TDG - Earnings call transcript Q2 2021 | TransDigm Group Incorporated

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Operator

Thank you for standing by, and welcome to the Second Quarter 2001 TransDigm Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Jaimie Stemen, Director of Investor Relations. ahead. go Please

Jaimie Stemen

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

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

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

Nick Howley

Good in. morning. Thanks, for everybody, calling

steady comes through on sales as come believe strategy summarize, of we in sole aerospace all the our and intrinsic and margins To are cycle. which from relative quick a color. well why consistency we shareholder expand of of EBITDA then which as unique and a good have give will X/X from in any of Most downturns. creation higher net with strategy, of Mike believe this. our bad typically the aftermarket of some extended have we're provider. both few and here significantly our the and off start the products To products reiterate, overview phases strategy. value proprietary I'll usual, in Kevin are comments a As generally times about quarter, focus industry long-term in our About over over are of more follow generated reasons revenues, We by our stability our for consistent period XX% we the the of sales provided source time and the

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

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

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

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

well think This see We cost, have had downturn our on release, tightly but we two the significant items sequential step-up. a we in a commercial operating have with through significant second most the bookings focused we those still this now another of note, in important row recovery better quarterly is one, a looks on things environment. commercial last out. increase our ramp-up The aerospace or in and in a aftermarket positive market us saw degree, somewhat pushed may quarter QX. The On the considering tunnel, of environment. end light decent in the from saw still you we we have that pretty bit quarter, a the concerned quarter quarter were so travel can, some control: this hand. spotty stalling to I air managing but As the earnings a more tough another at are a

in large seems liquidity firepower. Second, of also Absent hand. substantial out some this with additional dislocation we and this assuring substantial well should or come shutdown,

continue opportunities for markets our these. attentive at predict, possible M&A are in Both the times and especially million. value difficult the Cobham and always M&A to enterprise of Connectivity the Aero look are always we QX, and so to We capital in But $XXX to like allocation. business acquired an

proprietary front, and about On margins in million. businesses days, revenues XX%. we have businesses to for the additional three signed last the XX the $XXX mostly Collectively, roughly and in low divestiture these agreements sell EBITDA defense of $XXX less

keep and to We the down we'll are we if a that expect time. commercial sale. one hand we primarily anticipate I to over show of four least At changes we We over me about and not we do watching for rebound, be and Kevin or leverage will the market QX. defense and settles or our positioned developments see receive market signs significant at now, accordingly. it are proceeds as our react let we'll any for right well in a next now time, currently considering watch for that our view bit, to performance. but have believe dividend review as until level make buybacks still the can And share or quarters three We all business stronger this

Kevin Stein

and my quarter. and activity provide of Thanks by fiscal XXXX of regular comment profitability recent results for also first I'll key market acquisition will business outlook. Nick. I the on Today, the review

pandemic. due a XXXX QX be as to reduced fiscal our significant on our to business During a unfavorable for the continued impact result of the there quarter, demand travel

continued vaccine improvement especially our of COVID-XX the domestic certain XX% in commercial over revenues recent of aerospace distribution with up increasing and of the in business, markets. revenues, However, signs QX. with aftermarket has the industry another saw aftermarket In months to in recovery quarter air commercial total traffic, we commercial show sequential

in focus careful challenging am environment. commercial management of I margin of sequentially our expand result we defined strategy our as a pleased and very Additionally, cost that to operating our structure this continue EBITDA as on

Now we category. review revenue by our market will

For prior the we XXXX. the of year the typically by close up includes the the now split call, discussion market revenue, any divestitures basis commentary and own the This acquisition removes QX. is discussion Connectivity in makes of the provide which of into assuming pro impact remainder XX% end color compared forma businesses completed our mix the of recent same aftermarket. our period market, on period I periods. -- OEM will of a Cobham both in of to the we will Aero In commercial and That to

year revenue QX Our in approximately total declined of period. with compared XX% when OEM QX market the commercial prior

products canceling depressed period throughout the are the assume OEM evolve. to of sales. strong XXXX We some a significantly uncertain commercial of for when QX XXXX the in reduced for aircraft to half encouraging. certainly anticipate potential Longer term, positive levels; from market solidly bookings rate time due commentary the of ramps is rates to and compared commercial reductions OEM note, will pre-COVID We production be airlines and commercial however, our in aerospace recent outpaced demand over improvement sequential and end QX market on orders. or demonstrated On XX% beyond new OEM compared AXXX Airbus bookings to deferring a continues in remaining continue to fluid

destocking last of improvement is slowing. we As quarter, bookings the we seeing are likely mentioned OEM an indicator

revenues compared to Now commercial in total commercial aftermarket when XX% prior approximately QX declined year aftermarket business discussion, to QX. by our moving on

This by quarterly demand decreased passenger submarkets. decline in interior was primarily and our driven

down in approximately returned our commercial XX% quarter year However, this to slightly aftermarket market and aftermarket freight grew the still total period. commercial repeat, sequentially, this to revenues data growth Commercial encouraging same offset QX, transport modest point. decline. were compared To bookings prior another

optimistic. level. air flight strong announced There for passenger IATA travel second strength domestic Certain are demand uptick in key activity bookings this To summer is U.S. wide-body expects as consideration, passenger now of sequentially declined improved global XXXX, that on of outpaced calendar to will schedules. we of already potential a bookings in bookings the the routes with travel but recent declines China governments to cautiously with sales. almost calendar traffic half that a QX in is revising a summer. XXXX in the though and future year in There XX% that rebound March does also drive increased bookings airlines, below of are in airlines be the and forecast levels low, April, and less flight back few openings XXXX have traffic business destocking seeing XX% above airlines revenue consider observed and restrictions. and passenger However, well anticipated planning. jet still improve. This IATA's likely are bottom XXXX, and miles than off the slowing and domestic result more travel miles most touch was international continuing forecast freight an miles solidly serve the domestic revenue at recovering. will points flight revenue

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

forecasts summer some personal later of levels. operations of However, demand activity believe half this to e-commerce of global with and utilization this through than and a due the travel is from commercial due largest the to demand at certain better indicate passenger It miles We will currently across shown the In personal the airlines the recover for domestic personal there demand international Historically, restrictions current trends optimism the market. leisure global in are be expand, has back This belly in be in cargo this travel continue data of for see remains to in if travel international of a seen the business loss to utilization and is but this increase. travel. meaningful to for China in a rebounded travel season. the calendar helped time. accounted by is Business followed we in passenger regions as business case. travel offset could the year, hopeful revenue evidence and pickup We has U.S. will distribution encouraging. still quicker and or cargo travel. pickup travel jet vaccine in lifting pent-up pre-pandemic of Domestic travel the and time, passenger jet business travel restrictions, lost opposed travel and And percentage to has travel. benefiting that recovery more are specifically is

me OEM our total by at speak grew is the in and which market year revenue, our XX% QX which let includes about aftermarket revenue. with The defense or defense period. below approximately market, X% compared traditionally Now of when revenues, prior both

continue Our remains expect defense defense remainder strong, to expand and of throughout the our order the to year. we book business

defined were margin the quarter as talk We approaching $XXX EBITDA as defined down basis about in QX EBITDA acquisition our EBITDA defined. profitability. acquisition versus primarily to prior of QX. dilution points about going XXX Moving EBITDA the our was now Cobham XXX of sequentially was approximately as points for I'm margin to as or performance operating XX.X%. million the defined to able basis about as recent well. from despite improve and XX%

integration Next, acquisition a leadership under our EVPs, recent I provide our is on Reese. quick one Cobham progressing acquisition. of experienced well will Joel The update of the

We have far. thus owned months, now pleased little acquisition and four over we a Cobham are with the

into the units. units, operating are two integration Cobham TransDigm split Aero Marlow operating U.K. leading Limited Canyon located Shelton have and located We Prescott, Connect these two -- in unions experienced in of Arizona; two presidents

XXXX. Now moving for to our outlook

this We time. sales EBITDA defined in to XXXX fiscal position are a in at income issue net not as formal guidance still

have We, calendar that we half will to the a aero guidance the clearer future. year. of are meaningful more hopeful suppliers, picture return realize We second of we when in most will look of reinstitute like activity a the

our we year, OEM For now, revenues. encouraged commercial in in the our of fiscal have the seen our aftermarket bookings with commercial first we are improvement the in and half recovery by aftermarket along

mid our on prior communicated the defense the growth expectation fiscal single-digit defense fiscal single-digit now year. calls growth an the low QX earnings in was XXXX QX previous XXXX comments expect for defense market and As growth. to percent defense The versus revenue mid revenue update to previously, growth we and for for revenue range

uncertainty commentary, EBITDA on fiscal details of are based area could commercial dilutive higher aero XXXX providing increase the recovery. forward we EBITDA -- XX%, the XXXX a fiscal Aero the acquisition. with our provide channels EBITDA Additionally, fiscal in Cobham financial the of aftermarket includes to Connectivity revenue expected lower rate year on a past aftermarket which defined. roughly an steady margin in consistent for and This commercial or as other expect our from in given full be assumptions Mike going effect updates. margin commercial We the and XXXX will continued and from market dollar not assume range

is controlling in what trends the the -- commercial conclude am pace this commercial me Company's uncertainty recovery industry There challenging with still aerospace with values for of to about and team for the the performance commitment Let aerospace are driving market but is that our time focused our The pleased its I stating stakeholders. on recovery underway the current we encouraging. and can control. remains is by

provide Lisman. turn our come value With to developments we it over to demand ready the as and will remain of in We monitoring the the forward to meet aerospace that Officer, ensure us. expect ongoing Chief will that, have half closely and consistent industry expect the you the continue that now are to strategy it Financial Mike We XXXX to our returns. I look remaining commercial from

Mike Lisman

on the fiscal financial a and additional also then morning, hit everyone. few quarter the to I'm full quickly for Good matters going year.

that GAAP organic driven the cash press full in healthy the for see the in commercial is by can is, still adjusted rehash rates XX% and I in all taxes, our XX%, despite our our quarter. revenue, as declines year info growth expectation quarter, the you range. defense end That and the in negative release. we to was anticipate and won't markets of EBITDA growth results On the unchanged. For EPS, be XX% to the for some

legislation guidance FY from in the this year. finalized. tax completed expectations Regarding reduced guidance provide potential $X.XX On rate tax expect the U.S. rates the we on 'XX, under be charge administration, billion, the once interest now our any monitoring beyond is expense, primarily and out for we'll year full to future we're some new code changes refinancing activity prior

this guidance and interest supplemental on then find of updated today's can Slide revised assumptions You few a X expense other presentation. financial

We flow, cash at liquidity. positive to $XXX quarter cash less cash and interest flow. payments, as which cash free defined traditionally cash and cash roughly we over taxes, was another our is Moving of Free define TransDigm had EBITDA million. CapEx

positive maybe For this second overall balance expect our debt January to rebound. flow or that continue billion of debt-to-EBITDA net to quarter for $XXX believe withstand last a stable, commercial be this and prior the X. in relatively prior of for end as to full remain as year, cash, From quite an rolled November quarter pre-COVID should worst time. to quarter more last that markets quarter's fiscal with our still we at from out prepared EBITDA ratio we we million billion improvement is we cash position guidance, EBITDA net In computation, end. line at the the ratio X.Xx. an our LTM balance end sheet the having in the LTM Note down for 'XX. little with million standpoint, its for of second expect fiscal With was as In quarter's commercial define amount $X.X very area, well the think we $X.X billion Pro quarters, to the remain it QX free close to start that depressed our We ended running metric. acquisition of value $X.X liquidity peak. but $XXX now good of at on cash the some to currently forma was last we show this our Cobham closed likely environment enterprise closing acquisition, our better gradual and subsequent

audit. this engaged financial prior with provide office Lastly, we work And and DoD We've ongoing some the and assessment the with ebbs been quick and on a similar based shifting U.S. through be to I'd flows like gears best from what our matters, to actively audit update our appears see, to IG audit scope upon in audits. and to our ongoing process. continue IG

turn With a final happen that, or the issued Q&A. 'XX. While this it's could the fiscal to might I'll to back it publicly, we off difficult to kick during expect know when QX exactly our that be of operator sometime report QX

Operator

the question Walton. Instructions] first [Operator line Our of from comes Myles

Your question please.

Myles Walton

I'm several thought comment you quarters. long? the the it outcome of curious or a M&A table, the around doing off the too for why can't you dividends drag for cash about retaining not And repurchase made you next and predict generally just a Nick, given not likely environment take

Mike Lisman

Yes.

I think, Myles...

Kevin Stein

to you take Mike, do want it?

Mike Lisman

Yes.

we've until the the we what commercial of cash as in hold Now it situation until past, just and the the we the couple end in times with months mentioned for markets with a recovery do now a improves. couple conservative here, more to see I quarters be is of larger balance think a and and bias

more than much that. not it's So

Myles Walton

think clarification. like also looks the but think, of a the sequentially, decline it there -- And confirm Is is maybe you can then probably strength Okay. troughing, you booking I Is declined that indicative was has troughed? the again. what do just OEM, that it as sequential there?

Kevin Stein

troughed, that I bookings -- to the future to revisions think how out. production seems don't plays any that I rate indicate I anticipate believe, but see seems it we'll would we've down.

that. would I So assume

Myles Walton

particular Was it Is imagine... unit seeing it there a -- in? that I you're

Kevin Stein

No.

Myles Walton

out Wide-body and of focused airframe?

Kevin Stein

No.

Myles Walton

No?

Kevin Stein

No.

Operator

comes Our line Robert the from next of question Spingarn.

question Your please.

Robert Spingarn

conversations have In focusing especially the Nick or you've terms that the know that's see don't do sales? any here to sequentially notable I we're customers year said the with of when enough you into Kevin, some in sales, your aftermarket, you translate any to and sense of will booking aftermarket? spike is comes it as sense through on improvement going strength, have quarter But which bookings, your an and guide. between in there

Kevin Stein

Yes.

in that bookings. sequential also OEM in some improvement strong seen bookings. we've We've I seen think aftermarket

us give a think activity need more is quarter. we what breakout will I to flight that see

I remind still half, and flat pace. thoughts real orders through, when we're QX second we went see nothing uptick slight ourselves that of just out in I out the activity, us flight to come question need up beginning the lends year more into future is more with we were that with on the it's performance driving takeoff, But this. take last think and of you more well. starting that signs the for that dramatic. of OEM. answer the feel we QX do at for our a know when Mike's think. for I two positive quarters. comfortable this somewhat just which We're what consistent at book to We a I'll think stability itself here, years see to come these We I just that think. we're I as more on to to breakout, think And you're to going need

tend And good orders still and so would more book expect it's closer will the predict horizon. orders be more news when OEM ship, But lot to there's a in. there Aftermarket to harder will on to be be come you that seen.

Robert Spingarn

business then, your comes. pressures Kevin, a you talk cost could very wanted but potential, you have you upturn and the And through if then input And a how Okay. the bit well when little playbook I this follow-up, it through suppose, downturn, with managing as shortfalls? just for managing I deal to done see about labor

Kevin Stein

and Well, I same approach it's always. think plan as the attack

back We adding are costs. in disciplined very

disciplined We will do very so manner. in a

of pressures. will terms course, increased in costs of pass inflationary We along,

always as through will playbook We practice same as we this. the go

very this will think well work for TransDigm. I

some cost As that this, out of this, as value done we improved, as the well think, with we've we as has we out margin happened reductions given pricing. come position see come will I of what

Robert Spingarn

labor available you if need it? is And

Kevin Stein

labor that saying drive what aftermarket builds is that return going less drives labor. that and we labor-intensive. less in this significantly. hire, won't is As demand aftermarket Its to not the OEM needs market that I'm but to OEM quite first need is recovery requires

Operator

Strauss. from next David the comes Our of line question

question please. Your

David Strauss

directionally improvement about can the just the it, engine you sequential you're talk seeing? XX% that versus The you aftermarket highlighted, Kevin, passenger, from interiors what perspective of in maybe versus

Kevin Stein

strength the I strengths Yes. some freight. general, business jet. would aftermarket, sales We've in say, seen in general in in our aftermarket seen we've

be is business question? and little par a Does answer Our lag. to of which on that sort more our interiors, some tend transfer of discretionary your

David Strauss

passenger of things, see stuff, on engine at Yes. things? on discretionary any some are all? starting side, discretionary mainly it more Or concentrated pickup the the maybe side guess, you side of interior of I the to is the less there

Kevin Stein

more more around concentrated some I uptick discretionary, think from are our world. the of less the on seen seeing need it's some discretionary businesses some planes have we to that but refurbish

interest world. of we've the unknown think I and from some orders seen corners

okay, So discretionary doing it's the piece. the it but is is other side than weaker

recovering, I putting they're of changed. that yet, sense starting just to given about think see people more so feel some the the but in that ever makes we're that look airlines are worried and than seats slightly as

David Strauss

Okay. And up question. then following on Rob's

of can taken the structural facilities So highlighted you've standpoint, are specific you aren't cost-reduction the you've that from side? a going come get reduction. for or done us of cost to some, I what the give things you've guess, this during headcount for I But out we know that other examples to standpoint, maybe any when more sure back

Kevin Stein

Yes.

of that We of or invest has combine in some at at and an to ongoing opportunity consolidate cost automation segments our taken close, We've we this cost. for to them. This underperforming looked been We've also to of this for some of course, time. offices reductions to continued a There's the have looked rate of, business and facilities automation able in been we've our effort. during satellite been same even lower programs, that cost streamline, fundamentally They their an number productivity have effectively facilities accelerated locations. some implement. to businesses, have

So it out bear to continues us. for

Operator

of the next comes question Our line from Carter Copeland.

please. question Your

Carter Copeland

know you put the I to hate guess, but you. on ask sort you and spot want Nick, to I of

early? we sell at now and recovery assets trade bottom But point to numbers the spreads EBITDA when you the is those bid-ask M&A guess I Or You've a a begin thinking of people feel depressed. recovered is to seen where one little too because do could a of conviction EBITDA you don't watch the because people you assets think? the is EBITDA? have as still on get we point that more years at XXXX and historical bit to several bit where cycles in start this and would that Just that firmer, apply some what how know perspective goes, want close about sort

Nick Howley

sure would you surprised just on probably a see so. Carter. But hope a have it again, hope I'd of and -- not. same if good I'd lucky the would sell you sure I maybe and get something have I to -- business, 'XX, you're comes commercial so, be lot a don't I probably in along. reason you say

Now there could be just to try and things very to that are attractive edge enough them now. and But get little we're that I -- more predict make close a happen. enough to willing the that that's can't pay right

Carter Copeland

Yes.

of And lead Kevin, much you business fronts, just to on you production end OE early any jet for rate the there. about can Any have customers increases of on had Have those us yet? is it potential conversations how too give OEM market? that Okay. then -- with one a color

Kevin Stein

of need make hear notifications to seems from in rate like in to of be market hole ramp It readiness, think Well, a fill. they starting It that narrow-body Airbus sense. to we're I will rates. the seems there

fulfill will of that be ready will that be Makes to though. to comes need, We pass. as some that there it sense

Carter Copeland

the side? jet on What business about

Kevin Stein

here. segment plays jet OEM been it see in just us. what now, is jet business it's have in right or and Business we'll been robust, that happens But for activity encouraged it how really general. use, there, brighter has is to a both although aftermarket leisure out, I'm it

our XX% only business. it's XX% to Now of

still driver just massive but the on a not jet it's interesting. So it's business side,

Operator

Our of Herbert. question the comes from next Ken line

please. question Your

Ken Herbert

defense Kevin, on And those out? are Yes. aftermarket. trends aftermarket? can first there I any at parse worrisome? may than you growth seeing you called to better And on Can are ask defense specifically mean I out sales, your comment wanted be OEM you the you all revenue that

Kevin Stein

not. We're

we're always in lumpiness think the APKWS, parachute We side. OEM, defense and past, about orders ship. on bullish book the lumpiness talked about on really on those see order orders sometimes I've the I it

aftermarket aftermarket aftermarket, bookings delayed. defense seen in recent the have in strength bookings strong. We've been are Sometimes

feeling not concerns. any I'm weakness, any So like there's program

As is are not the you budgets we we're in I extension, great capability TransDigm through on curve, right technological boots the because defense speak. And know, are position now. the the on to a coming so ground, advancement think

us So for it puts future. market good the the in a place in

term, So I'm optimistic and situation us. for both short budget long term and reasonably the about defense

Ken Herbert

Okay. Was to fiscal of quarter, X% And quarter. shipment or anything the Very maybe the you any commercial in you're aftermarket, that costs first helpful. orders, that around sizes XX% sequentially, or on part attributable benefits average urgency or comment or maybe of this you expedited seeing could, grew can order if nature? now step-up I any your on

Kevin Stein

offer don't We discounts. volume

-- we you XXX not we're So one, in versus generally aftermarket, buy price our if pieces you don't give a better speaking.

you coming that starting is get urgent urgent of overly the there's market indicators of now and generally similar in continues seeing XX% X% that is is there's see our We're it. consumable out said, book are tell QX, to like that so an anything. running this I'll very to urgency is to So not expand. some It's need. And recover, we're What need, ahead distribution you POS parts drive order that some that all they sequential what to orders. we business of to not with our discretionary driven. the starting hear a of lot

Operator

next Our Hunter comes question line from Keay. of the

Your question please.

Hunter Keay

fleet? a a leased of of the versus global owned aircraft greater have you Do in mix preference

Kevin Stein

matter. that know doesn't more speaking, leased restrictions other Generally to folks things. on us, do. -- I it don't generally But have historically speaking, had we PMA and might

Hunter Keay

the your you pretty on pretty the structured from what demand through costs, and us might side of And house? increases? material against that well But how you're protect that. side and you're protected supply how Can suppliers know Okay. a clear passing pricing inflation raw the we of then remind you about track there record with

Kevin Stein

be Well, able to against material raw we won't protect increases.

indices have price to along willing We generally we like inventory, mechanisms. There that to protect huge to will increases do. with which unless the yourself have is amounts and and of no way our don't through pass them we you're to buffer

the really see go need some of don't on ingredients. also long We to these

point a chains don't have from see of possibly huge right we're or yet. to re-laboring mean position we issue people material that our this not specialty facilities. tendency It a have it now, lot get We won't products facilities. that supply a But as supplies their source general. struggle on around I supply of in to our doesn't supply that as with raw any in danger

Operator

comes Our of the question line Sheila Kahyaoglu. from next

question Your please.

Sheila Kahyaoglu

guys you XX% Maybe in quarter. the on commercial OE, were down

Or your or and business takes start think when down to Any sort return territory? are where on XX%. to you that positive just flatlining in are of guys peers rates, I trending on destocking? puts you do expect

Kevin Stein

making we're -- we're lumpy. this Defense be we that commercial assume threshold bookings can I'm through move crossing some OEM sorry, I or -- now. as

We working haven't inventory will quarter. confident and They're shake out simply I'm today. that this coming the positions. months they through mix lost have and any in the

Sheila Kahyaoglu

maybe Okay. you And were at for margins, the two on then half. XX guys EBITDA first

Your second full the of implies XX%, you dilution also have points but XX, basis half XXX year guidance is is Cobham. XXX to about from

there? are some underlying what So you some could of give us color assumptions, if the

Kevin Stein

Yes. commercial have more will half. second people Not and activity aftermarket There'll a that improvement. more I is fly assumption the guess we the dramatic. in underlying be continued

don't achieve as now. But feel look -- reductions to at. see feat okay in with, that's a thinking, in was, that the dialed cost had to and is second the to from headwind you our continue yes, I of beginning, to get right we're I that that half is that we ourselves I think said XX%, where there's the in be right at forward we now pointed about have have about that uptick modest that to the still always We continued our we going think forecast. headwinds point to a we out, percentage as

Operator

Our the of comes question next Khanna. Gautam from line

Your question please.

Gautam Khanna

on I quarter? the within XX% don't your how moved aftermarket to Why on up was sequentially Yes. get nearly things test the perspective the So like be rate vary...

Kevin Stein

sometime show see websites. that's I that uptick saw think of in change are weeks of in I was interest, different activity than religiously activity many the March some mean, January that follow to Clearly, in well. We last to in-flight in for day quarter. in the people you frame, activity, uptick I read month every time an the so in six translated of as there real And there traveling, -- March an February. -- out very and that and there trackers that can the that us was last you month all

Gautam Khanna

say April, that's that in you of... would And level continued

Kevin Stein

can't -- comment April April, flight that's I can't the -- have comment the whether seen think continues. continued, I on as but Well, on activity we and interest, I

Gautam Khanna

is aircraft underlying there the whether what I'm wondering to data relative is for to of out might actually any bump and in all this uptick to gauge And consumption there's any if of an back aftermarket activity into just the it's fleet, it therefore, is high parked -- be? active guys a... way way the if parse figure as unnaturally the coming parked sort to get you

Kevin Stein

flown. I as I say revenue placing has although would of if coming passenger back slowed for what's more until some that, was be that Because there's yes, it aircraft returning to the fleet miles must out-of-park parked

capacity. They it to out think they fly. to continue ready pull then to So have I get

So I there's there's say whole of getting it a a that. planes of bit lot ready. is don't little that

inventory ship staged now. the there on or you'll of hours planes just needed it. to they It's different manage activity, actual where was maybe I having usage, and need return available sets of harvesting that some think it's flight

Now I'm you of speculation. get kind into

Gautam Khanna

me. Last Right. one for

mentioned what actionable Are days? these You M&A front, is like Is things? the buyback the low? hiatus. dividends on there a pipeline and it the any But

Kevin Stein

good pike, see we'd defense. and waiting we are more that. more If medium-size opportunities see to continue down say comes. always But the as I'd towards like there's end comments a the actionable, range. comes to active It to weight small, earlier, Yes. currently, big To what towards it's business the the weigh commercial the Nick's that we'll we continues of defense. -- see

Operator

Our next question comes Stallard. from the line of Robert

please. question Your

Robert Stallard

from Is wide-bodies? Nick you or be coming color, some could Just what's give Kevin, if first OEM in may from one on for it offset bookings. narrow-body? the detail we you wondering seeing if from on any coming Are us I this some could. additional was you there? Is restock?

Kevin Stein

one a on position more color which book that, you color. set today, to like we're a anything right better can the Yes, is, of lot inventory have I Yes, as is don't lot delivering to I in that don't as of there there's offer that have now. not know, that. except I or a ship insight narrow-bodies of just whether slanted order on is

Robert Stallard

to lead get firm Airbus of when that? were you on rate if speculated do think would notice this up sort XX, of And you the

Kevin Stein

later Probably in were for six of go the change, fall, going months so ahead time, I to usually if they a XXXX think. it's or rate

Robert Stallard

in to would the like Esterline, in, aerospace there? to XX a be follow-up question. Gautam's at acquisition were if next to improve And Okay. were to scale months If willing you on say, land or so, just be someone things look finally, then

Kevin Stein

it So -- awful think about to I it's yes, predict. hard

Nick Howley

Yes.

Kevin Stein

mean, consider I at we looking it.

have capital it we out deploy, can't but make those putting be putting to things to we I there course. like happen. and Of work, we'd mean, it to to the

at if So the the ready we advantage remain to opportunity of happens. it take

Operator

Liwag. question comes line of the next Our Kristine from

please. question Your

Kristine Liwag

Mike, to that scope what the and include the to earlier, does that on is want size of is audit clarify, audits. IG similar you at? that mentioned process? they're previous Or I audit looking the also

Mike Lisman

process of profitability that the in the on seeing in reviewing what we're we well. the scope as XXXX saw of saw what the audit. now then it's and set on also the terms It's we contracts. report, audit number XXXX and Both, auditing That's generated what and a also

Kristine Liwag

from it at as spent the I the core? businesses you in you Great. are the And the mean, do audits? would business? just be, or with would point, keep that do be distracting At a Or minimum pretty that to you how XXXX, a these follow-up consider some time of the rest that exiting these distraction view to them businesses underlying think guys you driving about could

Kevin Stein

Nick, in. take say, one. you I can I'll this jump And

think part doing still work This of businesses, the core I are process businesses. of government. these is great the with

deal You have constituents get this to customer. understand are that The well. a military as DoD process. fantastic their trying the they We for through go best to is U.S.

afraid part ago think years it's than more it. in DoD, have spent very reviews we a are the and XX different don't of very We I of our now terms DLA. and connected, meetings with it's natural We've connection. the We're of regular process. So time X, it. the integrating today into

that we These get us. of happening of rid military, to these still So fantastic will core at great are nuisance see for want are These if and the is, because to commercial businesses businesses eventually question I a us. are yet These environment. of in all. businesses, products your don't products developed

Nick Howley

all they're to that same and environment, very not I close and intertwined your add the It's severable there, the they're same similar very the on in if products. from very not commercial they're point many exact mean, product I'd frequently is to product. situations,

Kevin Stein

we've just And the are of that Esterline about the been military. XXX% of offloading those very we side some of some And businesses have few from and those house. talking

continue to and on work look this it. we at So

Operator

comes Seifman. Our next question from line the Seth of

question Your please.

Seth Seifman

defense? opportunity want you is you the M&A have makes Company not certain think there see the more given where now? mentioned sense some to beyond revenue toward environment. the defense the Do for would which which mix that I a Is given about you any hesitancy on just side, right the mix point

Mike Lisman

revenue the had, of less. in or Historically, in slightly we've mentioned always as non-COVID a defense environment, his that's XX% mix comments, Kevin

staying a of down happened when With that the environment we that's see Esterline you by little side the the portfolio as near-term think in We an that could months. rate well some of defense the of bit ourselves I of divestitures in COVID. run on that coming be for not ones out as ballpark. impacted some kind weight actually

size defense looking specific companies, our on a and look so on And that's the looking active, for it stuff So we We out at end side our and M&A market if not at criteria, just up in when defense we the not criteria, look to products fits we're commercial mentioned. at we're focusing that much products narrowing as defense. for the we opportunities. hit on and see and look there now

So opportunities and shouldn't in the of keep that future. out market us looking at

Seth Seifman

you then completed how for And cost-out COVID think the the of I most of some quarter? the And to on there the I see call that guess, QX. that were there that think, came Okay. in I quarter, level cost-out still restructuring fairly the Kevin, sort you during playing actions during up you Were kind the do last year of similar and mentioned, kind out? of opportunities new

Kevin Stein

guess two, already paying things then actions there's continuation and started. I some new and that's that the we for --

Mike Lisman

actions have COVID been QX. now the of majority completed The and on QX

seen these in far bit and a see at versus you've past quarters. little rate two QX, but You'll a QX diminished what

Seth Seifman

Right.

Okay.

Kevin Stein

ever cost shouldn't there. completely looking things And you we're never done at So our anticipate right? position, cease

Seth Seifman

audit. point Yes. scale last the to audit with result Yes. as The expect the and well? see DoD fine being sense. on makes And kind similar you a then put That question a that the similar ones, mean that to of is Khristine's scope extent just prior you the of

Mike Lisman

make dialogue be, we're under kind that's It's and insight We like of audits. a it But the that. seems seems having, to hard it the any lot to say or might discussions a control. have outcome prior forecast not and into just we're activities good don't those claim based doing on what result. the To our us, on

want don't So to speculate. I

Kevin Stein

We're much like regularly. work we've engaged. has that with We it's been on seriously. audit. IG past. something the the closely this We're to This them take meet we very -- But yes, working the continued in with

are the similar. So conclusions

Operator

question comes the Peter line Our from of Arment. next

Your please. question

Peter Arment

Kevin, supply chain it's on on about seeing little you And been give color just could your on coming you're shortages. lot chain us maybe up side. what on a of supply calls a the end

Kevin Stein

We critical price. materials, materials, dramatically of some have hearing up some in are raw some gone that critical materials

So stressed. because the being far, supply supply chain disruptions of we haven't dramatic seen any

watch we a resistors, to supply the we're whether We components. components. closely. it's expedite do some go market businesses, that they're able we that a continues a of inflationary we number continue seen our we and so pricing. need. area exposed, as spot that need what and of are lot course, of fets in have we something chips, costs, a to we're electronic but on But that and at, have is closely we to one pricing surge buys sure focus. not along and The to consume overly of make up those making those looking be whole, the in other Again, like certain That We pass metals consume very prices have

Operator

line next the Michael comes of from Our Ciarmoli. question

please. question Your

Michael Ciarmoli

bookings little Maybe seeing starting from quarter, driven. more seeing geography? assuming narrow-body bookings. platforms last in bit there Was Nick aftermarket pull go even what you color you of the if getting are pricing, the from provisioning you numbers? And are there a the sequentially any or provide are quarter? Kevin, they what pricing But to in from just in more? to back you're Can MAX terms those distributors, the to look for are we in anything for I'm

Kevin Stein

putting intervals our and business always passing we -- increases. and So regular expedited along on looking pricing inflationary at are

our or any As that the business bookings way many customers we track of don't color CAM far se, global. geography, on as per our are

any but are So we're certainly that what is My results. I U.S. seeing also anticipate seeing in China, but that flight domestic our I'm concrete that the -- expectations we driving geographies -- we're information. have we the in don't don't geographic business, We activity, see surge see there. what

Michael Ciarmoli

guys to that it. quarterly to back rate? run pre-pandemic standpoint, get then on an back to levels Got see need for do we just to traffic And revenue to get -- you pre-pandemic aftermarket from revenue organic

Mike Lisman

think track takeoffs landing. the of and we and kind follow I

our aftermarket So I time, to to takeoffs landings used jump to and the back expect same. as do think they we in up the be, where

Kevin Stein

Yes.

position think think the like, be think how I the see been have unpacks. better in the to we'll a that I programs drive, returns, and but we've products, because price that able to when I new volume we'll the

Operator

question of Epstein. comes next line Our from Robert the

Your please. question

Ronald Epstein

of is doing one out the Parsing well. markets, quite end freight

you that seen there any or are on we've organic the freight more and opportunities that considering? inorganic guys that, mentioned focused numbers. guys You that in Are are

Kevin Stein

But at is interested better parties. number to I because considering a like innovations lot a very freighter products, new We business. look opportunities. on the there's of players, we're at conversion looking passenger constantly one the there. lot don't on of to that know side that of looking organic at there. market always and it a seems the we're evolving opportunities inorganic I can service We're comment Yes, that side, quickly,

Ronald Epstein

fit following do does guys of engineered? then be Or you Would kind And it. to you the be adjacency? in sole it thing, an highly something A&D? to it. of IP guys Would in criteria at like, of Got you A&D, back anything outside kind Got source, up to have look if willing it that that proprietary be on willing M&A.

Nick Howley

stick can would this. would try a you would to strong -- to hurdle for have we say, us our it preference we I get very say, mean be Yes, I a I never be knit. significant never, but to over.

Kevin Stein

There's still a lot of aerospace. offer the in

Nick Howley

Yes. Yes.

high would I it's hurdle, it. I'd answer very never a way It think say, but be the you best never.

Operator

the This today's does program hand to any Stemen I'd further of session conclude program. like the remarks. to for back question-and-answer Jaimie

Jaimie Stemen

joining Thank joining. you This today. a good call. and us for for all today's day. Have thanks concludes appreciate We again your time,

Kevin Stein

Thanks.

Operator

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

disconnect. now may Good You day.

TransDigm (TDG) 11 May 212021 Q2 Earnings call transcript