Q4 2021 TransDigm Group Inc Earnings Call

Thank you for standing by and welcome to the trade and stick them group incorporated fourth quarter 2021.

Earnings Conference call at this time, all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Jayme Steaming director of Investor Relations. Please go ahead.

Thank you and welcome to Trans fiscal 2021 fourth quarter earnings conference call presenting on the call. This morning are transcends President and Chief Executive Officer, Kevin Stein, Chief Operating Officer, Jordan Valley, Darren and Chief Financial Officer, Mike Lisman. Please visit our website at <unk> Dot com.

To obtain a supplemental slide deck and call replay information.

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

Further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward looking statements.

Refer to the company's latest filings with the SEC available through the investors section of our website or at SEC Dot Gov.

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

GAAP measures and applicable reconciliation I will now turn the call over to Kevin.

Good morning, Thanks for calling in today.

First I'll start off with a quick overview of our strategy for summary of a few significant items in the quarter and discuss our fiscal 'twenty 'twenty. Two outlook, then George and Mike will give additional color on the quarter.

George valid there is joining our earnings call today, and we will do so going forward. George is currently our chief operating officer and has been in the role since 2019 over the last 20 plus years with Transco I'm. George has had an unusually broad operating background and has been a key culture carrier.

He must he most recently served as our C O O of power and control, where all of the power group businesses reported to George prior to this role. He's served four years as an executive Vice President and was president of two of our larger operating units Alphatec Tyee and adult Wiggans. George initially started at adult weakens grew.

And held various positions of increasing responsibility in engineering manufacturing and sales as he worked his way up we're excited to have him join the earnings call and offer his expertise.

Now moving on to the business of today to reiterate we are unique in the industry in both the consistency of our strategy in good and bad times as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. This should some similar to what you have always heard from transplant.

To summarize here are some of the reasons why we believe this about 90% of our net sales are generated by proprietary products and over three quarters of our net sales come from products for which we believe we are the sole source provider most of our EBITDA comes from aftermarket revenues, which generally have significant higher.

<unk> and over any extended period have typically provided relative stability in the downturns.

We follow a consistent long term strategy, specifically, we own and operate proprietary aerospace businesses with significant aftermarket content.

We utilize a simple well proven value based operating methodology, we have a decentralized organization structure and unique compensation system closely aligned with shareholders, we acquire businesses that fit the strategy and where we see a clear path to private equity like returns our capital structure.

Sure and allocations are a key part of our value creation creation methodology.

Our long standing goal is to give our shareholders private equity like returns with the liquidity of a public market to do this we stay focused on both the details of value creation as well as careful allocation of our capital as you saw from our earnings release, we had a good quarter considering the market environment, we continue to see recovery in the commercial Aero.

Space market and are encouraged by the trends in air traffic among other factors.

Our current Q4 results continued to show positive growth in comparison as we are lapping another fiscal 2020 quarter fully impacted by the pandemic.

However, our results continue to be unfavorably affected in comparison to pre pandemic levels due to the reduced demand for air travel on a more encouraging note. The commercial aerospace industry has continued to show signs of recovery with increasing air traffic and vaccination rates expanding the.

The recovery has remained primarily driven by domestic leisure travel, though we are optimistic for the recovery of international travel as more governments across the world soften travel restrictions in our business. We saw another quarter of sequential improvement in commercial aftermarket revenues with total commercial aftermarket revenues.

<unk> up 14% over Q3.

I am also very pleased that even in this challenging commercial environment. We continued to sequentially expand our EBITDA as defined margin contributing to this increase is the continued recovery in our commercial aftermarket revenues as well as the careful management of our cost structure and focus on our operating strategy.

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Additionally, we continued to generate significant cash in Q4, we had strong operating cash flow generation of almost 300 million and closed the quarter with approximately $4 8 billion of cash we expect to steadily generate significant additional cash through 2022, we continue to look at possible M&A opportunities.

<unk> and are always attentive to our capital allocation, both the M&A and capital markets are always difficult to predict but especially so in these times first I'd like to address the mega tissue situation that occurred this quarter, we have long admired and studied the mega business and believe that a combination between us and make it could.

Value to investors of both companies. However, based on the quite limited due diligence information that was made available and the resulting uncertainties. We cannot conclude that moving forward with an offer of 900 pence per Mega chair would meet our long standing goals for value creation and investor returns.

Put substantial time and effort into evaluating this potential transaction as we had communicated previously.

However, as we have said many times before we are very disciplined with our capital allocation and when we make acquisitions, we need a reasonable degree of certainty for achieving our investment return goals, especially for a deal of this magnitude.

The diligence made available to US was too limited to provide the assurance needed to move forward and our additional diligence requests were not met.

These additional diligence requests were very similar to what was typically received in the almost 90 acquisitions. We've done over the life of the company. It was a disappointment that we could not move forward, but it was the most prudent decision for the company in all of our stakeholders.

In regard to the current M&A pipeline, we are still actively looking for M&A opportunities that fit our model acquisition opportunities in the last quarter was still slower than pre COVID-19.

We are starting to see some pickup in activity. We remain confident that there is a long runway for acquisitions that fit our portfolio primarily in the small to mid size opportunities and look forward to continued M&A activity far into the future.

At this time, we don't anticipate that we make any significant dividends or share buybacks for at least the next quarter, but we will keep watching and see if our views change.

Now moving to our outlook for 2022, while we are not providing full financial guidance at this time as a result of the continued disruption in our primary commercial end markets. We are providing guidance on select financial metrics for fiscal 2022, including EBITDA as defined margins expected defense.

Market revenue growth tax rates and other key financial assumptions.

We do continue to be encouraged by the recovery, we have seen in both our commercial OEM and aftermarket revenues and bookings in fiscal 2021, but many unknowns remain for the pace and shape of the recovery. We will look to re institute guidance. When we have a clearer picture of the future.

Currently we expect COVID-19 to continue to have an adverse impact on our financial results compared to pre pandemic levels.

Into fiscal 2022 under the assumption that both our commercial OEM and aftermarket customer demand will remain depressed due to lower worldwide air travel, although recent positive trends in commercial air traffic could impact us favorably.

Given what we know today our teams are planning for our commercial aftermarket revenue to grow in the 20% to 30% range planning for our commercial aftermarket revenue to grow in the 20% to 30% range, we expect our commercial OEM revenue to grow significantly.

As well, but at a rate slightly less than the commercial aftermarket as you know we aim to be conservative and would be happy to have both of these end markets rebound more strongly George will provide further detail on a few key points of consideration that will drive our ultimate commercial growth.

As for the defense market, we expect defense revenue growth in the low single digit percent range versus fiscal 2022.

Now a bit more color on EBITDA as defined expectations for fiscal 2022, we expect full year fiscal 2022, EBITDA margins to be roughly in the area of 47%, which could be higher or lower based on the rate of commercial aftermarket recovery. This guidance assumes a steady increase.

In commercial aftermarket revenue throughout fiscal 2022 with Q1 being the lowest in similar fashion, we anticipated EBITDA margins will move up throughout fiscal 2022, with Q1 being the lowest and sequentially lower than Q4.

As a final note. This margin guidance includes the unfavorable headwind of our recent Cobham acquisition of about 0.5%.

As a reminder, and consistent with past years with roughly 10% less working days than the subsequent quarters fiscal year 2022, Q1 revenues EBITDA EBITDA margins are anticipated to be lower than the other three quarters of fiscal year 2022.

We believe we are well positioned as we enter fiscal 'twenty two.

As usual, we will closely watch the aerospace and capital markets development and react accordingly.

I conclude by stating that I am pleased with the company's performance in this challenging time for the commercial aerospace industry and with our commitment to driving value for our stakeholders.

The commercial aerospace market recovery continues to progress and current trends are encouraging there is still uncertainty about the pace of the recovery, but the team remains focused on controlling what we can control we remain confident that in the fullness of time, the commercial aerospace market will return to pre pandemic levels, we look forward to.

22, and the opportunity to create value for our stakeholders through our consistent strategy.

Now, let me hand, it over to George to review, our recent performance and a few other items.

Good morning, everyone and thanks for the kind introduction, Kevin I'm glad to be speaking with all of you today and look forward to being on these calls in the future.

I'll start with our typical review of results by key market category for the remainder of the call I'll provide color commentary on a pro forma basis compared to the prior year period. In 2020 that is assuming we owned the same mix of businesses in both periods. This market discussion includes the acquisition of Cobham.

<unk> Aero connectivity, we began to include Cobham in this market analysis discussion in the second quarter of fiscal 2021. This market discussion also removes the impact of any divestitures completed in fiscal 2021 in.

In the commercial market, which typically makes up close to 65% of our revenue we will split our discussion into OEM and aftermarket.

Our total commercial OEM revenue increased approximately 1% in Q4 and declined approximately 25% for full year fiscal 2021 compared with prior year periods bookings in the quarter were very strong compared to the same prior year period and solidly outpaced sales.

Sequentially, both Q4 revenue and bookings improved approximately 5% compared to Q3.

Although we expect demand for our commercial OEM products to continue to be reduced in the short term. We are encouraged by build rates gradually progressing at the commercial Oems recent commentary from Airbus and Boeing reiterated anticipated rate ramps or their narrow body platforms in the near future hopefully this.

It will play out as forecasted.

Now moving onto our commercial aftermarket business discussion.

Commercial aftermarket revenue increased by approximately 41% in Q4 and declined approximately 18% for full year fiscal 2021, when compared with prior year periods.

Growth in commercial aftermarket revenue was primarily driven by increased demand in our passenger sub market. Although all of our commercial aftermarket submarkets were up significantly compared to prior year Q4 sequentially.

Sequentially total commercial aftermarket revenues grew approximately 14% and bookings grew more than 25%.

Commercial aftermarket bookings are up significantly this quarter compared to the same prior year period, and Q4 bookings very solidly outpaced sales.

To touch on a few points of consideration global revenue passenger miles are still low but have been modestly improving throughout fiscal 2021, IATA recently forecast a 39% decrease in revenue passenger miles and calendar year 2022 compared to pre pandemic levels.

Within IATA is estimate is the expectation that domestic travel will be back to 93% of pre pandemic levels in calendar year 2022.

Though the pace of the recovery remains uncertain. We continue to believe there is pent up demand for travel as vaccine distribution expands and travel restrictions are rolled back passenger demand across the globe will increase the emergence and spread of Covid variance in other future evolutions may further complicate this.

Picture, but for now trends remain positive.

We see evidence of the pent up demand through the recovery in domestic travel domestic.

Domestic air traffic trended upward throughout fiscal 2021.

Airlines also continued to see strength in bookings and strong demand for domestic travel, especially in the U S with Europe catching up.

China is currently a watch point with its recent drop off in air traffic.

The pace of the international Air traffic recovery has been slow and the international revenue passenger miles have only slightly recovered. However, vaccinations continue to increase globally and governments across the world are starting to reduce travel restrictions, which provides for optimism on the international air traffic recovery.

Cargo demand has recovered more quickly than commercial travel due to the loss of passenger belly cargo and the pickup in E Commerce.

Global cargo volumes continue to surpass pre COVID-19 levels and it is generally expected that air freight demand will likely remain robust into 2022.

Is this jet utilization in certain regions rebounded to pre pandemic or better levels earlier this year and remains strong.

Commentary from business jet Oems and operators has been encouraging with these higher levels of business jet activity may be here to stay the time will tell.

Now, let me speak about our defense market, which traditionally is at or below 35% of our total revenue.

The defense market revenue, which includes both OEM and aftermarket revenues grew by approximately 2% in Q4 and approximately 5% from full year fiscal 2020, when compared with prior year periods. This was in line with the expected revenue growth expectations, we provided for FIS.

<unk> 2021.

Mid single digit percent range growth.

We continue to expect our defense business to expand due to the strength of our current order book.

As Kevin mentioned earlier as Kevin mentioned earlier, we expect low single digit percentage range growth in fiscal 2022 for a defense market revenues.

Lastly, I'd like to wrap up by stating how extremely pleased I am by our operational performance throughout this fiscal year that continue to be heavily impacted by the pandemic our management and their teams remain diligent and focused on our value drivers and we'll continue to do so in this new fiscal year, we are ready to meet the demand as.

It returns.

With that I would like to turn it over to our Chief Financial Officer, Mike Lisman.

Morning, everyone I'm going to first quickly hit on profitability trends for the business then address a few additional financial matters for fiscal 'twenty, one and finally I'll provide some more detail on expectations for fiscal 'twenty two.

First in regard to profitability for fiscal 'twenty, one EBITDA as defined of about 636 million for Q4 was up 28% versus prior year Q4 on a full year basis EBITDA as defined was about $2, one 9 billion down 4% from the prior year.

EBITDA as defined margin in the quarter was approximately 49, 7%. This represents sequential improvement in our EBITDA as defined margin of almost 400 basis points versus Q3 of 'twenty one.

Moving on a few quick notes on the full 21 fiscal year I want to provide one quick M&A related data point that you might find helpful. For your financial models as we head into FY 'twenty two.

As you know we divested several businesses during 2021, all of which were sold out of continuing operations. As a result of the accounting treatment applied roughly $130 million of revenue and $25 million to $30 million of EBITDA as defined from these divested operating units remains in our FY 'twenty one results.

This revenue and EBITDA will obviously not carryover into FY 'twenty two.

On cash and liquidity, we ended the year with approximately $4 8 billion of cash on the balance sheet and our net debt to EBITDA ratio was seven times.

In the early days of October we repaid the $200 million revolver drawdown that we made at the onset of Covid back in April 2020. This was done out of an abundance of caution at the time and we don't need the cash so we've repaid it pro forma for the revolver pay down our cash balance is $4 6 billion.

Next on the FY 'twenty to expectations.

We arent, giving full guidance as Kevin mentioned, but we are providing guidance on select financial metrics, including the following interest expense is expected to be about $1.08 billion in FY 'twenty two on taxes, our fiscal 'twenty, two GAAP and cash rates are anticipated to be in the range of 21% to 24% and the adjusted tax rate will be a few points.

Higher and in the range of 26% to 28% on the share count we expect our weighted average shares outstanding will increase by about 800000 shares to $59 2 million in FY 'twenty, two and that assumes no buybacks occur during the fiscal year.

Similar to prior years the increase in shares outstanding is due to employee stock options. The best at the end of our FY 'twenty one.

With regard to liquidity, we expect to continue running free cash flow positive throughout FY 'twenty two.

As we traditionally define our free cash flow from operations at Trans Dime, which as a reminder, is our EBITDA as defined less debt interest payments less capex less cash taxes. We expect this metric to be in the 1 billion area, maybe a little better in fiscal 'twenty two.

Assuming no M&A, no dividends or share repurchases and no additional debt capital markets activities. This free cash flow generation together with a higher EBITDA figure should keep should the COVID-19 rebound continue will likely reduce our net debt to EBITDA ratio to something more like six times at the end of fiscal 'twenty two versus.

The current seven times level.

Finally, one last note on the Dod Inspector General audit.

As we mentioned previously we've been actively engaged with the <unk> office with some ebbs and flows and this engagement is now complete and our best assessment and based upon what we saw this out it appeared to be similar in scope to prior audits.

While it's difficult to know exactly when a final report will be issued publicly we expect that this could happen any day now very likely during the first quarter of our fiscal 'twenty two.

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

Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue press. The pound key our first question comes from the line of Noah <unk> from Goldman Sachs. Your question. Please.

Hi, good morning, everybody.

Good morning.

Could you spend a little bit more time on the 47% EBITDA as defined margin target for next year.

And how do we bridge from the $49 seven exit rate of this year.

I know theres, a little bit of seasonality, but if I look at all the data historically, its not that seasonal and it looks like you'll be mixing up based on your <unk>.

End market growth rate comments.

It's possible Noah that we could mix up it's possible that we're being conservative I think there were.

There was some good news that happened in Q4 in terms of market mix in our performance.

We're trying to be.

Be reasonable and transparent in what we see there's a lot of unknowns that have to come to pass in terms of the commercial aftermarket bookings for this to all.

Play out so that's the angle, we took and what we rolled up from our teams and think that it makes sense for US right now if it's conservative that'll.

That'll be great, we would love to beat that.

Okay, sensible and then Mike on the cash flow.

For next year.

You have the working capital headwind this year, maybe just help us out with how that changes next year.

Capex.

That number as a percentage of revenue was fairly high relative to where you've been historically what's behind that.

Sure. So first on the working capital you'll see when we publish that 10.

10-K later today I don't think you have the full cash flow detail, yet, but Ah did tick up a bit this quarter about $100 million went back into accounts receivable. We knew that was going to happen as a reminder, from peak to trough about $400 million came out of accounts receivable during COVID-19.

That's going to have to go in as we go back in as we go through the rebound here. It did tick up this year over the past couple of quarters. As you know this last quarter was $100 million, that's going to continue into FY 'twenty. Two ultimately how much goes goes back into they are and the pace at which that happens depends on the pace of the recovery, but we do expect it to be.

Of cash on the order of at least 100 million Bucks.

During our FY 'twenty, two potentially more that'd be a good problem to have by the way I mean, if the commercial markets rebound and we have to invest more in <unk>. We're happy to do that we certainly we have the cash.

And then sorry no no. Your second question was on Capex I think yes, we put out a range of $1 35 to $1 55 today. It is slightly higher on a percentage basis, it's tied to some onetime projects that some of our op units as you know our first use of cash is to go and deploy it into our own businesses to help them grow and we're just doing some of that with some large one time projects.

Elect op units.

Thank you.

Thank you. Our next question comes from the line of Robert Stallard from vertical research. Your question. Please.

Thanks, so much and good morning.

Good morning, good morning.

Kevin first question have you seen any supply chain issues or labor issues this quarter.

George you want to take that sure. So we've started to see some of the pushing out of lead times from the supply chain, primarily focused on electronic components.

It's been spotty nothing too significant at this point, but in all likelihood this will get worse before it gets better.

And just a quick follow up on that maybe.

As you look at how these could pan out in 2020, TV build some sort of contingency for these issues.

To that to EBIT margin guidance.

I don't think we have but this is part of the I guess conservatism. So.

<unk>.

We try to be conservative as we forecast going forward, we haven't specifically allotted anything to supply chain disruption, but I think it is part of our.

<unk> belief that this could be an issue for us as we go forward as George mentioned, specifically on electronic components and those types of parts, we're seeing some supply difficulty.

In terms of inflationary pressures I think we'd all agree that we will look to pass those along as we always have we don't eat inflation.

In that regard.

Okay. That's great. Thank you Raj.

Yeah.

Thank you. Our next question comes from the line of Myles Walton from UBS. Your question. Please.

Thanks.

Maybe just a margin question again for a second Mike I think you mentioned the divestiture.

Still in the 'twenty one guidance.

Be anniversarying in 'twenty two it looks like that alone is I don't know 70 basis points of assistance on EBITDA margin. So.

Not to beat a dead horse here, but it sounds like there is a healthy amount of conservatism in the 47% unless you want to pull on the margin guide remember, we also bought cobham to which kind of counteract the divestitures the other way and canceled it out.

So I think that kind of negate some of the impact that you mentioned and kind of yes, I think I said it was about a half a percent drag to ago.

Was that a 5% for the quarter or for the year.

I don't want to FY 'twenty two versus what it would've been had we not bought the Cobham arrow connectivity business.

Got it and what was it in the quarter.

On the quarter I think it was about close to 1% just below 1% couple of tenths below.

Okay, perfect and then within the aftermarket growth rate range, the 20% to 30% Kevin is there a figure of merit that youre using to ballpark that is that a sequential growth that's underlying that of traffic growth.

Well I think it's traffic growth related.

And I think we're counting on that largely being.

U S. A Europe related we'll have to see how it unpacks around the globe as you guys. All know we don't have geographical information along those lines, but.

We will continue to monitor this closely if the.

The traffic patterns are.

Come along like we believe they might.

Then you know the 20% to 30% planning.

And I emphasize planning.

It's difficult to issue that as guidance when.

As you know aftermarket bookings tend to be book and ship you don't have as much visibility. So this is for planning purposes, and every business will have a slightly different plan along those lines, but we tried to give you a roll up of the range.

That will be based I think largely on takeoff and landing activity.

Okay alright, thank you.

Thank you. Our next question comes from the line of Ken Herbert from RBC. Your question. Please.

Yeah.

Yeah, Hi, good morning.

I Wonder if I can follow up on the I wanted to follow up Kevin on the discussion on the commercial aftermarket I know your sequential growth has been a little lumpy over the last three quarters, but considering your comment on sort of book and ship in the bookings pace, how should we think about the sequential growth here into the.

The fiscal first quarter.

'twenty two.

Well I think we're concerned about the first quarter only I guess concerned too strong of a word.

We always see a normal dip in a sequential from Q4 to Q1, given the less days. So I think we were always concerned that the market doesn't.

Accurately predict that.

To give you some.

No reason to.

Believe in what we're saying.

The bookings came out for Q4 very strong.

We booked ahead of us.

Shipments that is encouraging for us clearly it means that we're setting ourselves up for a strong position into 'twenty, two but Q1 is always a little bit weaker because of seasonal performance.

Okay. That's helpful and then and again as we think about the up call. It 25% for your planning purposes for the aftermarket for the year what are your assumptions on travel say and takeoffs and landings in Asia or in international markets. I know you don't have great visibility internationally, but are you are you.

Anticipating a significant recovery in these numbers and international I'm, just trying to get at some of the puts and takes in that 20% to 30% planning range, well and you've really zeroed in on why we struggled to give guidance on these numbers because I don't have that visibility I don't understand where it's going to come from this is.

This comes as a roll up from all of our teams who tell us what they think they see happening in the marketplace based on what the customers are telling them.

It is not a it's not so easy for me to predict by region.

By platform.

So we don't and that's why I'm, giving you some planning guidance that what we're planning on should happen, but how it actually.

Gets to US we don't it's.

It's not so clear where the orders are and where the shipments are and therefore, what traffic needs to look like in <unk>.

The recovery in China does that happen.

What we're counting on is a consistent steady recovery like what we've seen and that should give us these kinds of aftermarket improvement numbers.

Great well, thank you very much.

Sure.

Thank you. Our next question comes from the line of Cristina <unk> from Morgan Stanley. Your question. Please.

Hey, good morning, guys.

Good morning, good morning.

Kevin and Mike.

This is a free cash flow positive even at the depths of Covid and considering the defensibility of the business model.

Are you thinking about maximum leverage to the balance sheet can support versus what you would've thought pre COVID-19 and can you discuss your appetite for large versus small deal.

Sure on leverage.

We don't anticipate any kind of change if you went back to the pre COVID-19 two year period and averaged.

The quarterly.

Net debt to EBITDA levels, you get about six times almost exactly we're comfortable operating at that level some of the.

Debt Incurrence test and other things in our credit agreement are based off operating at that level and we're comfortable with it if anything this pandemic. As you said has kind of proven that the business is very durable from a free cash flow standpoint, and can probably sustain more leverage than that historical level, we've run of that but we do want to keep some firepower for.

For M&A at all times, including large deals moving onto the second part of your question large deals as Kevin mentioned, we're more active now on the M&A side at the small to mid size range.

But there are also obviously some large potential transactions that we track from time to time, both on the strategic side, but then also big divestitures that could maybe come out of.

Some of the peers of ours in the aerospace industry. So we're always always looking and always on the on the hunt as you know, whether it's large or small where we're targeting M&A of all sizes from kind of the really low teen range below $100 million up to a couple of billion.

I see if I can do a follow up I mean looking at the esterline deal you've found.

Some jewels in there and you also divested some businesses that may not have necessarily fit the trends by model. What do you think about the opportunities for large deals.

What kind of threshold are you looking at in terms of what you want to keep versus what you wanted to add that in terms of your appetite for pursuing some of these large deals that may not be 100% <unk> yeah.

Yes, it's hard to put an exact percentage on something like that ultimately it depends on the on sale risk right. If there was something where it was maybe 50 50 and you had someone who wanted to buy the other 50% that's a different situation than.

Esterline, where we sold roughly a quarter of it so hard to answer that question, but obviously the esterline transaction proved to us that we can go in and.

By something Thats.

Not 100% fit the day, we own it but then execute on M&A in the year or two post deal close to shape it down to the portfolio that we want to own.

Wherever and long term so we do look at M&A situations like that.

Going forward.

Thanks for the color.

Yeah.

Thank you. Our next question comes from the line of David Strauss from Barclays. Your question. Please.

Okay.

Hello.

David phone on mute.

Sorry about that can you hear me now.

Yes.

Okay, great. Thanks.

So Kevin I appreciate the color there on on Mega just wanted to ask you about.

You know the the fact that you were willing to entertain the idea of.

Potentially getting involved in Baghdad, given what appears to be pretty pretty high valuations.

Does that say about kind of the pipeline the ability to find large arrow deals for you guys from here.

Well at the end of the day the market says what our property is worth and it's up to us to follow.

What the market says we have to pay.

We are looking for highly engineered proprietary aerospace products that have aftermarket access the size of those businesses doesn't matter as much as we want to identify those and get them into the fold. We believe that we can invest in those businesses and make them stronger.

We're not looking for bigger and bigger deals you know our target is to acquire $50 million to $100 million a year, that's what works and our model allows us to keep generating.

The kinds of value returns that we do.

Not getting overly fixated on doing a large deal.

But when they come along we certainly look at them, we evaluate them.

And the ones that we've.

Proceeded with I think we've done pretty well.

The market looks.

It's definitely picking up in activity.

And it's always hard to predict when a close will happen, but you know.

We're seeing some interesting activity right now and it's encouraging.

Okay, Thanks for that and.

Talk about where you are today from a head count perspective.

How much you think you've taken you've taken out kind of in structural costs through this and where you think you ultimately need to take head count back too.

Kind of assuming we get back to pre pandemic levels for your business and call. It 2023.

Yeah, I don't have the numbers in front of me George can comment on that but I think we are very disciplined in our approach to adding back and.

That is one of the hallmarks of our operations discipline.

George do you want to expand on that I would add the team said.

Done a lot of heavy lifting in terms of restructuring and productivity focus the last 12 months, we're pretty comfortable with the resource level that we currently have.

I think as most of you would know as the commercial aftermarket rebounds, that's not as heavy in terms of labor requirements or resource requirements.

So I think I'm pretty comfortable of where the teams are at they've done a great job.

And now we just need the market to recover.

Alright, thanks very much.

Okay.

Operator.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press Star then one our next question comes from the line of steps taken from J P. Morgan Your question. Please.

Okay. Thanks.

Thanks, very much good morning.

Morning.

I was wondering in the.

In the end market.

I heard the comments about the expectations for <unk>.

For this coming year and kind of.

Certainly expect the growth to pick up there, but just in terms of thinking about the phasing of growth at trans Diamond how that relates to where we are in the in the build cycle.

Starting to see some at some other companies some OE.

It was kind of happening already as Boeing and Airbus.

Picked up especially on that narrow body rates kind of ahead of that growth.

And then certainly on kind of on the business jet side and again it looks like you guys were kind of low single digit are flattish on both of those guys.

Both both sides of that so how do you think about.

The trajectory, there and how youre going to sort of relate to the progress and build rates.

Yes in general we found that the Oems and the tier ones were a little bit slow to respond in mid mid year 2020 as the pandemic.

It was ramping up so we believe there is some natural inventory destocking continuing to go on.

The orders are starting to come in as I mentioned, the bookings were up in the commercial OE in Q4, so that's a positive indicator.

I don't have the details in terms of how it lays in across fiscal year 2022, but we don't think theres any significant issue. There. It's just the timing and the lag of the Oems shutting off the valve. If you will on the supply in 2020 and now as they continue to ramp up in production.

Great. Thanks, and then just as a quick follow up in the defense end market I think last year, you guys ended up towards towards the higher end of that initial range.

Dave is there anything to be aware of for this year that might determine either on the plus side or the minus side where things are.

Up in defense.

No I think the guidance that we provided is reasonable as you guys might know and remember the defense markets in general have been very strong over the past two to three years. They can be lumpy in nature in terms of the bookings. So I think the guidance that we're providing us with.

A reasonable range.

Great. Thanks very much.

Thank you.

Our next question comes from the line of Peter off selling from two Securities. Your question. Please.

Hey, Good morning. This is Pete on for <unk>, Thanks for taking our questions.

First had a question on the aftermarket have there been any product categories that have been particularly strong or weak and I'm just wondering what you've been seeing on.

Airline spending priorities and then also what youre seeing in the pricing environment and aftermarket.

Yes, I think in general.

Our passenger sub market, which is our largest sub market has been strong as well as the cargo.

I noted in Q4 and sequentially ramped up across 2021, I don't think we have any data that would pointed to a specific type of product or application Jenny.

Generally the airlines are starting to increase their flight schedules, which is positive and they're ordering spares based on needs.

Alright. Thank you and then just to follow up on <unk>.

Financial guidance, just wondering what are the key improvements or catalysts that you might be looking for in the coming periods in the overall market.

You'd have the confidence and the visibility to provide full financial guidance.

I think it's.

It's market recovery.

International markets people flying again on an international scale and continued.

Domestic travel, we know that business travel isn't a huge percentage of overall flights, but still very important to airlines and how they gear.

Gear up their fleets in capacitors so.

This is what we'd be looking at us.

<unk>.

And continued international flight activity.

More domestic recovery in other pockets around the world to look more similar to where the U S is which is very close within 10% to 20% of what it was pre COVID-19.

I think those are the things we're looking at and there's still a lot of unknowns you see the <unk>.

China's traffic activity bounce around quite a bit every couple months theyre shutting down and then coming back. These are the things that don't give us.

The confidence to give guidance, but we know that the market continues to improve and move forward at a steady rate.

Does that answer your question.

Yes. It does thank you for taking the question.

Sure.

Thank you. Our next question comes from the line of Sheila Kalo cutting out of loop from Jefferies. Your question. Please.

Hey, good morning, guys and thanks for the time.

Maybe I'll start off on <unk>.

Adopt profitability going forward just in the absence of any major M&A Im pretty good performance in the quarter. How do we think about medium term EBITDA profitability a lot more than 50% the new level and then if you could just comment on expectation for free cash.

Cash flow conversion.

Yeah, I don't think we want to get in.

And provide any long term guidance I think generally just from our analyst day, and if we execute on the value drivers EBITA margin to transpire should improve by about one percentage point per year as we come out of Covid, there's a potential that that gets kind of mixed up a bit and maybe you could do better if your mix more towards commercial aftermarket but.

Over a long span of several years it should continue to approve improve for the base business absent M&A by about a percentage point per year.

Okay cool.

And then I wanted to follow up on <unk> question earlier, you mentioned the IGT.

Uh huh.

I came to a close which is a big accomplishment was there any impact to defence during that time and then as your peers have had softer defense volumes are there certain areas that you're watching.

You know I guess, just a cautionary I think of that.

I think there is a potential for some disruption on the <unk> side as the report comes out just with.

The government purchasing maybe slowing down a little bit we did see some of that in the past, but remember of the defense bucket the direct to government.

Isn't all that significant rate, we also sell more product internationally into tier ones. So it doesn't comprise all of that bucket, but we do potentially expect some some slowdown as the report comes out here.

Yes, it's possible.

But we anticipate.

Similar.

<unk> two.

Or a similar conclusions to last time, we will see as we're still in the dark on the reports and some of its details.

We've had a very cooperative I think.

<unk> work.

Process going on with the IAG and the D O D and I think we're in a good place but we're.

Anxious to get the report issued and move on with business.

Okay. Thank you.

Thank you. Our next question comes from the line of Matt Akers from Wells Fargo. Your question. Please.

Hey, good morning, Thanks for the question.

I don't think the commercial aftermarket do you think that theres still sort of a pent up demand there for for maintenance like.

Airlines are sort of deferred stuff during COVID-19 and now we've gotta catch up or are we sort of that's sort of behind us at this point.

Yes, I mean, I think theres been speculation out there in terms of the airlines trying to prioritize certain maintenance activities.

It's hard for us to know, we don't get visibility on the inventory levels at the Airlines I think just the general improvement in the marketplace and.

And more planes flying have led to some of the improvements we've seen across the whole fiscal year of 2021.

And as Kevin and Mike noted, we again expect some sequential improvement from quarter to quarter as we go through fiscal year 2022.

Got it okay, and I guess I mean.

The higher fuel prices.

I mean are your customers talking about that is it.

You sort of have that the large parked fleet and as they decide whether they want to keep fine those at that higher fuel price factor in that decision that you've heard or is that not really come up.

I don't think we've heard anything specific to decisions the airlines might be making regarding the higher fuel costs.

I haven't heard anything from our teams.

Got it okay. Thanks.

Okay.

Yeah.

Thank you. Our next question comes from the line is a follow up from Noah <unk> from Goldman Sachs. Your question. Please.

Kevin you are.

The comment that we should not be looking for share repurchase or a special dividend in the next quarter.

Can we interpret that to mean, you see a reasonable likelihood of acquisition activity in that period of time and then if that doesn't play out you know how how quickly do you start to consider share repurchase or a special dividend.

No we.

We can't speculate on when acquisitions will happen.

We always and this goes back to what I said earlier in the uses of capital fund your own internal investment in payback.

Look for acquisitions, and then of course.

Look to get that cash back.

We will look to do that of course in the appropriate process that we always go through.

We can't speculate on when acquisitions, what might come along or not.

We just know that right now from paying out a dividend or buying back shares we're still in a little bit of a wait.

Until next quarter.

Okay.

Yeah, Yeah, I just wasn't sure how specific that was versus taking it quarter by quarter.

Uh huh.

Yeah, I think next quarter or is it a decision point for us.

Okay.

Makes sense and then the commentary on bookings ahead of shipments.

By end market do you happen to have the numbers on exactly where the book to Bill is by end market in the quarter and year.

No I don't I don't have the exact numbers.

Okay no problem. Thank you.

Thank you. Our next question comes from the line of <unk> <unk> from Cowen <unk> Company. Your question. Please.

Hi, yes. Thank you just a follow up on.

Couple of questions No one last one.

On the book to Bill.

In the aftermarket it looks like for three quarters, we've had.

Bookings ahead of shipments and so I have.

Two questions related to that one.

Our all shipments at some point booked.

Therefore, the book to Bill is actually a relevant metric and second.

What's going on there it looks like.

<unk> been creating backlog.

And I'm just curious like is that what's happening youre seeing orders for delivery.

Customers want the product, but not immediately because that I guess.

A duration stretch to the backlog that you're seeing in the aftermarket.

That's my first question.

Aftermarket orders.

Yeah.

For more immediate shipments.

But that doesn't mean, they're all due tomorrow. So there is still a little bit of a range over when these things are do that's why it bleeds over a quarter to quarter in general I think we're optimistic because we see bookings continue to improve and that means.

In aftermarket as we go forward and why we're planning on 20% to 30%.

Possible aftermarket growth.

Fair enough and just to that point, so youre actually probably seen.

Some visibility beyond the December quarter in terms of shipments at this point in the aftermarket is that unusual.

Yeah.

That's a fair comment.

I don't think it's unusual.

In a steady state we have airlines and distribution partners that we'll book.

Some near term and then also give us and the team some visibility on mid and longer term needs.

Okay, but.

Every booking every shipment ultimately had a book correct, yes that is.

Okay fair enough.

Just wanted to make sure on the nomenclature and then the other thing just to follow up on the earlier question.

Ply change did it actually impedes your ability to deliver some sales did you leave some sales on the table either delinquencies and if so.

Can you quantify.

How much of an opposite catch up opportunity that might be in fiscal 'twenty two.

Yes, I would say there was nothing material in.

In terms of what was left at the dock. If you will you know there is some noise here and there are a couple of operating units.

I don't think that.

It provides a.

Big tailwind as we go into FY 'twenty two.

Okay and last one Im sorry, I think George you May have mentioned the ending next year at a roughly a six times net debt to EBITDA.

With the $1 billion of free cash so the math is somewhere around $2 $4 billion of adjusted EBITDA on that basis is that what you were trying to convey or.

Are we just not in round numbers, they are not giving guidance on the denominator there were simply.

A rough sense for the deleveraging by about a turn per year, but if youre trying to dial in and back into the EBITDA guide or something where don't do it because youre not going to get into the right to that.

We look at this is when the orders come in.

Deliver them quicker and more reliably than anyone and we will generate.

Turns and value generation were used too you're used to.

There is no company you can count on to do that more reliably than us.

Yeah, we're just trying to communicate that there is always puts and takes in lumps in this business.

I appreciate it guys. Thank you.

Thank you. Our next question comes from the line of Hunter Kay from Wolfe Research. Your question. Please.

Hey, Thanks, just a couple of quick ones for you Mike.

First one is how much are you budgeting internally for transient business travel spend next year relative to pre COVID-19.

We're stepping up a little bit, but not quite to pre COVID-19 levels I don't have the exact stats in front of me, but it's not quite back to 19 levels, but it's more than 20 for the most part all of our folks here are back to traveling whether it's M&A people pounding the pavement looking for deals or internal audit folks going out to op units.

To do their work, we're not holding back at all here, it's pretty much.

Hmm.

We will go where we'd typically be but at slightly reduced head count levels, yes business as usual, but.

Some of our customers, maybe aren't yet receiving us, but certainly within the company. We are back to normal yeah. Yeah. Okay. Alright. Thanks, and then you mentioned a couple a couple.

A couple of projects on the Capex line, driving a little bit of higher spend what are they or what.

Business lines as defenses interiors is around freight.

I'm, just not going to give too much away, but what are the nature of these projects. Thanks, Yes, I mean generally we don't give that kind of detail I could say.

As we continued to adjust our resource levels that puts additional pressures on increasing production rates. So we've got a few teams.

Investing in new technologies for automation projects.

Projects, and then a handful of other projects across the ranch.

But the lion's share of this is productivity and new business related.

It is not infrastructure nice to haves kind of stuff, we were investing for payback and return and that that at the end of the day is the most important part of what we evaluate is or what returns are we expecting as we invest a little more or less we have to make sure. We're still capturing those written.

<unk>.

Yeah.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Elizabeth Grenfell from Bank of America. Your question. Please.

Hi, good morning.

Youre asking.

I think about your comments and your expectations for aftermarket next year, how are you thinking about retirements.

With regards to that expectation.

We're not as the teams put together their individual plans.

We're not projecting a significant impact as a result of retirements in 2022, yeah. As you know retirements have been very slow and I think that has something to do with the stability of OEM supply.

And.

A ramp up in demand that doesn't allow retirements.

Yeah, we are.

I think that answers the question.

Okay, great. Thank you very much.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Jamie Steve for any further remarks.

Thank you all for joining US today. This concludes today's call. We appreciate your time have a good day.

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

Okay.

[music].

[music].

[music].

Thank you for standing by and welcome to the trade and stick them Group Inc.

Incorporated fourth quarter 2021 earnings.

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 to ask a question. During the session you will need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Jayme, Steven Director of Investor Relations. Please go ahead.

Thank you and welcome to Transit times fiscal 2021 fourth quarter earnings conference call presenting on the call. This morning are transient as President and Chief Executive Officer, Kevin Stein, Chief Operating Officer, George valid Dara and Chief Financial Officer, Mike Lessening. Please visit our website at <unk> Dot com.

To obtain a supplemental slide deck and call replay information.

Before we begin the company would like to remind you that statements made during this call which are not historical in fact are 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 SEC available through the investors section of our website or at SEC Dot Gov.

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

<unk> GAAP measures and applicable reconciliation I will now turn the call over to Kevin.

Good morning, Thanks for calling in today.

First I'll start off with a quick overview of our strategy.

Of a few significant items in the quarter and discuss our fiscal 2022 outlook, then George and Mike will give additional color on the quarter.

George valid there is joining our earnings call today, and we'll do so going forward. George is currently our chief operating officer and has been in the role since 2019 over the last 20 plus years with Trans now I'm. George has had an unusually broad operating background and has been a key culture carrier.

He must he most recently served as our COO of power and control, where all of the power group businesses reported to George prior to this role. He served four years as an executive Vice President and was president at two of our larger operating units Alphatec tie in adult Wiggans, Georgia. Initially started at Adel Wiggins grew.

And held various positions of increasing responsibility in engineering manufacturing and sales as he worked his way up we're excited to have them join the earnings call and offer his expertise.

Now moving on to the business of today to reiterate we are unique in the industry in both the consistency of our strategy in good and bad times as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. This should something similar to what you have always heard from transplant.

To summarize here are some of the reasons why we believe this about 90% of our net sales are generated by proprietary products and over three quarters of our net sales come from products for which we believe we are the sole source provider most of our EBITDA comes from aftermarket revenues, which generally have significant higher.

<unk> and over any extended period have typically.

Provided relative stability in the downturns.

We follow a consistent long term strategy, specifically, we own and operate proprietary aerospace businesses with significant aftermarket content.

We utilize a simple well proven value based operating methodology, we have a decentralized organization structure and unique compensation system closely aligned with shareholders, we acquire businesses that fit the strategy and where we see a clear path to private equity like returns our capital structure.

Sure and allocations are a key part of our value creation creation methodology.

Our long standing goal is to give our shareholders private equity like returns with the liquidity of a public market to do this we stay focused on both the details of value creation as well as careful allocation of our capital as you saw from our earnings release, we had a good quarter considering the market environment, we continue to see recovery in the commercial Aero.

Space market and are encouraged by the trends in air traffic among other factors.

Our current Q4 results continued to show positive growth in comparison as we are lapping another fiscal 2020 quarter fully impacted by the pandemic. However.

However, our results continued to be unfavorably affected in comparison to pre pandemic levels due to the reduced demand for air travel on a more encouraging note. The commercial aerospace industry has continued to show signs of recovery with increasing air traffic and vaccination rates expanding.

The recovery has remained primarily driven by domestic leisure travel, though we are optimistic for the recovery of international travel as more governments across the world soften travel restrictions in our business. We saw another quarter of sequential improvement in commercial aftermarket revenues with total commercial aftermarket revenue.

Is up 14% over Q3.

I am also very pleased that even in this challenging commercial environment. We continued to sequentially expand our EBITDA as defined margin contributing to this increase is the continued recovery in our commercial aftermarket revenues as well as the careful management of our cost structure and focus on our operating strategy.

<unk>.

Additionally, we continued to generate significant cash in Q4, we had strong operating cash flow generation of almost 300 million and closed the quarter with approximately $4 8 billion of cash we expect to steadily generate significant additional cash through 2022, we continue to look at possible M&A opportunities.

<unk> and are always attentive to our capital allocation, both the M&A and capital markets are always difficult to predict but especially so in these times first I'd like to address the mega tissue situation that occurred this quarter, we have long admired and studied the mega business and believe that a combination between us and make it could.

Good value to investors of both companies. However, based on the quite limited due diligence information that was made available and the resulting uncertainties. We could not conclude that moving forward with an offer of 900 pence per mega share would meet our longstanding goals for value creation and investor returns.

We put substantial time and effort into evaluating this potential transaction as we had communicated previously.

However, as we have said many times before we are very disciplined with our capital allocation and when we make acquisitions, we need a reasonable degree of certainty for achieving our investment return goals, especially for a deal of this magnitude.

The diligence made available to US was too limited to provide the assurance needed to move forward and our additional diligence requests were not met.

These additional diligence requests were very similar to what was typically received in the almost 90 acquisitions. We've done over the life of the company. It was a disappointment that we could not move forward, but it was the most prudent decision for the company in all of our stakeholders.

In regard to the current M&A pipeline, we are still actively looking for M&A opportunities that fit our model acquisition opportunities in the last quarter was still slower than pre COVID-19.

We are starting to see some pickup in activity. We remain confident that there is a long runway for acquisitions that fit our portfolio primarily in the small to mid size opportunities and look forward to continued M&A activity far into the future.

At this time, we don't anticipate that we make any significant dividends or share buybacks for at least the next quarter, but we will keep watching and CFR views change.

Now moving to our outlook for 2022, while we are not providing full financial guidance at this time as a result of the continued disruption in our primary commercial end markets. We are providing guidance on select financial metrics for fiscal 2022, including EBITDA as defined margins expected defense.

Market revenue growth tax rates and other key financial assumptions, we do continue to be encouraged by the recovery we have seen in both our commercial OEM and aftermarket revenues and bookings in fiscal 2021, but many unknowns remain for the pace and shape of the recovery.

We will look to re institute guidance, when we have a clearer picture of the future.

Currently we expect COVID-19 to continue to have an adverse impact on our financial results compared to pre pandemic levels.

Into fiscal 2022 under the assumption that both our commercial OEM and aftermarket customer demand will remain depressed due to lower worldwide air travel, although recent positive trends in commercial air traffic could impact us favorably.

Given what we know today our teams are planning for our commercial aftermarket revenue to grow in the 20% to 30% range planning for our commercial aftermarket revenue to grow in the 20% to 30% range. We expect our commercial OEM revenue to grow significantly as well, but at a rate slightly less.

And then the commercial aftermarket as you know we aimed to be conservative and would be happy to have both of these end markets rebound more strongly.

George will provide further detail on a few key points of consideration that will drive our ultimate commercial growth.

As for the defense market, we expect defense revenue growth in the low single digit percent range versus fiscal 2022.

Now a bit more color on EBITDA as defined expectations for fiscal 2022, we expect full year fiscal 2022, EBITDA margins to be roughly in the area of 47%, which could be higher or lower based on the rate of commercial aftermarket recovery. This guidance assumes a steady increase.

In commercial aftermarket revenue throughout fiscal 2022 with Q1 being the lowest in similar fashion, we anticipated EBITDA margins will move up throughout fiscal 2022, with Q1 being the lowest and sequentially lower than Q4.

As a final note. This margin guidance includes the unfavorable headwind of our recent Cobham acquisition of about 0.5%.

As a reminder, and consistent with past years with roughly 10% less working days than the subsequent quarters fiscal year 2022, Q1 revenues EBITDA EBITDA margins are anticipated to be lower than the other three quarters of fiscal year 2022.

We believe we are well positioned as we enter fiscal 'twenty two.

As usual, we will closely watch the aerospace and capital markets development and react accordingly.

Me conclude by stating that I am pleased with the Companys performance in this challenging time for the commercial aerospace industry and with our commitment to driving value for our stakeholders.

The commercial aerospace market recovery continues to progress and current trends are encouraging there is still uncertainty about the pace of the recovery, but the team remains focused on controlling what we can control we remain confident that in the fullness of time, the commercial aerospace market will return to pre pandemic levels, we look forward to <unk>.

22, and the opportunity to create value for our stakeholders through our consistent strategy.

Now, let me hand, it over to George to review, our recent performance and a few other items.

Good morning, everyone and thanks for the kind introduction, Kevin I'm glad to be speaking with all of you today and look forward to being on these calls in the future.

I'll start with our typical review of results by key market category for the remainder of the call I'll provide color commentary on a pro forma basis compared to the prior year period. In 2020 that is assuming we owned the same mix of businesses in both periods. This market discussion includes acquisition of Cobham.

On the Aero connectivity, we began to include Cobham in this market analysis discussion in the second quarter of fiscal 2021. This market discussion also removes the impact of any divestitures completed in fiscal 2021 in.

In the commercial market, which typically makes up close to 65% of our revenue we will split our discussion into OEM and aftermarket.

Our total commercial OEM revenue increased approximately 1% in Q4 and declined approximately 25% for full year fiscal 2021 compared with prior year periods bookings in the quarter were very strong compared to the same prior year period and solidly outpaced sales.

Sequentially, both Q4 revenue and bookings improved approximately 5% compared to Q3.

Although we expect demand for our commercial OEM products to continue to be reduced in the short term. We are encouraged by build rates gradually progressing at the commercial Oems recent commentary from Airbus and Boeing reiterated anticipated rate ramps or their narrow body platforms in the near future hopefully this.

This will play out as forecasted.

Now moving onto our commercial aftermarket business discussion.

<unk> commercial aftermarket revenue increased by approximately 41% in Q4 and declined approximately 18% for full year fiscal 2021, when compared with prior year periods.

Growth in commercial aftermarket revenue was primarily driven by increased demand in our passenger submarket, although all of our commercial aftermarket submarkets were up significantly compared to prior year Q4 sequentially.

Sequentially total commercial aftermarket revenues grew approximately 14% and bookings grew more than 25%.

Commercial aftermarket bookings are up significantly this quarter compared to the same prior year period, and Q4 bookings very solidly outpaced sales.

To touch on a few points of consideration global revenue passenger miles are still low but have been modestly improving throughout fiscal 2021, IATA recently forecast a 39% decrease in revenue passenger miles and calendar year 2022 compared to pre pandemic levels.

Within IATA is estimate is the expectation that domestic travel will be back to 93% of pre pandemic levels in calendar year 2022.

Though the pace of the recovery remains uncertain. We continue to believe there is pent up demand for travel as vaccine distribution expands and travel restrictions are rolled back passenger demand across the globe will increase the emergence and spread of Covid variance in other future evolutions may further complicate this.

Picture, but for now trends remain positive.

We see evidence of the pent up demand through the recovery in domestic travel.

Domestic air traffic trended upward throughout fiscal 2021.

Airlines also continued to see strength in bookings and strong demand for domestic travel, especially in the U S with Europe catching up.

China is currently a watch point with its recent drop off in air traffic.

The pace of the international Air traffic recovery has been slow and the international revenue passenger miles have only slightly recovered. However, vaccinations continue to increase globally and governments across the world are starting to reduce travel restrictions, which provides for optimism on the international air traffic recovery.

Cargo demand has recovered more quickly than commercial travel due to the loss of passenger belly cargo and the pickup in E. Commerce global cargo volumes continue to surpass pre COVID-19 levels and it is generally expected that air freight demand will likely remain robust into 2020.

Two.

Business jet utilization in certain regions rebounded to pre pandemic or better levels earlier this year and remains strong commentary from business jet Oems and operators has been encouraging with these higher levels of business jet activity may be here to stay the time will tell.

Now, let me speak about our defense market, which traditionally is at or below 35% of our total revenue.

The defense market revenue, which includes both OEM and aftermarket revenues grew by approximately 2% in Q4 and approximately 5% from full year fiscal 2020, when compared with prior year periods. This was in line with the expected revenue growth expectations, we provided for FIS.

<unk> 2021 of mid single digit percent range growth.

We continue to expect our defense business to expand due to the strength of our current order book.

As Kevin mentioned earlier as Kevin mentioned earlier, we expect low single digit percentage range growth in fiscal 2022 for our defense market revenues.

Lastly, I'd like to wrap up by stating how extremely pleased I am by our operational performance throughout this fiscal year that continue to be heavily impacted by the pandemic.

Our management and their teams remain diligent and focused on our value drivers and we'll continue to do so in this new fiscal year, we are ready to meet the demand as it returns.

With that I would like to turn it over to our Chief Financial Officer, Mike Lisman.

Morning, everyone I'm going to first quickly hit on profitability trends for the business then address a few additional financial matters for fiscal 'twenty, one and finally I'll provide some more detail on expectations for fiscal 'twenty two.

First in regard to profitability for fiscal 'twenty, one EBITDA as defined of about 636 million for Q4 was up 28% versus prior year Q4 on a full year basis EBITDA as defined was about 2.19 billion down 4% from the prior year.

EBITDA as defined margin in the quarter was approximately 49, 7%. This represents sequential improvement in our EBITDA as defined margin of almost 400 basis points versus Q3 of 'twenty one.

Moving on a few quick notes on the full 21 fiscal year I want to provide one quick M&A related data point that you might find helpful. For your financial models as we head into FY 'twenty two.

As you know we divested several businesses during 2021, all of which were sold out of continuing operations. As a result of the accounting treatment applied roughly $130 million of revenue and $25 million to $30 million of EBITDA as defined from these divested operating units remains in our FY 'twenty one results.

This revenue and EBITDA will obviously not carryover into FY 'twenty two.

On cash and liquidity, we ended the year with approximately $4 8 billion of cash on the balance sheet and our net debt to EBITDA ratio was seven times in the early days of October we repaid the $200 million revolver drawdown that we made at the onset of Covid back in April of 2020. This was done out of an abundance of caution at the time and we don't need the <unk>.

Cash so we've repaid it pro forma for the revolver pay down our cash balance is $4 6 billion.

Next on the FY 'twenty to expectations.

We arent, giving full guidance as Kevin mentioned, but we are providing guidance on select financial metrics, including the falling interest expense is expected to be about $1.08 billion in FY 'twenty two on taxes, our fiscal 'twenty, two GAAP and cash rates are anticipated to be in the range of 21% to 24% and the adjusted tax rate will be a few points.

Higher and in the range of 26% to 28%.

On the share count we expect our weighted average shares outstanding will increase by about 800000 shares to $59 2 million in FY 'twenty, two and that assumes no buybacks occur during the fiscal year.

Similar to prior years the increase in shares outstanding is due to employee stock options that vested at the end of our FY 'twenty one.

With regard to liquidity, we expect to continue running free cash flow positive throughout FY 'twenty two.

As we traditionally define our free cash flow from operations at Trans Dime, which as a reminder, is our EBITDA as defined less debt interest payments less capex less cash taxes. We expect this metric to be in the 1 billion area, maybe a little better in fiscal 'twenty two.

Assuming no M&A, no dividends or share repurchases and no additional debt capital markets activities. This free cash flow generation together with a higher EBITDA figure should the key should the Covid rebound continue will likely reduce our net debt to EBITDA ratio to something more like six times at the end of fiscal 'twenty two versus the.

Current seven times level.

Finally, one last note on the Dod Inspector General audit.

As we mentioned previously we've been actively engaged with the <unk> office with some ebbs and flows and this engagement is now complete and our best assessment and based upon what we saw this audit appeared to be similar in scope to prior audits.

While it's difficult to know exactly when a final report will be issued publicly we expect that this could happen any day now very likely during the first quarter of our fiscal 'twenty two.

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

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue press. The pound key our first question comes from the line of Noah <unk> from Goldman Sachs. Your question. Please.

Hi, good morning, everybody.

Good morning.

Could you spend a little bit more time on the 47% EBITDA as defined margin target for next year.

You know how do we bridge from the $49 seven exit rate of this year.

No, there's a little bit of seasonality, but if I look at all the data historically, its not that seasonal and it looks like youll be mixing up based on your.

End market growth rate comments.

It's possible that we could mix up it's possible that we're being conservative I think there were.

There was some good news that happened in Q4 in terms of market mix in our performance.

We're trying to be.

Be reasonable and transparent in what we see there's a lot of unknowns that have to come to pass in terms of the commercial aftermarket bookings for this to all.

Play out so that's the angle, we took and what we rolled up from our teams and think that it makes sense for US right now if it's conservative that'll be great. We would love to beat that.

Okay.

And then Mike on the cash flow.

Inputs for next year.

You have the working capital headwind this year, maybe just help us out with how that changes next year and then capex.

That number as a percentage of revenue is fairly high relative to where you've been historically whats behind that.

Sure. So first on the working capital you'll see when we publish the 10.

10-K later today I don't think you have the full cash flow detail, yet, but Ah did tick up a bit this quarter about $100 million went back into accounts receivable. We knew that was going to happen as a reminder, from peak to trough about $400 million came out of accounts receivable during COVID-19.

That's gonna have to go in as we go back in as we go through the rebound here. It did tick up this year over the past couple of quarters. As you know this last quarter was $100 million, that's going to continue into FY 'twenty. Two ultimately how much goes that goes back into they are and the pace at which that happens depends on the pace of the recovery, but we do expect it to be.

<unk> of cash on the order of at least 100 million Bucks.

Our FY 'twenty, two potentially more that'd be a good problem to have by the way I mean, if the commercial market to rebound and we have to invest more in <unk>. We're happy to do that we certainly we have the cash.

And then sorry. Your second question was on Capex I think we put out a range of $1 35 to $1 55 today. It is slightly higher on a percentage basis, it's tied to some onetime projects in some of our op units as you know our first use of cash is to go and deploy it into our own businesses to help them grow and we're just doing some of that with some large one time project.

Let the op units.

Thank you.

Thank you. Our next question comes from the line of Robert Stallard from vertical research. Your question. Please.

Thanks, so much and good morning.

Good morning, good morning.

Kevin first question have you seen any supply chain issues or labor issues this quarter.

George you want to take that sure. So we've started to see some of the pushing out of lead times from the supply chain, primarily focused on electronic components.

It's been spotty nothing too significant at this point, but in all likelihood this will get worse before it gets better.

And just a quick follow up on that maybe as you look at how this could pan out in 2022, if you build some sort of contingency full these issues into that to EBITDA margin guidance.

I don't think we have but this is part of the I guess conservatism. So we.

We we try to be conservative as we forecast going forward, we haven't specifically allotted anything to supply chain disruption, but I think it is part of our.

Belief that this could be.

An issue for us as we go forward as George mentioned, specifically on electronic components and those types of parts, we're seeing some supply difficulty.

Terms of inflationary pressures I think we'd all agree that we will look to pass those along as we always have we don't eat inflation.

In that regard.

Okay. That's great. Thank you Raj.

Thank you. Our next question comes from the line of Myles Walton from UBS. Your question. Please.

Thanks.

Maybe just a margin question again for a second Mike I think you mentioned the divestiture.

Still in the 'twenty one guidance it did it would be anniversarying in 'twenty two it looks like that alone is.

70 basis points of assistance on EBITDA margin so.

I mean, not to beat a dead horse here, but it sounds like there's a healthy amount of conservatism in the 47% unless you want to go on the margin Guide remember, we also bought cobham to which kind of counteract the divestitures the other way and canceled it out.

So I think that that kind of negate some of the impact that you mentioned and kind of I think I said it was a lot of half a percent drag too.

Yes, it was at 5% for the quarter or for the year.

I don't want to FY 'twenty two versus what it would've been had we not bought.

<unk> connectivity business.

And what was it in the quarter.

On the quarter I think it was about close to 1% just below a percent couple of tenths below.

Perfect and then within the aftermarket growth rate range of 20% to 30% Kevin is there.

Figure of merit that youre using to to ballpark that is that a sequential growth that's underlying instead of traffic growth.

Well I think with traffic growth related.

And I think we're counting on that largely being.

U S. A Europe related we'll have to see how it unpacks around the globe as you guys. All know we don't have geographical information along those lines, but.

We will continue to monitor this closely if the traffic patterns.

Come along like we believe they might.

Then the other 20% to 30% planning.

And I emphasize planning.

It's difficult to issue that as guidance when.

As you know our aftermarket bookings tend to be book and ship you don't have as much visibility. So this is for planning purposes, and you know every business will have a slightly different plan along those lines, but we tried to give you a roll up of the range.

That will be based I think largely on takeoff and landing activity.

Okay alright, thank you.

Thank you. Our next question comes from the line of Ken Herbert from RBC. Your question. Please.

Yeah, Hi, good morning.

I Wonder if I can follow up on the I wanted to follow up Kevin on the discussion on the commercial aftermarket I know your sequential growth has been a little lumpy over the last three quarters, but considering your comment on sort of book and ship and the bookings pace, how should we think about the sequential growth here into the the.

Fiscal first quarter.

'twenty two.

Well I think we are concerned about the first quarter only I guess concerned too strong of a word.

You know, we always see a normal dip in a sequential from Q4 to Q1, given the less days. So I think we were always concerned that the market doesn't.

Accurately predict that.

To give you some no reason to.

Believe in what we're saying and you know the bookings came out for Q4 very strong.

And we booked ahead of us.

Shipments that is encouraging for us clearly and means that we're setting ourselves up for a strong position into 'twenty, two but Q1 is always a little bit weaker because of seasonal performance.

Okay. That's helpful and again as we think about the up call. It 25% for your planning purposes for the aftermarket for the year what are your assumptions on travel say and takeoffs and landings in Asia or in international markets. I know you don't have great visibility internationally, but are you are you in.

Dissipating a significant recovery in these numbers and international I'm, just trying to get at some of the puts and takes in that 20% to 30% planning range.

And you've really zeroed in on why we struggled to give guidance on these numbers because I don't have that visibility I don't understand where it's going to come from this is this comes as a roll up from all of our teams who tell us what they think they see happening in the marketplace based on what the customers are telling them.

It is not a it's not so easy for me to predict by region.

By platform.

So we don't and that's why I'm, giving you some planning guidance that what we're planning on should happen, but how it actually.

Gets to us we don't.

So clear where the orders are and where the shipments are and therefore, what traffic needs to look like and is the.

The recovery in China does that happen.

What we're counting on is a consistent steady recovery like what we've seen.

That should give us these kinds of aftermarket improvement numbers.

Great well, thank you very much.

Sure.

Thank you. Our next question comes from the line of Cristina <unk> from Morgan Stanley. Your question. Please.

Hey, good morning, guys.

Good morning, good morning.

Kevin and Mike.

This is a free cash flow positive even at the depths of Covid and considering the defensibility of the business model. How are you thinking about maximum leverage to the balance sheet can support versus what you would've thought pre COVID-19 and can you discuss your appetite for large versus small deal.

Sure on leverage.

Don't anticipate any kind of change if you went back to the pre COVID-19 two year period and averaged.

The quarterly.

Net debt to EBITDA levels, you get about six times almost exactly we're comfortable operating at that level some of the.

Debt Incurrence test and other things in our credit agreement are based off operating at that level and we're comfortable with it if anything this pandemic. As you said has kind of proven that the business is very durable from a free cash flow standpoint, and can probably sustain more leverage than that historical level, we've run of that but we do want to keep some firepower for.

For M&A at all times, including large deals moving onto the second part of your question large deals as Kevin mentioned, we're more active now on the M&A side of the small to mid size range.

But there are also obviously some large potential transactions that we track from time to time, both on the strategic side, but then also big divestitures that could maybe come out of.

Some of the peers of ours in the aerospace industry. So we're always always looking and always on the on the hunt as you know whether it's larger small where we're targeting M&A of all sizes from kind of the really low teen range below $100 million up to a couple of billion.

I see and if I could do a follow up I mean looking at the Esterline deal you found.

Some jewels in there and you also divested some businesses that may not have necessarily fit the trends by model. What do you think about the opportunities for large deals.

What kind of threshold are you looking at in terms of what you want to keep versus what you want a diverse in terms of your appetite for pursuing some of these large deals that may not be 100% Transcon E. Yes.

Yes, it's hard to put an exact percentage on something like that ultimately it depends on the on sale risk right. If there was something where it was maybe 50 50 and you had someone who wanted to buy the other <unk>.

50%, that's a different situation than.

Esterline, where we sold roughly a quarter of it so hard to answer that question, but you know obviously the esterline transaction proved to us that we can go in.

By something Thats.

Not 100% fit the day, we own it but then execute on M&A in the year or two post deal close to shape it down to the portfolio that we want to own forever and long term. So we do look at M&A situations like that.

Going forward.

Thanks for the color.

Okay.

Thank you. Our next question comes from the line of David Strauss from Barclays. Your question. Please.

Okay.

Hello.

David phone on mute.

Sorry about that can you hear me now.

Yes.

Okay, great. Thanks.

So Kevin I appreciate the color there on on Maggie just wanted to ask you about.

You know the the fact that you were willing to entertain the idea of.

Potentially getting involved in Baghdad, given what appears to be pretty pretty high valuations.

Does that say about kind of the pipeline the ability to find large arrow deals for you guys from here.

Well the at the end of the day the market says what our property is worth and it's up to us to follow.

What the market says we have to pay.

We are looking for highly engineered proprietary aerospace products that have aftermarket access the size of those businesses doesn't matter as much as we want to identify those and get them into the fold. We believe that we can invest in those businesses and make them stronger.

We're not looking for bigger and bigger deals you know our target is to acquire $50 million to $100 million a year, that's what works and our model allows us to keep generating.

The kinds of value returns that we do well.

We're not getting overly fixated on doing a large deal.

But when they come along we certainly look at them, we evaluate them and the ones that we've.

<unk> proceeded with I think we've done pretty well.

The market looks it's definitely picking up in activity and you know, it's always hard to predict when a close will happen, but we're seeing some interesting activity right now and it's encouraging.

Okay. Thanks for that and just talk.

Talk about where you are today from a head count perspective.

How much you think you've taken you've taken out kind of in structural costs through this and where you think you ultimately need to take head count back too.

You know kind of assuming we get back to pre pandemic levels for your business.

Call It 2023.

Yeah, I don't have the numbers in front of me George can comment on that but I think we are very disciplined in our approach to adding back and.

That is one of the hallmarks of our operations discipline.

George do you want to expand on that I would add the team said.

<unk> done a lot of heavy lifting in terms of restructuring and productivity focus the last 12 months, we're pretty comfortable with the resource level that we currently have.

As most of you would know as the commercial aftermarket rebounds, that's not as heavy in terms of labor requirements or resource requirements.

So I think I'm pretty comfortable of where the teams are out they've done a great job.

And now we just need the market to recover.

Alright, thanks very much.

Yeah.

Operator.

Thank you.

Ladies and gentlemen, if you have a question at this time. Please press Star then one our next question comes from line of steps taken from J P. Morgan Your question. Please.

Okay. Thanks.

Thanks, very much good morning.

Morning.

I was wondering are there any.

And market.

I heard the comments about the expectations for.

For the coming year, it kind of just certainly expect the growth to pick up there, but just in terms of thinking about the phasing of growth at trans Diamond how that relates to where we are in the in the build cycle.

We're starting to see some at some other companies some OE.

It's kind of happening already as Boeing and Airbus have picked up especially on that narrow body rates kind of ahead of that growth.

And then certainly on kind of.

On the business jet side and it looks like you guys were kind of low single digit or flattish on both of those guys.

Both sides of that so how do you think about that.

Trajectory, there and how you're going to sort of relate to the progress.

Build rates.

Yeah in general we found that the Oems and the tier ones were a little bit slow to respond in a mid mid year 2020 as the pandemic.

Was ramping up so we believe there is some natural inventory destocking continuing to go on.

The orders are starting to come in as I mentioned, the bookings were up in the commercial OE in Q4, so that's a positive indicator.

I don't have the details in terms of how it lays in across fiscal year 2022, but we don't think theres any significant issue. There. It's just the timing and the lag of the Oems shutting off the valve. If you will on the supply in 2020 and now as they continue to ramp up in production.

Okay. Thanks, and then just as a quick follow up in the defense end market I think last year you guys ended up towards towards the higher end of that initial range that you gave is there anything to be aware of for this year that might determine either on the.

The plus side or the minus side, where things are.

And up in defense.

No I think the guidance that we provided is reasonable as you guys might know and remember the defense markets in general have been very strong over the past two to three years.

Can be lumpy in nature in terms of the bookings.

So I think the guidance that we're providing is within a reasonable range.

Great. Thanks very much.

Thank you.

Our next question comes from the line of Peter <unk> from True Securities. Your question. Please.

Hey, Good morning. This is Pete on for much more thanks for taking my questions.

I first had a question on the aftermarket have there been any product categories that have been particularly strong or weak and I'm just wondering what you've been seeing on.

Airline spending priorities and then also what youre seeing in the pricing environment and aftermarket.

Yeah, I think in general.

Our passenger Submarket, which is our largest sub market has been strong as well as the cargo as I noted in Q4 and sequentially ramped up across 2021, I don't think we have any data that would pointed to a specific type of product or application.

Generally the airlines are starting to increase their flight schedules, which is positive.

And they're ordering spares based on needs.

Alright. Thank you and then just to follow up on financial guidance. Just wondering what are the key improvements or catalysts that you might be looking for in the coming periods in the overall market.

Confidence in the visibility to provide full financial guidance.

I think it's.

<unk> market recovery.

International markets people flying again on an international scale and continued.

Domestic travel.

No that business travel isn't a huge percentage of overall flights, but still very important to airlines in how they.

Gear up their fleets in capacitors so.

This is what we'd be looking at us.

<unk>.

And continued international flight activity.

More domestic recovery in other pockets around the world to look more similar to where the U S is which is very close within 10% to 20% of what it was pre COVID-19. So I think those are the things we're looking at and there's still a lot of unknowns you see the.

China's traffic activity bounce around quite a bit every couple of months Theyre shutting down and then coming back. These are the things that don't give us.

The confidence to give guidance, but we know that the market continues to improve and move forward at a steady rate.

Does that answer your question.

Yes. It does thank you for taking the question.

Sure.

Thank you. Our next question comes from the line of Sheila KLM KLM from Jefferies. Your question. Please.

Hey, good morning, guys and thanks for the time.

Maybe I'll start off on no EBITDA profitability going forward just in the absence of any major M&A I'm pretty good performance in the quarter.

How do we think about medium term EBITDA profitability.

Thank you for something new level, and then if you could just comment on expectations for free cash flow conversion.

Yeah, I don't think we want to get in.

And provide any long term guidance I think generally just from our analyst day, and if we execute on the value drivers.

EBITA margin to transpire should improve by about one percentage point per year as we come out of Covid. There is a potential that that gets kind of mixed up a bit and maybe you do better if your mix more towards commercial aftermarket, but over a long span of several years. It should continue to approve improve for the base business absent M&A by.

A percentage point per year.

Okay Cool and then I wanted to follow up on Ben's question earlier, you mentioned the IGT.

I came to a close which is a big accomplishment now was there any impact to defence during that time and then as your peers have had softer defense volumes are there certain areas that you're watching them.

Just as a cautionary I think of that.

I think theres a potential for some disruption on the <unk> side as the report comes out just with.

You know the government purchasing maybe slowing down a little bit we did see some of that in the past, but remember of the defense bucket the direct to government.

Isn't all that significant right. We also sell more product internationally into tier ones. So it doesn't comprise all of that bucket, but we do potentially expect some some slowdown as the report comes out here.

It's possible.

But we anticipate.

Similar process too.

Or a similar conclusions to last time, we will see as a we're still in the dark on the XE reports and some of its details.

We've had a very cooperative I think.

Work.

Process going on with the IAG and the Dod and I think we're in a good place but.

<unk> to get the report issued and move on with business.

Okay. Thank you.

Thank you. Our next question comes from the line of Matt Akers from Wells Fargo. Your question. Please.

Yeah, Hey, good morning, Thanks for the question.

I don't think the commercial aftermarket do you think that there is still sort of a pent up demand there for maintenance like the.

Airlines are sort of deferred stuff during COVID-19 and now we've got a catch up or are we sort of.

Sort of behind Us at this point.

Yes, I mean, I think theres been speculation out there in terms of the airlines trying to prioritize certain maintenance activities.

It's hard for us to know, we don't get visibility on the inventory levels at the Airlines I think just the general improvement in the marketplace.

And more planes flying have led to some of the improvements we've seen across the whole fiscal year of 2021.

And as Kevin and Mike noted, we again expect some sequential improvement from quarter to quarter as we go through fiscal year 2022.

Got it okay, and I guess I mean.

The higher fuel prices.

I mean are your customers talking about that is it.

They sort of have this large parked fleet and as they decide whether they want to keep flying those as that higher fuel price factor into that decision that you've heard or is that not really come up.

I don't I don't think we've heard anything specific to decisions the airlines might be making regarding the higher fuel costs.

I haven't heard anything from our teams.

Got it okay. Thanks.

Okay.

Yeah.

Thank you. Our next question comes from the line that is a follow up from Noah <unk> from Goldman Sachs. Your question. Please.

Kevin your comment that we should not be looking for share repurchase or a special dividend in the next quarter.

Can we interpret that to mean, you see a reasonable likelihood of acquisition activity in that period of time and then if that doesn't play out you know how how quickly do you start to consider share repurchase or a special dividend.

We can't speculate on when acquisitions will happen.

We always and this goes back to what I said earlier in the uses of capital fund your own internal investment in payback.

Look for acquisitions, and then of course.

Look to get that cash back.

We will look to do that of course in the appropriate process that we always go through.

We can't speculate on when acquisitions, what might come along or not.

We just know that right now from paying out a dividend or buying back shares we're still in a little bit of a wait.

Until next quarter.

Okay.

That makes sense, yeah, yeah, I just wasn't sure how specific that was versus taking it quarter by quarter.

Uh huh.

Yeah, I think next quarter or is it a decision point for us.

Okay.

Makes sense and then the commentary on bookings ahead of shipments.

By end market do you happen to have the numbers on you know exactly where the book to Bill is by end market in the quarter and year.

No I don't I don't have the exact numbers.

Okay no problem. Thank you.

Thank you. Our next question comes from the line of custom cut out from Cowen and company. Your question. Please.

Hi, yes. Thank you just to follow up on.

Couple of questions No one last one here.

On the book to Bill in the aftermarket it looks like you're three quarters the test well.

Bookings ahead of shipments and so on.

Two questions related to that one.

Our all shipments at some point booked therefore, the book to Bill is actually a relevant metric and second.

What's going on there it looks like you've been creating backlog.

Curious like is that what's happening there youre seeing orders for delivery.

Customers want the product, but not immediately is that like is there a duration stretched to the backlog that you're seeing in the aftermarket.

That's right.

Aftermarket orders.

Yes.

For more immediate shipments.

But that doesn't mean, they're all due tomorrow. So there is still a little bit of a range over when these things are do that's why it bleeds over a quarter to quarter in general I think we're optimistic because we see bookings continue to improve and that means.

In aftermarket as we go forward and why we're planning on 20% to 30%.

Possible aftermarket growth.

Fair enough and just to that point, so youre actually probably seen.

Some visibility beyond the December quarter in terms of shipments at this point of the aftermarket is that unusual.

Yeah.

Fair comment.

I don't think it's unusual.

In a steady state we have airlines and distribution partners that we'll book.

Some near term and also give us and the teams some visibility on mid and longer term needs.

Okay.

But every booking every shipment ultimately had a booking correct, yes that is okay. Okay fair enough.

Just want to make sure on the nomenclature and then the other thing just to follow up on the earlier question.

Supply chain did it actually impedes your ability to deliver some sales did you leave some sales on the table as their delinquencies and if so can.

Can you quantify.

How much of an offer to catch up opportunity that might be in fiscal 'twenty two.

Yeah, I would say there was nothing material.

In terms of what was left at the dock. If you will you know there is some noise here and there are a couple of operating units.

But I don't think it provides a.

Big tailwind as we go into FY 'twenty two.

Okay and last one I'm sorry, I think George you May have mentioned the ending next year at.

Roughly at six times net debt to EBITDA.

With 1 billion of free cash so the math is somewhere around $2 4 billion of adjusted EBITDA on that basis is that what you were trying to convey or.

Or we did nothing wrong or not given guidance on the denominator there were simply.

Rough sense for the deleveraging by about a turn per year, but if youre trying to dial in and back into the EBITDA guide or something where don't do it because youre not going to get it at the right staff.

The way we look at this is when the orders come in.

Deliver them quicker and more reliably than anyone and we will generate.

The returns and value generation were used too you're used to Ah.

There's no company you can count on to do that more reliably than us.

Yes, we're just trying to communicate that there is always puts and takes in lumps in this business.

I appreciate it guys. Thank you.

Sure.

Our next question comes from the line of Hunter Kay from Wolfe Research. Your question. Please.

Hey, Thanks, just a couple of quick ones for you Mike. The first one is how much are you budgeting internally for transient business travel spend next year relative to pre COVID-19.

We're stepping up a little bit, but not quite to pre COVID-19 levels I don't have the exact stats in front of me, but it's not quite back to 19 levels, but it's more than 20 for the most part all of our folks here are back to traveling whether it's M&A people pounding the pavement looking for deals or internal audit folks going out to op unit.

To do their work, we're not holding back at all here, it's pretty much.

We will go where we'd typically be but it is slightly reduced head count levels, yes business as usual, but.

Some of our customers maybe are yet receiving us, but certainly within the company we are back to normal yeah, yeah. Okay.

Thanks, and then you mentioned a couple a couple.

A couple of projects on the Capex line, driving a little bit of higher spend what are they or what what business lines as defenses interiors is around freight.

I'm, just not going to give too much away, but what are the nature of these projects.

Generally we don't give that kind of detail I could say.

As we continued to adjust our resource levels that puts additional pressures on increasing production rates. So we've got a few teams.

Investing in new technologies for automation projects.

Projects, and then a handful of other projects across the ranch.

But the lion's share of this is productivity and new business related.

It is not.

Sure nice to haves kind of stuff, we were investing for payback and return and that that at the end of the day is the most important part of what we evaluate is or what returns are we expecting as we invest a little more or less we have to make sure we're still capturing those returns.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Elizabeth Grenfell from Bank of America. Your question. Please.

Hi, good morning.

Youre asking.

I think I'm not sure if your comments and your expectations for aftermarket next year, how are you thinking about retirements.

With regards to that expectation.

We're not as the teams put together their individual plans.

We're not projecting a significant impact as a result of retirements in 2022, yeah. As you know retirements have been very slow and I think that has something to do with the stability of OEM supply.

And.

A ramp up in demand that doesn't allow retirements.

Yeah, we are.

I think that answers the question.

Okay, great. Thank you very much.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Jimmy Steve for any further remarks.

Thank you all for joining US today. This concludes today's call. We appreciate your time have a good day.

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