Q4 2019 Earnings Call
<unk> earnings Conference call at this time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask the question you would need to press star one on your telephone. Please be advised that today's conference is being recorded.
Required at any further assistance. Please press star in zero I went out on the call in France over to your speaker today, Lysa Shabelle Investor Relations.
Oh, Thank you and welcome to transcend fiscal 2019 fourth quarter earnings Conference call. Presenting this morning are transcends executive Chairman, Nick Halloween, President and Chief Executive Officer, Kevin Stein, and Chief Financial Officer, Mike Listen please visit our website at transcend dotcom to obtain a couple of.
Metal slide deck and called replay information.
Well, we began we'd like to remind you that statements made during this call which are not historical in fact, our forward looking statements for further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward looking statements. Please refer to the company's latest filings with the FCC, but also.
I'd like to advise you that during the course of the call, we'll be referring to EBITDA, specifically EBITDA as defined adjusted net income and adjusted earnings per share all of which are non-GAAP financial measures, we see the tables and related footnotes in the earnings release her presentation. The most directly comparable GAAP measures and put.
I'll now turn the call over to Nick Good morning.
Thanks for calling in.
Today as usual I'll start with some summary comments on our consistent business strategy. A few comments on the operating performance and outlook in capital allocation to reiterate where unique in the industry due to both more consistency in our ability to create intrinsic shareholder value through all phases of the aerospace.
Cycle.
To summarize some of the reasons why we believe this about 90% or net sales were generated by proprietary products and over three quarters of our net sales come from products for which we believe we all the sole source provider.
Most of our EBIT da comes from aftermarket revenues, which typically have significantly higher margins and provide relative stability in the downturns.
Our longstanding goal is to get more shareholders private equity like returns with the liquidity of a public market to do this we have to stay focused on both the details of value creation as well as the careful allocation aboard capital.
We follow a consistent long term strategies, specifically, we own and operate proprietary aerospace businesses were significant aftermarket content.
Second we utilize a simple well proven value based operating methodology.
Third we have a decentralized organization structure any unique compensation system the closely aligns our management team with the shareholders interest.
Fourth we acquire businesses that fit our strategy and we see a clear simply.
The P.E. like returns.
Lastly, our capital structure and our allocations are a key part of our value creation creation methodology.
As you saw more press release, we had a solid operating performance in fiscal year 19, where the revenues of 37% an EBITDA as defined up about 29% on a reported basis organically or revenue was up almost 11% an EBITDA as defined up 14, including the dividends paid.
In August our shareholders made about a 48% return in the last fiscal year, a pretty good year.
For the way the largest portion of our business our worldwide commercial aerospace markets were strong in fiscal year 19, the smaller worldwide Defense segment also did well.
The trends on legacy businesses performed well Esterline acquired businesses continued to exceed our acquisition model, where the Q4 EBITDA as defined margin of over 30%.
2020.
We will include esterline in the core businesses and no longer break it out separately.
Fiscal year 2020 looks like another good year for transmission revenue and EBITDA as defined in both estimated to be up nicely all our market segments appear to be in pretty good shape. There are some potential clouds on the horizon in the commercial aerospace market. We're watching this closely and we're prepared to react quickly if required.
Sure Kevin will discuss 2019 2020 in significant more detail.
With respect to M&A and capital allocation as previously announced we executed agreements to sell both the SRIO business for about 920 million and the E. T group of businesses for about 190 million. We closed the I.P. deal and received the cash in September we still hope to close the story out.
The true by the end of our fiscal first quarter 2020.
We may still sell some smaller business businesses with less proprietary aerospace aftermarket content, but if we do so at least as up today I don't think they will be significant size.
We also completed a roughly 2.6 billion dollar financing recently about 1.5 billion is for general corporate purposes, and the balance is used to refinance and extend the payments on some other debt.
We wanted to take advantage of an accommodating credit market and attractive rates.
With respect to capital allocation, we pay the $30 billion dividend in Q4, 19, we will review our capital allocation situation over the quarter and see where we stand towards the end of the calendar year.
Absent any new capital market activity and assuming our recent divestiture closes in a timely fashion, we'd expect to have almost $4 billion of cash at the end of Q1 2020.
Oh, that's Warner about 12 30 119, we also have a significant additional borrowing capacity under our credit as a group under our credit line.
And our credit agreement.
We have substantial liquidity.
And the financial flexibility to deal with any currently anticipated capital deployment allocation.
There are opportunities that may arise in the readily foreseeable future.
We continue to actively evaluate and see M&A opportunities, we have a decent pipeline.
Pipeline possibilities as usual, mostly in the small and midsized I cannot predict or comment on possible closings, but as I said before we are working steadily in M&A and we're still open for business now, let me hand, it over to Kevin to review, our 19 performance 20 outlook in some other items.
Thanks, Nick today I will review our results by key markets, then discuss the profitability of the business for the quarter provide fiscal 2020 guidance and then review some other operational items as you have seen we had a strong fourth quarter. Two end another very good year, Mike will provide more details on the financials as Nick said.
Full year revenue and EBITDA as defined were up substantially over last year due in part to above average organic growth.
Well as continued acquisition integration and performance now we will review our revenues by market category for the remainder of the call I will provide color commentary on a pro forma basis compared to prior year period, and 20 team that is assuming we own the same mix of businesses in both periods.
Please note this market analysis section excludes esterline for fiscal 19. However, we will begin to include the former esterline businesses in our market analysis for fiscal 2020.
In the commercial market, which makes up close to 70% of our revenue, we split or discussion into OEM and aftermarket.
Our commercial OEM market revenue increased approximately 11% in both Q4 and for full year fiscal 2019 over the prior year periods.
This full year OEM revenue growth exceeded our last guidance expectation of growth in the mid to high single digit range. This growth occurred despite a limited headwind from the impact of 737, Max grounding. The 737 Mac situation is one we continue to closely monitor now moving onto our commercial aftermarket business.
Discussion total commercial aftermarket revenues grew by 9% over the prior year quarter total fiscal 2019 grew about 8% inline with our full year guidance expectations of high single digit percent growth.
In the quarter growth in the commercial transport passenger and freight markets was slightly offset by a decline in the interior submarket.
Repairs in retrospect retrofits for Telair International on Boeing 747, freighters and retrofit Igniters Fourg 650 business Jets from champion. We're a few of the strong areas for commercial aftermarket worth, noting overall commercial transport fundamentals continue to remain relatively strong although a few items beer wine.
Watching.
Global revenue passenger growth has decelerated slightly in the past few months, albeit growth is still near the long term average. Additionally, cargo demand is weaker as f. teekays have declined from reaching an all time high in 2017.
Now, let me speak about our defense market, which is just over 30% of our total revenue.
The defense market, which includes both OEM and aftermarket revenues was up approximately 7% over the prior year Q4.
As a reminder, this quarter, we begin to lap tougher prior year comparisons as our defense revenue toward started to accelerate in Q4 last year.
Full year defense revenue grew 14% last year, we reported strong defense bookings that we saw materialize into sales. This year. This robust growth was well distributed and appears to be driven for most businesses that support defense related platforms.
Now moving to profitability I'm going to talk primarily about our operating performance or EBITDA as defined.
EBITDA as defined of about 707 million for Q4 was up 35% versus prior Q4, and 2.42 billion are up 29% on a full year basis.
EBITDA as defined margin in the quarter of 45.9% was negatively impacted by acquisition dilution from esterline.
Excluding esterline margins in our legacy business were over 50% and improve both sequentially as well as over the prior years quarter margin improvement progress is always important to us and indicates that our base business continue to find opportunities to drive improvement by using our value drivers now let me.
Give you an update on the esterline integration and expectations.
Over eight months post close the Esterline integration continues to progress well, we have no largely wound down the former corporate office activities in Bellevue, Washington.
Functions that used to be performed here have been migrated to the business units are moved over to our Cleveland corporate office as noted before we have equip the esterline integration team was senior Transdigm legacy easy Pease, who are teaching our culture and operating model around value generation to all new business units.
We're making progress here, but as you know culture change can be slow and requires constant reinforcement to date. We are expect we are exceeding our expectations for growth in this largest of Transdigm acquisition.
Turning now to 2020 guidance also fluff found on slide seven in the presentation.
In General continued global revenue passenger miles growth a favorable environment for defense spending both domestically and internationally and generally positive economic conditions provided backdrop for continued success and growth in the marketplace certainly global trade dynamics continue.
737, Max grounding and shipping delays.
Political risks or other exogenous events could have a negative impact on market conditions for trends done we will closely watch. These as we always do and we'll react as necessary, including taking any preemptive steps that might be warranted.
Based on this and assuming no acquisitions in fiscal year 2020, our initial guidance for continuing operations is as follows the midpoint of our fiscal year 2020 revenue guidance is 6.25 billion or up approximately 20% as in past years with roughly 10% less working days.
Phase in fiscal year, 2020 quarter, one revenues EBITDA and EBITDA margin are anticipated to be lower than the other three quarters of fiscal year 2020, roughly in proportion to the lower working days.
This revenue guidance is based on the following market channel growth assumptions note. These pro forma market assumptions now include esterline.
We expect to commercial aftermarket revenue growth in the mid single digit to high single digit percent range versus prior year commercial OEM revenue growth in the low single digit to mid single digit percent range.
Defense military revenue growth in the mid single digit percent range versus prior year.
The midpoint of fiscal year 2020, EBITDA as defined guidance is 2.83 billion with an expected margin of around 45.2% up almost 17%. This includes almost six points of margin dilution from esterline.
Again, we anticipate EBITDA margin will move up throughout the year as we have seen in previous years with Q1 being the lowest in sequentially lower than Q4.
The midpoint of adjusted EPS is anticipated to be $20.50, Mike will discuss in more detail shortly.
And the factors impacting EPS.
Finally, I would like now to briefly review some executive management changes.
As you know we continually work to improve our best bench strength of Promotable talent to keep a focus on succession planning.
As such we recently promoted Marco underline and Patrick Murphy to the executive Vice Vice President rule.
Marco has worked for Transdigm for over three years as the president of the Teller International team and prior to joining US. He spent over 15 years at Airbus and financial and leadership roles Marco will be our first MVP in Europe responsible for much of our European footprint.
Patrick has worked for Transdigm for over four years now as the president of Marco Semco and prior held a variety of senior roles and leadership at Danaher Corporation over any your career.
These promotions give us the resources, we need to oversee the expanded group of business units. Following the esterline acquisition as well as to backfill for Jim Skull, Lena who is retiring at the end of the calendar year.
So let me conclude by stating fiscal 2019 was another good year for Transdigm, we continue to be very pleased with the S. One acquisition integration as well as the strong operational performance in our legacy businesses. We look forward to 2020 and expect that are consistent strategy will continue to provide the value you have come to expect from us.
With that I would like to turn it over to our CFO , Mike Good morning, everyone, Nick and Kevin covered the highlights so I'm just going to really quickly hit on a few additional financial details.
First for full year F. why 19, and then second for the F. why 20 guidance that Kevin just covered.
As mentioned on our last earnings call. The Esterline organization as it used to exist, including the corporate office is largely now gone and the business units, which used to comprised esterline report independently into transdigm within our power airframe and non aviation segments.
We therefore don't plan to give any specific color around esterline's performance separate from that of legacy Transdigm.
During the quarter both into l'oreal were moved into discontinued operations.
When you make this accounting change the results from these business units get completely removed from the individual line items at the piano and collapsed onto the disc ops line. So the net result is that it's almost like we never own them, except for the discontinued operations line.
Now for the consolidated Transdigm business a few quick notes on how we ended up why 19 adjusted EPS for the year was $18 in 27 cents up 2.5% premise why 18 and as a reminder, RF why atps saw significant one time benefit from the implementation of us tax reform.
Muddies any year over year EPS comparisons.
On taxes, we came in slightly better than expected with an f. fynineteen GAAP and cash tax rates of 21% and an adjusted rate of 25%.
On cash and liquidity, we ended the year with approximately 1.5 billion of cash on the balance sheet and net debt to EBITDA ratio of 6.2 times pro forma for the recent debt raise which we closed last week on the 13, our cash balance increased just under 3 billion.
Should story outflows as expected during our second quarter of that's why 20 will receive almost 900 million of cash proceeds and subsequently have the cash balances just under 4 billion.
We also currently have access to about 720 million of our revolver.
Next on the F., why 20 guidance I'm going to really quickly give some more details on the financial assumptions around the interest expense passes and then the share count interest expense is expected to be about 1.02 billion and Thats. Why 20. This estimate assumes an average LIBOR rate of 1.7% for the full year, which is just an average of the forward consensus.
Currently.
This yields the weighted average cash interest rate of about 5.5%.
On taxes, our fiscal 2020, GAAP cash and adjusted rates are all expected to be in the 24% to 26% range.
We expect our weighted average shares outstanding increased to 57.4 million from 56.3 million UNEV, why 19 and that assumes no buybacks occurred during the fiscal year similar to prior years the increase in shares outstanding due to employee stock options invested at the end of RF why 19.
With regard to quit with regard to liquidity and leverage at the end of that fly 20, and assuming no additional acquisitions or capital market transactions. We expect to have roughly 5 billion of cash on hand at the end of the year. This assumes the story out divestiture closes as expected.
And we estimate our net leverage will be below five times EBITDA as defined at September Thirtyth of 2020.
In closing, we expect fiscal 2020 to be a good year for trends.
With that I'll turn it back over to the operator to kick off.
Thank you ladies and gentlemen, if you have a question at this time just press Star then one on your telephone keypad to withdraw your question crashed Uptown key please stand by where we compile that culinary roster.
And our first question is from Myles Walton with your vs. Please go ahead.
Thanks, so much good morning.
Hi, Good morning, I was wondering what I wonder if you can maybe Nick just to see us off I know you're you didn't want touch on the precision of the deals that may or may not be in the pipeline, but just as you as you look at how open the debt markets have been to you.
Is it fair to think that you'll have excess liquidity relative to your pipeline.
That would pointing more towards additional special dividends or do you think that pipeline is rich announced to satisfy is open as the debt markets artsy right now.
I don't.
You mean.
Question goes there.
I don't want to comment on that I think as you know if we have $4 billion at the end of the year, we won't sit on that.
We will do you know, we'll do a either we'll have something significant in the gun sight.
Or will we will do something else as you know we think some type of return some to the shareholders and we're just we're going to delay that decision.
Fair enough and then Mike or Kevin I don't know, which but on the free cash flow fiscal 18, sorry fiscal 19 coming a little light of fiscal 18, I think you're looking for it to be.
Ask if not better I don't know if that's the divested properties and then also can you give a comment on your expectations for free cash for 2020.
Yes, we it was a little bit light enough why 19, and Thats, mainly as a result of about 100 million of cash charges on esterline.
Onetime items related to the integration.
With regard to ask why 20, the way we look at it generally is that.
We expect EBITDA less capex less cash interest less cash taxes to be about 50% of EBITDA I think we've mentioned the 50% that to you guys. Historically, if you looked at F. Why 19 and stripped out the esterline stuff, we hit about 50% and we expect up why 20 to be about the same.
Okay, all right. Thanks, I'll leave it to thank you.
Thank you. Our next question comes from Ronald Epstein with Bank of America. Please go ahead.
Hey, good morning.
Morning.
When you think about potentially deploying some of that capital are there areas in the portfolio that you think you need more coverage I mean is there any.
So you can give us and if you work to do some more M&A.
What area or would you be covered.
Yes, I would say are.
Our what we're looking for is the same thing we're always looking for proprietary aerospace businesses with significant aftermarket content.
We're not biased towards one part of an airplane or another part of the airplane or one product or another if it meets that criteria and we see a clear path through our private equity like returns.
We're very interested buyer and I, we really don't hemant down anymore than that.
Gotcha Gotcha, and then maybe just kind of pulling back down in a little bit.
When you think about the return of the 77 Maxim to service.
Is it going to be a headwind or tailwind meaning.
It will be fewer older airplanes flying around risk, which suggest a headwind but.
If it's a new new airplane going to service, you'll have provisioning, which would be possible tailwind right. So on balance how would you expect the return to service their find impact you guys.
Yes run we look at it as a somewhat neutral of course, the aftermarket is good the OEM, we do well with the OEM as a whole on the 737, but as a whole it's de minimis to the business. It's 737 Max is small.
All enough that.
The noise of its actual ramp rates or if anything else.
Difficult happens there would not have any.
Impact noticeable impact on the business. So I think it's de Minimis and that's how we we model this.
Certainly more older planes flying is good for us, but we have OEM content as well so it's kind of a push.
Gotcha Gotcha, and then one follow on to that if I may.
As you mentioned in the prepared remarks air traffic has slowed a bit this year right. So were maybe just image below kind of long term name, but maybe reverting to remain.
But we really haven't seen much impact.
After market demand because of that.
Are you expecting that could change as we go into next year I mean is there some conservative in your outlook for next year, because or whatever traffic been doing how can we think about I mean that air traffic has slowed pretty much across the industry, everybody said boom in aftermarket performance.
Yes, I think the RPM growth has been impacted by the lack of availability of the 737, So I don't want to over blow that to the to the industry and how it may impact us.
So I'm I look at RPM is close to the 50 year average I don't see a looming problem in the the industry. So.
I'm still optimistic about the future for this market as a whole whether its aftermarket or OEM.
Think aftermarket orders can be lumpy at times, and we certainly see that.
Last year.
The Pos which is a nice a forward looking indicator that was up high single digits. So that kind of reinforces how we feel about this year and why we guided to mid to high single digit growth in the aftermarket, but certainly we've we've put a necessary.
Every conservatism into our forecast and hence the mid to high comes into play.
Great. Thank you so much.
Thank you. Our next question comes from David Strauss with Barclays. Please go ahead.
Hey, good morning, guys, it's actually Matt Good morning, David.
I wanted to see but is there any update you guys can share on the Inspector General lot of the you mentioned last quarter takes nothing you can say anything about it and then also I think there was.
This pricing memo over the summer the deal you as a requesting more kind of pricing data that are you still getting requests for that data and is that having any meaningful impact on you.
So two parts to your question the AG update the AG that is an audit of the deal Lee and its buying practices of Transdigm related products. We continue to work closely with the AG I really don't have an estimates yet of when that will complete but we're actively.
Engaged and to working through it appears to be a similar scope as prior auditz. That's really all I have to update right now, but we are working closely with them on the pricing memo. We have met with video de directly on this the pricing memo was put out.
Hopefully clarify the the situation you know we're seeing some additional we would say picking us on.
Pricing or costs or different request for information.
But as a whole we continue to work closely with video D. and the deal a on their purchases theres been a little bit of slowed down on some orders, but as a whole it has and so we don't see any noticeable impact on the business. These tend to be small.
Orders generally speaking and so we are busy you know a club cooperating with the delay on the the fair and reasonable acquisition process that is dictated by rules and laws and we work within those completely and so work.
Operating and working closely together and meeting with them directly.
I might just add last the last couple of times. We've had these they've taken Kevin I would say 18 to 24 months to complete so we don't.
I don't know what this will take but that at least as a couple of benchmarks.
Got it yeah. That's that's really helpful. Thanks, and then I guess.
On Esterline's last quarter, you you comment that there were some loss, making contracting write up.
Can you say.
That level, what's for the quarter and kind of what the level as you'd expect going forward on that.
Yes.
15 million in Q4, we expense is expected to continue with that kind of level going out quarterly the average over the next say three four years should be about rough justice 40 million per year more and the earlier years than in the out years.
Got it gradually tapering off right yeah.
Got it thanks.
Thank you. Our next question comes from Ken Herbert with Canaccord. Please go ahead.
Hi, good morning.
Good morning, Ken.
I just wanted to ask Nick or Kevin in in prior periods. When you started to maybe see some cautionary signs in your commercial market or other maybe reasons for a bit of pessimism on the broader outlook you've been fairly quick to take action and address your cost structure. A ahead of that are you.
The point, where you might start to think about that or is it way too early to think about that and if so what would you want to see I'm, specifically or has your outlook near term as you think about some of the cloud you mentioned on the horizon and some of our growth we've seen a passenger traffic.
Yes, I think you know really your question is how cautious are we on the market and what you know what do we see weve provided guidance that says.
In our order book, so far doesn't indicate that.
We're starting the year on a weak points with our guidance so I.
I feel okay, I know George valid their us and I talk about this frequently we've been together often over the last couple of weeks and you know, it's something we talk about but neither of us.
See it as something we have to act on this second because the the forward looking indicators bookings specifically look.
Recent look strong so I don't think we have two taken adjustments yet but is something that we're actively debating. So that we don't fall behind we recognize that once you fall behind you can never catch up on productivity. So we certainly don't want to do that but we don't want to jeopardize the business and deliveries by making.
That jump too soon.
We continue to discuss I think is the answer.
Okay. That's helpful. Kevin.
And I just wanted to follow up on your comments around sort of the wind down of the legacy Esterline corporate office in Bellevue and a lot of the transition to your operating businesses were there to Cleveland.
Is it fair to say that that you'd have the capacity now and the bandwidth for a larger acquisition or do you still feel like there's significant integration around esterline in sort of realization of the upside that you'd maybe not be as excited near term about a larger deal.
Yes, I would say, we're making very good progress on esterline and frankly, it's moved faster than we expected.
I don't think.
If we saw the right opportunity I don't think we'd be reticent to pull the trigger because of bandwidth now.
We're more restricted by you know the.
Sort of value in and where the opportunities might be.
Okay, great. Thank you very much I'll pass it back there.
Thank you. Our next question comes from Michael Ciarmoli with Suntrust. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Good morning, maybe.
Nick or Kevin just on on Esterline, I think you said the EBITDA margins were running above 30% and I mean, that's come up pretty long way I think the initial guide was maybe low low 20% level can you just maybe give us some color on.
What's what's really helping to drive the improvement there I mean, maybe even compartmentalize. It I mean this at price is it getting rid of excess overhead is just you know implementing better productivity and better execution initiatives.
Yeah, I think Michael the answer is yes to that.
You know we've seen.
You know opportunities on a productivity on price certainly.
You know better leveraging the overhead structure that we have in place already.
It is important to that we've continued to see new business wins in this business that esterline, that's important I think one of the.
The most important points is that.
We reported that we modeled the so the aftermarket esterline was somewhere around 30% and that's up from the 12% that was most recently reported when esterline with a public company, we found that 30% to maybe be a little conservative it's better than even what we had.
Modeled a similar directionally to trends dime, and so that has been a great reason why we're seeing improvement faster than what we had originally planned.
Hey, thousands of productivity in price, it's not one thing or the other we emphasize all areas, including new business growth in our improvement.
Yes. It is.
That is as we as I think we continually said and we bought it our goals are to be fairly conservative in our modeling when we make an acquisition.
You know, we don't we want to be sure. If we're going to give our money away, we have a pretty darn good chance, making it.
That that better than expected aftermarket exposure, what do you guys attribute that you'd on them, but thats just esterline taken a tie off the ball not having the systems in place to sort of track the lifecycle their products not having good turnaround times I mean anything you can attribute the better than expected 30%.
Exposure.
I think you know we.
Define the market very carefully on aftermarket because we understand how valuable that segment is so I think it's largely definitionally and.
We spent the time combing through the data for those opportunities so that we understood our product mix very well in our market mix.
I guess I attended the same going into something like this when the data is unclear and we're unsure we tend to be conservative yes.
Got it.
Just the last one maybe housekeeping on capital deployment, but I guess, what the interest expense where are you guys are for fiscal 2000 as a percent of EBITDA.
I think the tax laws still restricts the duck deductibility at 30% I mean do you guys have any plans to get that interest expense, but low that 30% threshold.
Okay No no doubt it no. We you know we think of it the same way the.
Cost of the debt is 5.5% now so it's depending on how much is or isn't deductible you know the after tax cost is three and a half before in a quarter or something like that in that range, we always compare that.
To the cost of our equity.
On an after tax basis, which we say we want to give you a PE like return.
So that's still looks pretty good compared to the 15, 20% PE like retire.
Got it perfect. Thanks, guys.
Thank you. Our next question comes from Grad Conrad with Jefferies. Please go ahead.
Good morning.
Good morning.
Overall on defense you didn't call out bookings like the other two end markets I mean, what type of activity are you seeing from an order perspective, and how do you think about that backlog as we had in 2020.
We had a strong bookings year in defense not as strong as the year before but our total defense bookings were up in that.
A mid single digit range much like we guided to.
That's produced by stronger bookings on the defense OE side, and a slowdown in bookings in the aftermarket which may indicate that a maybe some of the sequestration refilling of spares and maintenance related active.
It is in the defense sector has been caught up time will tell.
Thanks, and then just one more you called out business shed and helicopter aftermarket being up 20% in the quarter I mean, what is driving that whether its activity or mandate driven and what type of visibility are you seeing in that market.
This your question was specifically around business jet helicopter.
Yes.
I think we're surprised a little bit cautious a surprise there about the performance. We certainly don't see the support on the business jet side on the takeoff and landing cycles, which is how we follow and monitor the business much like all of you.
So we continue to be pleasantly surprised by the strength of the OE in the aftermarket on the.
On the business jet defense on the helicopter side of business I really don't have that much comments, it's a pretty small sector and nothing jumps to mind does worthy of commentary.
Thank you.
Pain kill NFL reminder, ladies and gentlemen, still ask a question just press Star then one.
Your next question is from Gautam Khanna with Cowen and company. Please go ahead.
Yes, thanks, good morning, guys.
Good morning.
Maybe inside the air transport aftermarket numbers could you give us.
So so granularity on.
The discretionary versus Nondiscretionary maybe.
Just on the differences.
Region or by channel distribution.
Any any color there.
Yes, so I can give you a little bit by Submarket. So like we did earlier, we had we saw some strength in the freight area that was largely due to 737 freighter.
The.
Any weakness we saw in the interiors side was largely and artifice of a stocking packages that were put in the year before so we had big stocking packages for some of our yeah.
Interiors businesses and that's just didnt repeat so that'll come out in time.
Business jet continues pretty strong.
Our passenger segment of the commercial aftermarket is right on the multi year average and right about where we expected it to be so the segments are performing more or less as we expected.
The freight side has been.
Prize and the interiors is actually they're going through a cycle right now they've recently won a number of international OEM projects on the interiors business as a whole and that will translate to growth and opportunities for aftermarket in the future. So I think the these are though the lumps of.
Some of these sub markets that we see on the aftermarket side.
Thanks.
Just a separate question.
If you could maybe comment on where you are.
Value based pricing.
Petitioned the esterline's aftermarket.
Yeah, we don't really talk about it that way our value drivers are constant our constant focus for us. We don't look at it does the journey is completes and we've reached Nirvana. We continue to work. These it's part of our discipline as part of our process.
So we see opportunities ongoing in our legacy Transdigm businesses, just like we see them on the the old Esterline side, and we will actually stop referring to it as the esterline businesses, it'll just be part of our power airframe and non aerospace sectors. As we go forward, but that's kind of how we see it.
That's a fair answer I appreciate it maybe yes.
A better way.
The 30% plus industrial license revenue.
Market.
Do you have a sense or how much is sort of spot aftermarket.
That's right.
No I do not.
I do not have that knowledge as I sit here sorry.
That's okay. Thank you very much sure.
Thank you and our next question is from said Chief men with JP Morgan. Please go ahead, Sir your line is helping.
Great. Thanks, very much and a good morning.
Good morning.
Hi, Nick I think it was back in like 2011, when you guys took the.
The kind of target return down from 20 to 17 and a half at the top and I think I guess 12, and a half down to 10 at the bottom and I think one other reasons at that time was the growth in the business and at that point it was about.
1.2 billion.
Obviously much much bigger now and I think you guys probably exceeded your own and everybody else is expectations.
Does that now that were above 6 billion here that return framework still Delaware.
We don't have any we do not have any plans to change it now.
Well, let me, let me make sure I understand your question.
Is your quest easier question, what do we expect to go forward growth in the shares to be where is that what do you want the we plan to do with our compensation plan.
I think the well the compensation plan is intended to reflect I guess, the the shares right and so let's say, let's say the shares then.
All right I'll answer both questions anyway.
I would say our goal on their shares is and we hope to continue to do this is to give you a private equity like returns.
And we define that is somewhere in the 15%, 20% over long period of time.
Each year won't be that clearly it's done you know I want to say the growth in the public market for the last whatever it is 12 or 13 years, it's been more like 35% I don't think that will continue going forward and our goal is still as I say, a PE like return that we still think thats reasonable to expect.
On the compensation targets, where we decide what the 17 in the half percent roughly is it's about with top Cortile PE funds return.
So you know wheat, and that's how we have targeted through the years.
And as we got bigger it made more sense to look like a top cortile PE fund and Thats why we went through the 17 half percent should that go to 15 at someday I don't know, perhaps but it's not it's not in the gun sight right now.
Okay got it Okay, and then as a follow up just.
Make sure I understand last quarter without Astro on it looked like the pro forma commercial aftermarket contribution to the company was was 36% of revenue and this quarter, it's 31%.
And so it would seem that the esterline piece is coming in with below 30%.
Commercial aftermarket.
Or is that is that like in an incorrect reading on my part.
We're not fallen your math I'm not sure that's correct.
Okay, well I was just looking at the right.
If the esterline contribution is well below 30%, we know that stock yeah.
Right, Okay, Okay out yes.
Okay. I was just looking at the slides from from last quarter and and this quarter.
But maybe.
Two more quick quick cleanup ones on the on the defense piece, that's a that's 37% now what's the rough split there with Astra line of the total Transdigm defense pie between aftermarket.
And we.
I think it's similar to our commercial business, but that's as much as we we guide on that.
Right. Okay. Okay, and then the last piece is you talked about 4 billion a cash at year at year end, I guess, yeah actually I'll leave it there calendar year.
Thank you again I'm not showing any further questions Tim Mchugh I would like to turn the call back to license sample for her final remarks.
Thank you that concludes our call today, we just would like to thank you again for calling in.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.