietary in a ago. the not depressed one able not trying will with. that to now might every going good we're pick ways. a couple say word fixer don't fair times. a typically out in We would of people make have buy

Operator

from comes question Poponak next Noah Goldman Your line Sachs. the of with

Noah Poponak

much how April in on declined number your year? revenues aerospace April last the have commercial you of aftermarket Do versus

Kevin Stein

tell our month one and period. that sizing I at assumptions did that that aligns with We look for think is you what it

month our six close assumptions. less one a Now so aligns with have eye me, months does But a it more sizing keep or not on we'll to it.

Nick Howley

sort assuming in planning the in we're cost add I sizing way aftermarket. Kevin that very for we sizing only that But of And that clear, is, right assumption, thing and months, hope stays down of it was is but conservative that's now. think for what six the I'd XX% XX%, which our for to a commercial We're right. using

Noah Poponak

on, also, if revenues willing percentage direction market a how margins airplanes? year even higher are magnitude. to aftermarket aftermarket? age If when fleet quantify kind the some your hearing question is. to of the that versus older market that or investors then of of frequently staying give understanding assuming aircraft dust significantly decline is average most in Just your your we're weighted know -- Kevin rough makeup What's going order of the here question the your units, are And older the if be of Carter's I'm on much has and on bracket on but as of settled us answer your from I there you'd is you'd don't weighted, kind the aerospace come What impact from it trans even retired. if older XX

Kevin Stein

Certainly, not go The more XXs, difference. answer might on we small But markets. There's to many of it's we a think them out That's they're expect do I like our have of this. we'll It's to slightly that is MD this. by that believe market us weighted only going impact thing That away. overexposed today a believe there. course. profitable. I to products any would weighted say not platform it's is, we're don't products. I about on we're wild older the

and the to And use both to market opportunities to you and order as just is capitalize are best in still where on. need for that's closely the on space. well in. The can sales we coming where the stream the what watching. thing there's keep ahead We you cost commercial of follow analyze need there's to that we're ensure as opportunity the opportunity need There side defense getting additional

Noah Poponak

going of in hold cost the it talking half. one tried match gets In foresee That's in that task about Understanding points on helpful. prior proving are to hearing of free EBITDA where zone defined the you the Nick, in the revenue. to somewhere a I'm that, quarters? difficult the in it's moving, talk had sneak you scenario but Do effort have the on deterioration? a to hundred your things margin just you any first last how next of downturns. basis margin, four the with than as one, a where you more, EBITDA handle a potential of harder we Or are couple quickly

Nick Howley

on would that. I speculate I want don't don't want to to But speculate. hope not. I

You math know, obvious. problem is the is the

X drop did the had much revenue is an has cost, and everything you if know, happened aftermarket. in what the you're percent the downturn out take long you as the of a Typically drops your than in sharper works you in You as stays the X mix OEM same.

So you that wasn't headwind, Got makes that little from mix here a got you tough which a I got appreciate. a it the harder. tailwind job.

at kind look margins EBITDA running forties. We the mid of in the

will And need than close a I aftermarket could of the the start the to I going edge. flying could stay we the depth we hope come hope duration. But over again. This which forties more to to little be I hopeful tough. that that, the be and People I'm that's very dependent drop. would As reasonably means just on say, in

Noah Poponak

there, Sounds with high have uncertainty but like everything? relative to process you degree a a of stay to just

Nick Howley

is That's the right. a And problem math sharp aftermarket of very the drop.

Operator

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

Robert Spingarn

this on terms you, use kind you so your to topic, to portfolio, -- When or have that to just the serviceable you expendables. exposure of is do portion wanted think some the Nick aftermarket I or of consumables what in commercial of that not what is? versus Just of you sticking USM exposed Kevin, but with ask know material,

Kevin Stein

it's our may to real And hard out there looked a any serviceable USM see impact then, spots we've not do years did competitor be broadly real as USM there's a where analyzed there, parts that So, much but market. on of to buying to the we looked USM Certainly, found growth. ago. user or at number we a part areas revenue seen some out we drag couple concern, this there or at here that see a was we've regularly, speaking, or not market. business. aftermarket much or since We've And can we available

So, put we've market that out. parted will retired, same planes be USM them the are possible. as will That's concern the heard into be more of

today. know, And on Again, these of or Historically, will into we'll as if we've looking for that morph seen to watch that don't inventory out there. sure not our We carefully that make our a haven't parts have to their I that. large revenue. teams historically, USM a it drag concern, big something they're for it's talked to about of all looking opportunities

parts analyzed price, market, speaking, and $XX,XXX $X,XXX sale sale the years average average of Generally $X,XXX available be our have most to needs market, share price and heard our It what way to line the ago. couple we this that. well our the we've about the from the that communicated puts fall just below at a least speaking. parts we've parts in prior generally of believe USM I not

out we happen closely, will I'm to now, watch the not planes parting we have react as of concerned but impacting So something it. That to us. it's about and right will may

Noah Poponak

the with to ABCD you checks? about exposure to you or Are this is frequent way Have tracks at parts there's a regard routine staying more checks? your looked a think ever are there Just for you second, on that? your more heavy

Kevin Stein

really the all We're over place.

it's Others related, passenger it's time replaced Some by and not parts cycles. on wing. like volume of our passenger seatbelts Others get related landings. or takeoff number of

exploit this any to really to. opportunity So not and there's trends across we've need the looked at or that we board seen an

Operator

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

Myles Walton

just as Maybe and those the derive than is performing a into level you're is of markets. How Nick that legacy flat? look is, to TransDigm activity? I they bigger of X% the Kevin, a to sales then mold, closer of businesses? are or so pro bit lower bigger question are dynamic mix adapting? businesses new your Esterline these of line market. a kind more something volume clarification then performing, growth or adapting the the downturn adapt And levels? end entering to to And little the maybe and the clarification in And question. forma the Can you organic The that fitting same your the kind How as to legacy TransDigm relative is

Kevin Stein

the handle growth handle organic the and then I second So question part. Mike forma pro will can

Mike Lisman

Thanks Myles.

the a computation because could On just do this closed confusing it's you organic obviously year. mid growth, how little last Esterline quarter quarter the

are take. approaches you could there So, different

You could completely completely you do it The it. it is in, owned. punch Esterline depending or you could put based of however weeks on on could line allocate the take number out you

comes based in growth organic did we X% it XX-Q between do The filing. number weeks the on out somewhere what we'll of zoned and and X%

day, a want. take. of because You'll and the the how hopefully enough X% end Esterline. the that you approach do are get acquisition computation see provided read dates at it's the on you depending through and detail. And something however We you detail of just little on But muddy -- guys it's you the it the the so X% can then between

Kevin Stein

different, from And other think to isn’t businesses. different say, safe materially that's I materially it not it's

really, the well. aftermarket first performed As Esterline Esterline side, performance they certainly far like the on across goes, well very quarter but as much board performed

they're fit they So of our TransDigm. window performance I businesses They're of into should. legacy sort the of general think the that as rest products same as mold the fitting

market. the So, they're in performing very well

Myles Walton

structure. And there cost a are definitely from

Kevin Stein

say you can question time? Can you one say more that Yes, again? that

Myles Walton

to that sure I that make legacy moving kind to transactions. just able of the the quickly adapt to they're cost same structure want

Kevin Stein

to headcount are and they've and them gone They and businesses. have and like rest of cost able our we just and furloughs respond the for ask containment reductions to been

be They're So same market dynamics very what our to needs in business. the they're much seeing tune to as legacy done.

Operator

the line David is of Your from next question Barclays. of Strauss

David Strauss

do you I think payables inventory gets working you remaining half the levels? you, about capital for back the flow ask do in receivables, thinking, you might about of to cash Want working just how free but and moves this mean year positive capital. how talked

Mike Lisman

expect out count it. Well, longer but to don't we we of period do over a some it, come of cash time on

receivable we financial downturn for working count capital, immediate any inflow it's your inflow, a accounts So we modeling the don't inventory whether do or out assumptions, downside in stretching payables. on or from when positive

for not As the be of more X to of assumption of a time driving this but in goes on fiscal positive half that's year. a longer maybe cash the to what of is cash, free would flow X our source of it months period expect back months

Nick Howley

like ourselves and add, that controllers assumption, inventory. we we assumptions, ensure AR and in want just process really here. credit Mike And in this would to say overextended other our think the we kid but in to businesses folks. don't out watching conservative to early get But whole are about didn't managing to AP debts, our or a these talking and operationally, would on I closely got extending we're I basically

closely. very this at We're looking

impact little Mike alluding to take and a them it's As while was for going bringing down. to, start us these to

levels You on we're down. airline the much extending all bring taps incoming or it partners. not need shutting working distribution too will inventory and customers ensuring production happen to off And we're credit to

David Strauss

they this how this XX% to assuming environment? XX%, your for decline? thinking What capacity your decline? how assumption know use the and this I excess does is that for assumption global for you're business that question, in in is XX% XX% it's follow-up planning guidance. the global capacity then And about not underlying -- what And pricing purposes, of also aftermarket you're compare A underlying

Nick Howley

me run to say just your XX, for but not if it's We to assumption. sizing was you that XX. because I the think XXX. question, decline, just XX. took yielding sure I one we're because run our can it's the cash It's I I'm XX% than that, I about is XX rate going XX% the forgetting I'm mean, rate sure, flow not not less down XX% or decline. of I'll Let them. drop the try remember because keep forget to would followed That's

switching for for six is that last hopeful It a demand I little the I the six see, think and month question. a sharper I I stay think way for of like, and the dynamics months. supply the And it it wouldn't But months, lot. But they we're wouldn't so. address I'm costs we'll the or hopefully surprise your could part to going And change first think sort market of to second assuming that's there conservative. don't which be your me

Kevin Stein

They're Price Asia are little to look back slow. they the Is to coming side, shoots a recover flying? green business? we we will are still it's the still bit, manage are. our value need drivers Where starting and in at what

the look sharp, the XX% the said, in downturn comes might bit the months to a our maybe XX% way it little but in Nick that's As next profile decrease months, aftermarket side. back following few and like, XX%,

David Strauss

was just your down of decline asking global in you going that capacity. be the if was to business thinking excess in aftermarket I were

Nick Howley

against what that you. assumptions don't, the using quite how I say, to don't we're gave we people on making have calibrate other, set I to use. and numbers to our that's over and I we numbers there's all capacity know that the are place size we

Operator

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

Robert Stallard

might ask I'm than or Does a or chain, could the sort it doing? try risk traffic wherever differently. shops aftermarket and it distribution whatever Kevin, going down questions, Nick or channels be inventory up that be? in airline try is and of to end what's more MRA the the dragging David's of capacity

Kevin Stein

at shot and follow it, up. a take I'll Nick

think us watch. know we'll to MRO inventory We something it's how overhang know or that concerns the have. but I much. for have airlines do problem with a think we chain. not OEMs like the supply distribution, and This there's do Clearly not a shops, double a will bit get but bit for people you closely, little through be inventory as this to the manage accounted of double the like pretty I hit that need in we we'll that initially. given field and there's hit, a as downturn think managed of out a be our in clearly a We aftermarket, the the really I I'm matter is inventory know what inventory and sure

Nick Howley

add just, where our right the is I'd thing XX% know market pretty only inventory Kevin this is of I is right now. think after distribution well about the The we

not it little a is get you was harder now. distribution, XX to other off The

Robert Stallard

as as and experience? been sort unprecedented. much then the said up, talking Can we’re things us through previous you color some follow are your downturn? have up airline declines How you about held pretty in some has facing a you And situation pricing other here of bankruptcy And pricing previous give here? Yes. do on the

Nick Howley

significant Reasonably no, change. well,

Operator

Kahyaoglu Jefferies. comes Sheila question next from of line Your of

Sheila Kahyaoglu

want the and structure. time. maybe morning level's you're forties I EBITDA about aligning your but good everyone you holding margins for to tough, thank XX% Nick, that talk Hi, that mid is pretty cost of

of Understanding about whether variable it's labor. but very incremental, that had And terms. I impact of think do it's down generating price, just hoping is how and commercial it's positive as we to high materials you've on you're get and pass and know commented XX% your EBITDA? So it in a positive mix a you

all mixed you're So commercial I from see seeing guess is it a that aftermarket? to impact

Nick Howley

a situation a equal rest more the margin All the being which your if is the sharply very drops it’s while. likely margin. headwind business of that segment, things that at our business, least in highest business. on the of That's simply, Yes, here one for little off that than is piece

reduction, the you as the constant kept that mix minus all on you defined, revenue equal. took slog you took and cost costs. EBITDA being other if things the think I words, EBITDA In or

get now. we're assumptions, within that the down least ranges pretty talking I think about with the can kind at volume well we ratably of

So downturn being make you some a hold your headwind that equal sharper I but all tougher. margin, it being got from things think just this that would and aftermarket

the mix close, we is but somewhere business the We know forties. in don't I can there. the think think this steady all get of we I way that can mid get state with

Sheila Kahyaoglu

sense. makes that Okay

So you're somewhere because of headwind getting in the that's cutting margins getting downturn, or low of forties XX% is in not margin. cost the mix EBITDA terms during the you that why the

Nick Howley

I don't got the XX But know I'm I follow but got the what I quite not sure anyway, think that. means, the you've side. I think

Sheila Kahyaoglu

line Is makes So the it's just with in there TransDigm And different cost or question That to the then Esterline. on with it? a structure guys Myles' average? little follow-up sense. you the aligned bit have any

Kevin Stein

I for opportunities in with think productivity sure, there's there it's line the line still but in the directionally. board, I'm think it's I across average.

Nick Howley

And numbers. I are those overall you numbers think the company gave

Kevin Stein

Yes.

Operator

next comes Wolfe Keay of Hunter Your Research. question from

Hunter Keay

versus directly sort aftermarket business, is about a or there think of understand of you as discretionary tied flight the RPM? us help to a what way I do As commercial breakdown hours you can more

Kevin Stein

or to is hours I tied would say our and most RPM, business landing takeoff cycles. flight of

truly I discretionary. of think is very, little our business very

bathroom tiles live walls. because longer businesses with You part little to of than you at and can Those maybe them of they slightly, aesthetics argue floor want a seatbelt and maybe and some can would our worn are that lighting are marked Pexco our businesses, those fixtures. they Schneller

bulk of is, discretionary. Some time believe of always But believe we've cycles in of on That's share slightly those That's may dependent be or aftermarket. the we hours what is the the our line what air. more it or said our about we are. products

is That's to that's amounts still travel, what So you're aftermarket small With of we not much flight get on. going some discretionary. your even why, count of aftermarket. if

Hunter Keay

moats source biggest and sole on But down of the talk a deeper two towards? sort towards bit of one model maybe of of about to the over term sort then and little the Nick, a having little moat the other. lean you of complement long moat were a or deities others they come through durability was lean then or bit that is one And how cycles proprietary, the you if each obviously beauty which the of those quarter every one realize two, more

Nick Howley

you separate and sole think don't don't I I think source. proprietary them. mean you

in they're I think there I lot. a think,

Operator

line Your next from of Seth of question comes Morgan. Seifman the JP

Seth Seifman

business expected. to you ask about so the and of part with the here, holding line what off the, wanted just shift in I still defense the mix probably

of of not the talked their is OEM. de-centralize. aftermarket commercial XX% over of which to better margins and You than that includes solidly it? slightly defense know, at average, way from I've thought aftermarket, always being, being but that don't all and maybe average, the healthy line or quite below EBITDA the common defense the think about still above level Company commercial, I Is but the Company a aftermarket, the about defense in fair margins the OEM but

Nick Howley

defense we a on different make and is we that's total, about aftermarket, fair make saying money little in business it. you're the to way a our but think that between on directionally I our And mix OEM what In business. defense, think less commercial correct.

Kevin Stein

But big not it's a miles not difference. less,

Seth Seifman

there quarter? adjustments, out? there Were were were And actions you the in were those as in a real in or they took costs quick terms then in the follow-up, terms looking at adjusted the EBITDA the quarter severance the just of and just of, defined in workforce

Nick Howley

this quarter It minimis in QX. was de

Kevin Stein

of an In add charge, we'll million will it cost to on one-time $XX we what it's quarter, order add show since will $XX a QX, something table a be time back in be one it the non-recurring next is And the million larger it do but costs. back think. we'll

Nick Howley

And the we have credit, so adjustment. EBITDA Mike our complies with EBITDA the

Operator

of line of the next Baird. Your Peter Arment comes question from

Peter Arment

Thanks Nick. Kevin, Mike.

of on down and the about XXXX being OE you are of Boeing to mentioned talking clarification you thinking half, just the a for we've XX question a term? for Just that maybe but Airbus both the about more sizing rates the longer piece Kevin, how you got second on sizing the the to XX said kind

Kevin Stein

will will for happen when the the we attack months. which that business when return, ready be size said, capacity We're obviously it so month can Well, Nick XXXX. XXXX trying we XX next able this XX, in guidance what around like to the six be and crystallizes, issue periods we and and think volumes to and

that's a way at it. think look I fair to

the that's see looking we'll, at So, right but we're it we'll now. way

Peter Arment

your just awaited also similar terms versus you’re product. Is mix? a narrow-body as details for follow-up, just of it as the in much the quick light-body And on thanks

Kevin Stein

what? of In terms

Peter Arment

Or your of how think aftermarket, should just about we overall more about In the when installed that? think wide-body? and you base to similar XX% narrow-body it than terms is

Kevin Stein

we've think disclosed don't I that. ever

how volume to isn't So, ship higher important slightly content They Wide I about are don't know but that. to bodies there. the have us. to set think tend dollar

to back OEM in where the market then come those, aftermarket I and in side. the again, weeded So

react, order try and So book look at to for business, the and the us, continue that's follow do. what we

Nick Howley

that you think up and guys rack the math. I do it

overexposure at side trying some if kind right. that's there get production you're body I to is we on math, do of to there and OE the think wide not, your question is

Kevin Stein

that. appreciate Thank you. I No,

Nick Howley

going best way starts look business of this the pick recover the it’s to to at tough the to think watch until is frankly how number to flights around world predict flights, up the be I to start anything.

anything. You're just guessing

Operator

Your next Khanna Gautam Cowen. question comes from the line of of

Gautam Khanna

already had for inventory Can A of aero the discussion, to much way different the number color. it of I all mean, the chain? on a asked. Is you or the I OEM. it to and follow the Airbus been a channel? lot for OEM very level the sell to Thanks the Or just is sense size of questions The I of of… terms -- diffused up one in Boeing concentrated? do supply fairly guess, maybe you manufacturers guys have in in there destocking how many subcontract is you

Nick Howley

depends on It business.

others, light. it's businesses, diffuse and in it's Xs to sell and concentrated the Some very we very Tier

very I around give is that. So, and it diffuse you more any can't clarity

Gautam Khanna

Is arrow business XX%? XX% the contributes the It we understand. other And to that it of the then commercial EBITDA side sure widely profitable? thing the make SKU to want to I company or defense is

Nick Howley

headcount the about reduction? talking you Are

Gautam Khanna

no. No,

a us of how business, should curious, rough Sorry, just EBITDA the give XX% commercial the we much can for OE if commercial company business. aero attribute? of I'm OE you sense

Nick Howley

it profitability our end the OE profitable don't It's the best businesses the I aftermarket. in of profitable look markets, for on as at say abilities. rest a on by think up to business we following but percentages the can we Yes, commercial

Gautam Khanna

model this last or you've next And a any parachutes fiscal bit defense kind Year the then we Are you. and there orders one, as little of mentioned we about non-recurring? just be should we business, perhaps year drivers have other talk lumpy about what thinking out the that for

Kevin Stein

can defense be any is pieces. don't right know know often that. of issue I of that's non-recurring. non-recurring But don't No, with it now, I The that anything

sales strong. it's looks business well Our like parachute aligned international continues military

seen out any of any around yet. really haven't that countries We downturn

military reasonably the is year. six think we next a of the for months to So robust

Nick Howley

commented with we'll System this into of from quarter, The Kill APKWS, the turning system And sell defense APKWS, bombs. lot very see. on comes Advanced lumpy we And bombs to is dumb then smart the BAE. product orders. And problem that in lumpy. Weapon Precision We a

Kevin Stein

comes something the time. And lumpy all

Nick Howley

Something last lumpy we're getting had than comes on lumpy just different all year. the in time year we quarters this orders and

over the comparisons place. the makes year-over-year it So, all bounce

Kevin Stein

applicable more much bookings shipments. and it's to But

Nick Howley

orders don't. Yes, tend lumpy, to the the shipments be

Kevin Stein

generally are not speaking. shipments lumpy The

Operator

of Ciarmoli Your from Michael next question SunTrust. comes

Michael Ciarmoli

a the know, some realignment months? next mean, Kevin, XX the XX. the Does don't OE, supply best chain kind obviously in Nick guys that Does for shut of it presumably I just down. down maybe it the inventory the contemplate reproduction, back I destocking put and to assumptions you that of facilities your of there? contemplate six on contemplates also the or

Kevin Stein

that you be There's, I don't know a going And of, I that. hit to have a range an there's to tried lot inventory overhang. give to we

Airbus some do been much because amounts, min-max how Boeing don't have know we scheduled. buck we So, to speculate or for there the not hard instance. on, inventory We're in on at held it's is

know generally have in buckets don't they speaking amount I buy us. different what from their products So they that of

inventory know don't this overhang, is of to at we'll how reduction XX% looking again, months, XX% much in some there. the the six but So OEM next really include we

Nick Howley

is is point, we everything stake ground I and the we and and obvious. read read, here the perfect the incoming what just situations. at then our look can current it. think to some just have wait We for watch in what information restate think in stick I to data we got can't at just these recap, costs a What do

know months, the a one just As at or up a I don't other adjust is maybe a have hopefully thing the the beginning, down we'll see. next for maybe over little. wrong the We'll six I little, way be to and little, up sure only we'll have I know, said to

Michael Ciarmoli

would these as Do you've follow-up mean, after and going a the as taken, Nick, have the reductions? -- view a envision And actions me that you couple you on maybe that now and the presumably back I one years we'll get of cost permanent thinking 'XX it's You for as costs think and the just to about from revenues I to that you do know, out be there aftermarket level? aftermarket to more know, flying. year

Nick Howley

the I to out we fall downturns, stay come the something. as with to through tend things profits happened same as previous little don’t in in think structure of put it's covers. mean revenue because last, cost, the this these than going a the I incremental down tend magnitude But rate know, went has be or costs better our cost cost the by back I we to in at are the not we in

Operator

is the of Herbert next of Your Canaccord. from question Ken line

Ken Herbert

expect the do stabilize of Kevin, to to Nick first I parts, your and of sales the and Hi just to time. play you aftermarket, think when thanks three that you wanted business see repair, spare expect for traffic Mike, for and in potentially where that provisioning, I sort how commercial thanks recovery out? to starts ask, if broadly buckets, would for

Kevin Stein

would be is what my have would see area line. the they repair guess that said serviced, reloading first bringing planes it My the the but need as are as now where we've in to That's service to assumption we see. in we'll be is to the Provisioning is, there, a some that? the driver going huge but probably it's do you its to repair I be that we for think on Nick, programs, some thought for a us and isn't of on spare see think parts I certainly repair. and volume. here past have There's would

Nick Howley

hard are spare separate. and repair mean parts I to

Ken Herbert

those stabilize, I'd things it discussions? finding maybe thinking find looking business your you'll, some about in about obviously to to like maybe ways opportunities. But about some versus early as is I'm to think you to at direct this, be differently or with as areas like imagine, of an we you're be that terms And maybe prices as you aftermarket your this, other distribution too sure to it, shift are with Are you partners? thinking you'll starting business, the come you there'll Are through advantage. start the opportunities some opportunity will, mix?

Kevin Stein

any I think it's too early draw conclusions. to

Nick Howley

agree completely. I

Ken Herbert

moving the then of all And in for terms dislocation marketplace? in the on some the any of Mike, in at risk intangibles prices forward finally just just with impairments

Mike Lisman

No, no.

probably the our like SEC tests analysis good a some EY, the and I companies board think quarterly with us. requires you guys we've And saw the pretty at auditors here. across cushion for done we've got

Operator

further And there are no time. questions at this

Liza Sabol

that's think I it.

one there's the else think no I in queue.

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

Kevin Stein

you. Thank

Operator

Thank call. you. This does conclude today's conference

You may now disconnect.

TransDigm (TDG) 5 May 202020 Q2 Earnings call transcript