Q3 2023 TransDigm Group Incorporated Earnings Call

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Speaker 1: Good day and thank you for standing by. Welcome to the Tristan Cure 3, 2023 earnings conference call. At this time, all participants are in the listen only mode. After speaker's presentation, there will be a question and answers session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advised in that your hand is raised.

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Good day, and thank you for standing by welcome to the <unk>.

Q3, 2023 earnings conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

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Speaker 2: that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Jamie. Please go ahead.

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That today's conference is being recorded I would now like to hand, the conference over to your speaker today, Jamie. Please go ahead.

Speaker 3: Thank you and welcome to TransDime's fiscal 2023 third quarter earnings conference call. Presenting on the call this morning are TransDime's President and Chief Executive Officer Kevin Stein, Co-Chief Operating Officer Joel Reif, and Chief Financial Officer Sarah Winn. Also present for the call today is our Co-Chief Operating Officer Mike Lisman. Please visit our website at transdime.com to obtain a supplemental slide deck and call replay information. Thank you.

Thank you and welcome to <unk> fiscal 2023 third quarter earnings conference call presenting on the call. This morning are transdermal, President and Chief Executive offer Officer, Kevin Stein Co Chief operating Officer, Joe <unk>, and Chief Financial Officer, Sarah Wynne also present for the call today.

Our co Chief operating officer, Mike Lisman. Please visit our website at <unk> dot com to obtain a supplemental slide deck and call replay information.

Speaker 3: 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 statement, please refer to the company's latest filings with the SEC available through the Investor section of our website or at sec.gov.

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

Speaker 3: The company would also like to advise you that during the course of the call, we will be referring to EBIDA, specifically EBIDA as defined, adjusted net income, and adjusted earnings per se 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.

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 reconciliations I will now turn the call over to Kevin.

Speaker 4: Good morning, thanks for calling in today. First, I'll start off with the usual quick overview of our strategy, a few comments about the quarter and discuss our fiscal 23 outlook. Then Joel and Sarah will give additional color on the quarter. As we previously announced on May 26th, we made three significant organizational changes this quarter.

Good morning, Thanks for calling in today first I'll start off with the usual quick overview of our strategy a few comments about the quarter and discuss our fiscal 'twenty three outlook.

Joel and Sarah will give additional color on the quarter.

We previously announced on May 26, we made three significant organizational changes this quarter.

Speaker 4: George Valaderos will retire at the end of transimes 2023 fiscal year. George has served as transimes COO for the past four years. His prior rules include COO, Executive Vice President, and President of Three Transnimes operating.

George valid Darris will retire at the end of Trans times 2023 fiscal year, Georgia served as transparent C. O for the past four years. His prior roles include co C O O executive Vice President and President of three Trans name operating units.

Speaker 4: George will aid in the transition of his role to the new co-COOs Mike Lisman and Joel Reese until his retirement date. George also joined Transnime Board of Directors as of May 26.

George will aid in the transition of his role to the new co Ceos, Mike Lisman and Joel reach until his retirement date.

George also joined Trans now on board.

Speaker 4: George has been with the company more than 25 years and has been an integral part of the long-term value creation of TransDem and a key player in the cultural preservation of the company. George has done a truly outstanding job and we sincerely thank him for his dedication. We are happy to have George continue contributing to the growth of TransDem as a member of the company's board.

Directors as of May 26.

George has been with the company more than 25 years that he's been an integral part of the long term value creation transcon and a key player in the cultural preservation of the company George has done a truly outstanding job and we sincerely thank him for his dedication.

We are happy to have George continue.

Speaker 4: Mike Lisman and Jewel Reese have assumed the roles of co-COOs. Mike served as Transdime's CFO for the past five years prior to becoming CFO . He worked at our Aerofluid Products Operating Unit and on the M&A team at Transdime.

Contributing to the growth of Trans name as a member of the company's board.

Mike Lisman in jewelry I have assumed the rules of <unk>, Mike served as <unk> CFO for the past five years prior to becoming CFO . He worked at our Aero fluid products operating unit and on the M&A team at transact.

Speaker 4: Joel is a long-term, long-time employee at TransDong, having joined the company in 2000. He was an executive vice president for the last eight years. Prior to that, Joel served as president at two different trans-nime operating units, Hartwell and Skurka Aerospace. Before becoming a president, Joel was the director of operations at our Adams right operating unit.

Joel is a long term long time employee of Transcon, having joined the company in 2000. He was an executive Vice President for the last eight years prior to that dual served as president of two different trends and I'm operating units Hartwell and Skurka aerospace before becoming a president role as the director of operations.

Speaker 4: Sarah Wynn has assumed the rule of CFO after having served as transdimes chief accounting officer for the past five years. Sarah has been with the company for 20 years.

<unk> at our Adams Rite operating unit.

Sara Wang has assumed the role of CFO after having served as transparent as chief accounting officer for the past five years, Sarah has been with the company for 20 years.

Speaker 4: And before becoming trans-dimes chief accounting officer, she was a group control or overseeing the financial reporting of several operating units.

And before becoming Trans names Chief Accounting Officer. She was a group controller overseeing the financial reporting of several operating units prior to that zero is the controller at our Aero fluid products operating unit and held various accounting positions in the transparent corporate office.

Speaker 4: Prior to that, Sarah was the controller at her Aerofluid Products Operating Unit and held various accounting positions in the trans-Nyme corporate office.

Speaker 4: Mike, Joel, and Sarah bring a unique mix of experience and a broad range of aerospace businesses to their new roles. They are all experienced TransDime executives with proven track records. We are very excited to promote internally developed long-tenured employees to each of these roles to perpetuate TransDime's unique culture. I'm confident that they will continue to create the kind of value that has been the long-term hallmark of TransDime.

Mike Joel and Sarah bring a unique mix of experience and a broad range of aerospace businesses to their new rules. They are all experienced transient executives with proven track records. We are very excited to promote internally developed long tenured employees to each of these rules to.

<unk> unique culture I am confident that they will continue to create the kind of value that has been the long term hallmark of transplant.

Speaker 4: Now moving on to the business of today. To reiterate, we believe we are unique in the industry in both the consistency of our strategy in good times and bad, as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. To summarize, here are some of the reasons

Now moving on to the business of today to reiterate we believe we are unique in the industry in both the consistency of our strategy in good times and bad as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle.

Speaker 4: About 90% of our net sales are generated by unique proprietary products. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the down to-

To summarize here are some of the reasons why we believe this.

About 90% of our net sales are generated by unique proprietary products. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns.

Speaker 4: We follow a consistent long-term strategy, specifically. First, we own and operate proprietary aerospace businesses with significant aftermarket funds.

We follow a consistent long term strategy specifically.

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

Speaker 4: Second, we utilize a simple, well proven value-based operating methodology.

Second we utilize a simple well proven value based operating methodology third we have a decentralized organizational structure and unique compensation system closely aligned with shareholders fourth we acquire businesses that fit this strategy and where we see a clear path to PE like returns and lastly.

Speaker 4: Third, we have a decentralized organizational structure and unique compensation system closely aligned with Cheryl.

Speaker 4: Fourth, we acquire businesses that fit this strategy and where we see a clear path to PE-like returns. And lastly, our capital structure and allocations are a key part of our value creation methodology.

Our capital structure and allocations are a key part of our value creation methodology.

Speaker 4: Our shareholders' private equity-like returns with a 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.

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.

Speaker 4: As you saw from our earnings release, we had a solid quarter. Our Q3 total revenue was strong, and we had a robust EBITDA as defined margin for the quarter. Additionally, we once again raised our guidance for the year. We continue to see recovery in the commercial aerospace market, and trends are still favorable as demand for travel remains high. Global domestic air traffic continues to lead the recovery and has surpassed pre-pandemic levels.

As you saw from our earnings release, we had a solid quarter. Our Q3 total revenue was strong and we had a robust EBITDA as defined margin for the quarter. Additionally, we once again raised our guidance for the year.

We continue to see recovery in the commercial aerospace market and trends are still favorable as demand for travel remains high global domestic air traffic continues to lead the recovery and has surpassed pre pandemic levels.

Speaker 4: International travel is also making progress and catching up to domestic traffic.

International travel is also making progress in catching up to domestic travel.

Speaker 4: However, total air travel demand remains slightly below pre-COVID levels. There is still progress to be made for the industry. And our results continue to be adversely affected in comparison to pre-pandemic levels.

However, total air travel demand remains slightly below pre COVID-19 levels. There is still progress to be made for the industry and our results continued to be adversely affected in comparison to pre pandemic levels in.

Speaker 4: In our business, during the quarter, we saw healthy growth in our revenues and bookings for all three of our major market channels, commercial OEM, commercial aftermarket and defense.

In our business during the quarter, we saw a healthy growth in our revenues and bookings for all three of our major market channels commercial OEM commercial aftermarket and defense.

Speaker 4: Revenues also sequentially improved in all three of these market channels.

Revenues also sequentially improved in all three of these market channels.

Speaker 4: EBITDA has defined margin improved to 52.5% in the quarter. Contributing to the strong margin is the continued recovery on our commercial aftermarket revenues, along with diligent focus on our operating strategy.

EBITDA as defined margin improved to 52, 5% in the quarter contributing to this strong margin is the continued recovery on our commercial aftermarket revenues along with diligent focus on our operating strategy.

Speaker 4: Additionally, we had good operating cash flow generation in Q3 of over 400 million and ended the quarter with close to 3.1 billion of cash. We expect to continue generating additional cash in our final quarter of fiscal 2023.

Additionally, we had good operating cash flow generation in Q3 of over $400 million and ended the quarter with close to $3 1 billion of cash we expect to continue generating additional cash in our final quarter of fiscal 2023.

Speaker 4: Next, an update on our Capital Allocation Activities and Priorities. Regarding the current M&A pipeline, we continue to actively look for M&A opportunities that fit our model. As we look out over the next 20-

Next an update on our capital allocation activities and priorities regarding the current M&A pipeline. We continue to actively look for M&A opportunities that fit our model.

As we look out over the next 12 to 18 months.

Speaker 4: As usual, the potential targets are mostly in the small and mid-side.

Okay.

As usual the potential targets are mostly in the small and mid sized.

Speaker 4: comment on possible closings, but we remain confident that there is a long runway for acquisitions that fit our portfolio. The capital allocation priorities at TransDime are unchanged. Our first priority is to reinvest in our business. Second, do accretive, disciplined M&A. And third, return capital to our shareholders via share buybacks or dividends.

Comment on possible closings, but we remain confident that there is a long runway for acquisitions that fit our portfolio the.

Our capital allocation priorities of Trans time are unchanged. Our first priority is to reinvest in our business second do accretive disciplined M&A and third return capital to our shareholders via share buybacks or dividends.

Speaker 4: A fourth option paying down debt seems unlikely at this time, though we do still take this into consideration. We are continually evaluating all of our capital allocation options.

A fourth option paying down debt seems unlikely at this time, though we do still take this into consideration we are continually evaluating all of our capital allocation options.

Speaker 4: but both M&A and capital markets are always difficult to predict. We continue to maintain significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future.

But both M&A and capital markets are always difficult to predict.

We continue to maintain significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future Cerro Verde will provide further commentary on our capital allocation during her prepared remarks moves.

Speaker 4: Sarah will provide further commentary on our capital allocation during her prepared remarks. Moving to our outlook for...

Speaker 4: As noted in our earnings release, we are increasing our full fiscal year 23 sales in EBITDA's defined guidance to reflect our strong third quarter results and our current expectations for the remainder of the year.

Moving to our outlook for fiscal 'twenty three.

Noted in our earnings release, we are increasing our full fiscal year 'twenty three sales and EBITDA as defined guidance to reflect our strong third quarter results and our current expectations for the remainder of the year at.

Speaker 4: At the midpoint, sales guidance was raised $100 million and EBITDA's defined guidance was raised $105 million.

At the midpoint sales guidance was raised a $100 million and EBITDA as defined guidance was raised $105 million.

Speaker 4: The guidance assumes the continued recovery in our primary commercial end markets throughout the remainder of fiscal 23 and no additional acquisitions or divest.

Guidance assumes the continued recovery in our primary commercial end markets throughout the remainder of fiscal 'twenty, three and no additional acquisitions or divestitures. Our current year guidance is as follows and can also be found on slide six in the presentation. The midpoint of our revenue guidance is now $6.

Speaker 4: Our current year guidance is as follows and can also be found on slide six in the presentation. The midpoint of our revenue guidance is now $6.555 billion or up approximately 21% versus fiscal 22.

555 billion or up approximately 21% versus fiscal 'twenty two.

Speaker 4: In regards to the market channel growth rate assumptions that this revenue guidance is based on, for the commercial aftermarket and the fence market, we are updating the full year growth rate assumptions as a result of our strong third quarter results

In regards to the market channel growth rate assumptions, but this revenue guidance is based on for the commercial aftermarket and defense market. We are updating the full year growth rate assumptions as a result of our strong third quarter results and current expectations for the remainder of the fiscal year.

Speaker 4: We now expect commercial aftermarket revenue growth for fiscal 23 to be in the low 30% range, which is an increase from our previous guidance range of 25 to 30%.

We now expect commercial aftermarket revenue growth for fiscal 'twenty three to be in the low 30% range, which is an increase from our previous guidance range of 25% to 30%. The commercial aftermarket has been progressing well in our fiscal 'twenty three and we plan for that to continue through Q4 in <unk>.

Speaker 4: The commercial aftermarket has been progressing well in our fiscal 23.

Speaker 4: and we plan for that to continue through Q4 and beyond.

Speaker 4: However, we aim to be conservative with this guidance as the commercial aftermarket is harder to predict with many orders being book and ship and the advanced bookings only going out a few months or so into the future.

Beyond.

However, we aim to be conservative with this guidance as the commercial aftermarket is harder to predict with many orders being book and ship in the advanced bookings only going out a few months or so into the future.

Speaker 4: For defense, we now expect revenue growth in the mid to high single digit percentage range. This is an increase from our previous guidance of low to mid single digit percentage.

For defense, we now expect revenue growth in the mid to high single digit percentage range. This is an increase from our previous guidance of low to mid single digit percentage range.

Speaker 4: Commercial OEM revenue guidance is still based on our previously issued market channel growth rate assumptions. We are not updating the full year market channel growth rate for commercial OEM, as underlying market fundamentals have not meaningfully changed. We continue to expect commercial OEM revenue growth in the 20 to 25% rate.

Commercial OEM revenue guidance is still based on our previously issued market channel growth rate assumptions, we are not updating the full year market channel growth rate for commercial OEM.

The underlying market fundamentals have not meaningfully changed we continue to expect commercial OEM revenue growth in the 20% to 25% range the.

Speaker 4: The midpoint of our EBITDA as defined guidance is now $3.365 billion or up approximately 27%, with an expected margin of around 51.3%. This guidance includes about 50 basis points of margin dilution from the DART aerospace acquisition and about 50 basis points of margin dilution from the recent CALS ban acquisition.

The midpoint of our EBITDA as defined guidance is now 3336 $5 billion or up approximately.

Approximately 21, 27% with unexpected margin of around 51, 3%.

This guidance includes about 50 basis points of margin dilution from the Dart Aerospace acquisition.

And about 50 basis points of margin dilution from the recent Cal span acquisition.

Speaker 4: The pro forma margin dilution from CALSPAN, meaning if we had owned CALSPAN for all of our fiscal year 23, is just over 100 basis points.

The pro forma margin dilution from Cal span, meaning if we had owned <unk> for all of our fiscal year 'twenty. Three is just over 100 basis points.

Speaker 4: The midpoint of our adjusted EPS is increasing primarily due to the higher EBITDA as defined guidance and now anticipated to be $25.15 or up approximately 47%. Sarah will discuss in more detail shortly some other fiscal 23 financial assumptions and updates.

The midpoint of our adjusted EPS is increasing primarily due to the higher EBITDA as defined guidance and are now anticipated to be $25.15 or up approximately 47%.

Sarah will discuss in more detail shortly some other fiscal 'twenty three financial assumptions and updates.

Speaker 4: We believe we are well positioned for the last quarter of our fiscal 23. We will continue to closely watch how the aerospace and capital markets continue to develop and react accordingly. Let me conclude by stating that I'm very pleased with the company's performance this quarter and throughout this recovery of the commercial aerospace industry. We remain focused on our value drivers, cost structure and operational

We believe we are well positioned for the last quarter of our fiscal 'twenty. Three we will continue to closely watch how the aerospace and capital markets continue to develop and react accordingly, let.

Let me conclude by stating that I'm very pleased with the company's performance this quarter and throughout this recovery of the commercial aerospace industry. We.

We remain focused on our value drivers cost structure and operational excellence now, let me hand, it over to Joel to review, our recent performance and a few other items.

Speaker 4: Now let me hand it over to Joel to review our recent performance and a few other items.

Speaker 4: Thanks, Kevin, and good morning, everyone. I'll start with our typical review of results by key market category. For the balance of the call, I'll provide commentary on a pro-form of basis compared to the prior year period in 2022. That is, assuming we own the same mix of businesses in both periods.

Thanks, Kevin and good morning, everyone I'll start with our typical review of results by key market category.

For the balance of the call I'll provide commentary on a pro forma basis compared to the prior year period in 2022 that is assuming we own the same mix of businesses in both periods.

Speaker 4: The May 2023 acquisition of Cowspan Corporation is excluded from this market discussion.

<unk> 2023 acquisition of Couse Bancorporation is excluded from this market discussion.

Speaker 4: 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 25% in Q3 compared with the prior year period. Sequentially, total commercial OEM revenues grew by about 4% compared to Q2.

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 25% in Q3 compared with the prior year period sequentially.

Total commercial OEM revenues grew by about 4% compared to Q2.

Speaker 4: bookings in the quarter were robust compared to the same prior year period and significantly outpace sale.

Bookings in the quarter were robust compared to the same prior year period and significantly outpaced sales. We are encouraged by the increasing commercial OEM production rates and airline demand for new aircraft.

Speaker 4: We are encouraged by the increasing commercial OEM production rates and airline demand for new aircraft.

Speaker 4: OEM supply chain and labor challenges still persist, but appear to be making steady progress.

OEM supply chain and labor challenges still persist, but appear to be making steady progress while risks remain towards achieving the ramp up across the broader aerospace sector. We are cautiously optimistic that our operating units are well positioned to support the higher production targets now.

Speaker 4: While risk remains towards achieving the ramp up across the broader aerospace sector, we are cautiously optimistic that our operating units are well positioned to support the higher production target.

Speaker 4: Now, moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 32% in Q3 when compared with a prior year period.

Moving on to our commercial aftermarket business discussion total commercial aftermarket revenue increased by approximately 32% in Q3, when compared with the prior year period.

Speaker 4: Growth in commercial aftermarket revenue was primarily driven by the continued strength in our passenger submarket, which is our largest submarket. Although all of our commercial aftermarket submarkets were up significantly compared to prior year Q3.

Both in commercial aftermarket revenue was primarily driven by the continued strength in our passenger submarket, which is our largest sub market. Although all of our commercial aftermarket submarkets were up significantly compared to prior year Q3.

Speaker 4: Sequentially, total commercial aftermarket revenues increased by approximately 2%. Commercial aftermarket bookings for this quarter were strong compared to the same prior year period. Turning to broader...

Sequentially total commercial aftermarket revenues increased by approximately 2% commercial aftermarket bookings for this quarter were strong compared to the same prior year period.

Speaker 4: Global revenue passenger miles still remain lower than pre-pandemic levels, but growth in air traffic over the past few months has continued to signal, steady recovery momentum.

Turning to broader market dynamics global revenue passenger miles still remain lower than pre pandemic levels, but growth in air traffic over the past few months has continued to signal signal steady recovery momentum.

Speaker 4: IATA recently commented they see a better demand outlook for 2023 air travel than they previously forecast and now expect total 2023 revenue passenger miles to reach 88% of 2019 level

<unk> recently commented.

A better demand outlook for 'twenty, two 'twenty three air travel than they previously forecast and now expect total 2023 revenue passenger miles to reach 88% of 2019 levels.

Speaker 4: I add also expect a return to 2019 air traffic levels in 2024.

I'd also expect a return to 2019 air traffic levels in 2024.

Speaker 4: The recovery in domestic travel further progressed over the past few months and has served past pre-pandemic level.

The recovery in domestic travel further progressed over the past few months and has surpassed pre pandemic levels in the most recently reported IATA traffic data for June global domestic air traffic was up 5% compared to pre pandemic levels domestic air travel in China continued.

Speaker 4: In the most recently reported IATA traffic data for June , global domestic air traffic was up 5% compared to pre-pandemic level.

Speaker 4: Domestic air travel in China continues to improve and was up 15% in June compared to pre-pandemic levels.

To improve and was up 15% in June compared to pre pandemic levels. This is a significant improvement from China being down 55% only six months ago in December .

Speaker 4: This is a significant improvement from China being down 55% only six months ago in December .

Speaker 4: U.S. domestic air travel, for June came in just slightly above pre-pandemic traffic, but year-to-date surpasses pre-pandemic levels to buy about 2%.

U S domestic air travel for June came in just slightly above pre pandemic traffic, but year to date surpasses pre pandemic levels by about 2%.

Speaker 4: International traffic has made strides over the past few months and is catching up to the domestic recovery. A quarter ago, at the end of March, internationally, travel globally was depressed about 18 percent compared to pre-pandemic levels, but in the most recently reported IATA traffic data for June , international travel was only down about 12 percent.

International traffic has made strides over the past few months and is catching up to the domestic recovery.

Quarter ago at the end of March internationally travel globally was depressed about 18% compared to pre pandemic levels, but in the most recently reported I added traffic data for June International travel was only down about 12% international traffic in North America is 2% above <unk>.

Speaker 4: International traffic in North America is 2% above pre-pandemic levels, and Europe is within 10%.

The pandemic levels in Europe is within 10%.

Speaker 4: Asia Pacific International Travel was still down about 29%, but you'll hopefully continue to improve as the China reopening progress.

Asia Pacific International travel was still down about 29%, but should hopefully continue to improve as the China reopening progresses.

Speaker 4: Global air-carve volumes in the most recent June I added data continued to be lower year over year and compared to pre-pandemic levels, but the contraction versus these prior year periods has moderated a bit.

Global Air cargo volumes in the most recent June IATA data continued to be lower year over year and compared to pre pandemic levels, but the contraction versus the prior year periods has moderated a bit.

Speaker 4: Going forward, improvements in inflation in major economies could potentially provide a tailwind to air cargo demand. However, with the continued growth in passenger flying, especially the wide body recovery, there is more bellyhold space available for cargo transport. It's too early to determine where air cargo trans-stabilives, but we will continue to watch this closely.

Going forward improvements and inflation in major economies could potentially provide a tailwind to air cargo demand. However, with the continued growth in passenger flying, especially the wide body recovery. There is more belly hold space available for cargo transport, it's too early to determine where our air cargo.

<unk> stabilized, but we will continue to watch this closely.

Speaker 4: Business jet utilization is below the pre-pandemic highs in 2021 and continues to temper. Business jet activity does remain above pre-pandemic levels, but time will tell how this normalizes over the upcoming months.

Business jet utilization is below the pre pandemic highs in 2021 and continues to temper.

<unk> jet activity does remain above pre pandemic levels, but time will tell how this normalizes over the upcoming months.

Speaker 4: Shifting to our defense market, which traditionally is at or below 35% of our total revenue.

Shifting to our defense market, which traditionally is at or below 35% of our total revenue.

Speaker 4: The defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 17% in Q3 when compared with the prior year period. Sequentially, total revenues grew by approximately 14%. Defense bookings are also up significantly this quarter compared to the same prior year period.

Defense market revenue, which includes both OEM and aftermarket revenues grew by approximately 17% in Q3, when compared with the prior year period sequentially total revenues grew by approximately 14% defense bookings are also up significantly this quarter.

Speaker 4: This quarter, we began to see improvements in the U.S. government defense spend outlays, which is reflected in our defense revenue performance this quarter. We are hopeful we will continue to see steady improvement, but as we have said many times before, defense sales and bookings can be lumpy.

<unk> compared to the same prior year period.

This quarter, we began to see improvements in the U S government defense spend outlays, which is reflected in our defense revenue performance. This quarter. We are hopeful we will continue to see steady improvement, but as we have said many times before defense sales and bookings can be lumpy.

Speaker 4: As Kevin mentioned earlier, we now expect our defense market revenue growth for this year to be in the mid to high single digit percentage range.

As Kevin mentioned earlier, we now expect our defense market revenue growth for this year to be in the mid to high single digit percentage range.

Speaker 4: Next, I will provide a quick update on our recent acquisition of CalSPAN Corporation.

Next I'll provide a quick update on our recent acquisition of <unk> Corporation.

Speaker 4: As discussed on our last earnings call, we completed the CalSPAN acquisition this past May for $725 million in cash.

As discussed on our last earnings call. We completed the Cal span acquisition. This past may for $725 million in cash cow span has established positions across a diverse range of aftermarket focused aerospace and defense development and testing services <unk>.

Speaker 4: Calsban has established positions across a diverse range of aftermarket focused, aerospace and defense development and testing services, including a state of the art, Transonic Wind Tunnel that it utilizes to perform testing for both the commercial and defense and market.

<unk> a state of the art Transonic wind tunnel that it utilizes to perform testing for both the commercial and defense end markets Cal spans unique service offerings exhibit the earnings stability and growth potential that are consistent with our aerospace components center businesses.

Speaker 4: Cal spans unique service offerings exhibit the earning stability and growth potential that are consistent with our aerospace components center businesses. The Cal span acquisition integration is progressing well under the leadership of executive vice president, Paulo Wheeler. We have now owned Cal span for three months and we are pleased with the acquisition thus far.

The Cal span acquisition integration is progressing well under the leadership of executive Vice President Paula Wheeler.

We have now own cows fan for three months and we are pleased with the acquisition thus far.

Speaker 4: Before concluding, I'd like to review one additional executive change that occurred during Q3. We recently promoted Kevin McCannery to the executive vice president role. Kevin has worked for TransDine for over 20 years and was most recently the president of our operating unit for five years.

Before concluding I'd like to review one additional executive change that occurred during Q3, we recently promoted promoted Kevin Mchenry to the executive Vice President role. Kevin has worked for trans done for over 20 years and was most recently the president of our curtailed operating unit for <unk>.

Speaker 4: Prior to that, Kevin was the director of sales at our heartwell, airborne systems, and our Adam's right aerospace operating units, and also served as president of Adam's right aerospace. We continually work to improve our bench strength of promotable talent, and we are happy to have Kevin as our newest executive vice president. This promotion gives us the resources we need to oversee our business units, following my promotion to COO.

Five years.

Prior to that Kevin was the director of sales at our Hartwell Airborne systems at our Adams Rite Aerospace operating units and also served as president of Adams Rite Aerospace, we continually work to improve our bench strength of promoted talent and we are happy to have Kevin as our newest executive Vice President.

This promotion gives us the resources, we need to oversee our business units following my promotion to co COO.

Speaker 4: Lastly, I'd like to wrap up by stating how pleased I am by our operational performance in this third quarter of fiscal 2023. We remain focused on our value drivers and meeting increased customer demand for our products. With that, I would like to turn it over to our Chief Financial Officer, Sarah Wynn.

Lastly, I'd like to wrap up by stating how pleased I am by our operational performance in this third quarter of fiscal 2023, we remain focused on our value drivers and meeting increased customer demand for our products with that I would like to turn it over to our Chief Financial Officer, Sarah with thanks.

Speaker 5: Thanks, Gerald, and good morning, everyone. I'm going to provide an overview on a few financial matters for the quarter, and expectations for the full fiscal year. First, on organic growth and liquidity. In the third quarter, our organic growth rate was 20.7%. Driven by the continued rebound in our commercial OEM and after market end mark.

And good morning, everyone I'm going to provide an overview on a few financial matters for the quarter and expectations for the full fiscal year first on organic growth and liquidity in the third quarter, our organic growth rate was 27% driven by the continued rebound in our commercial OEM and after market end market on.

Speaker 5: On cash and liquidity, free cash flow, which we traditionally define as EBIT-LS cash interest payments, CapEx and cash taxes, was roughly $540 million for the quarter. For the full fiscal year, we continue to expect to generate free cash flow in excess of the $1.4 billion target previously provided.

On cash and liquidity free cash flow, which we traditionally defined as EBITDA less cash interest payments capex and cash taxes was roughly $540 million for the quarter for the full fiscal year. We continue to expect expect to generate free cash flow in excess of the $1 4 billion target previously provided.

Speaker 5: The low-dot free cash flow line, we saw networking capital consume approximately a hundred and eighty million of cash during the quarter, as we continue to build both accounts receivable and inventory to support the ongoing and continuing sales ramp up on both the OEM and after market sides of the business. The OEM does tend to be slightly more intensive from a networking capital standpoint.

Free cash flow line, we saw net working capital consumed approximately $180 million of cash during the quarter as we continue to build both accounts receivable and inventory to support the ongoing and continuing sales ramp up on both the OEM and aftermarket sides of the business. The OEM does tends to be slightly more intensive from a net working capital stands.

Speaker 5: We ended the quarter with approximately 3.1 billion of cash on the balance sheet, and our net debt to EBITDA ratio was 5.3 times, down from the 5.6 times at the end of last quarter. On a net debt to EBITDA basis, this puts us below the five-year pre-COVID average level of six times. Additionally, our cash interest coverage ratio, which is EBITDA to interest expenses at three times, which is right in line with where we've historically operated pre-COVID and been comfortable operating the business.

Point.

We ended the quarter with approximately $3 1 billion of cash on the balance sheet and a net debt to EBITDA ratio was five three times down from five six times at the end of last quarter on a net debt to EBITDA basis. This puts us below the five year pre COVID-19 average level of six times. Additionally, our cash interest coverage ratio.

It is EBITDA to interest expense is up three times, which is right in line with Huawei historically operated pre COVID-19 and being comfortable operating the business.

Speaker 5: As always, we continue to watch the higher interest rate environment and the current state of the debt markets closely.

As always we continue to watch the higher interest rate environment and the current state of the debt market closely as a reminder, we did a fair bit of refinancing in the first half of the year pushing out over 8 billion of our nearest term maturity due in 2025 out to 2028, we expect to continue both proactively and prudently.

Speaker 5: As a reminder, we did a fair bit of refinancing in the first half of the year, pushing out over 8 billion of our nearest termiturators through in 2025 out to 2028.

Speaker 5: We expect to continue both proactively and prudently managing at debt maturity stacks, which for us means pushing out any near-term maturity is well in advance of the final maturity date. And near-term maturity is now 20.

Managing our debt maturity stacks, which for us means pushing out any near term maturities well in advance of the final maturity date. Our nearest term maturity is now 2026.

Speaker 5: Over 75% of our total $20 billion gross debt balance is fixed or hedged through our fiscal 2026.

Over 75% of our totaled 20 billion gross debt balance is fixed or hedged through our fiscal 2026. This is achieved through a combination of fixed rate notes interest rate caps swaps and collars. This provides us adequate cushion against any rise in rates at least in the immediate term.

Speaker 5: This is achieved through a combination of fixed rate notes, interest rate caps, swaps and collars. This provides this adequate cushion against any rising rates, at least in the immediate term.

Speaker 5: As we sit here today from an overall cash liquidity and balance sheet standpoint, we think we remain in a good position with adequate flexibility to pursue M&A or return cash to our shareholders by a dividends or share repartures.

We sit here today from an overall cash liquidity and balance sheet standpoint, we think it will remain in a good position with adequate flexibility to pursue M&A or return cash to shareholders via dividends or share repurchases regarding capital allocation is likely we make a decision by the end of the calendar year based on current market conditions, we have a sizable.

Speaker 5: Regarding capital allocation, it is likely we make a decision by the end of the calendar year based on current market conditions. We have a sizeable cash balance of close to $3.1 billion in consistent with history. When we have a significant amount of cash available, we aim to get the cash back to our shareholders in one form or another. All three capital allocation options, significant acquisitions, share buybacks and dividends remain on the table. With that, I'll turn it back to the operator to kick off.

Cash balance of close to $3 $1 billion and consistent with history. When we have a significant amount of cash available. We aim to get the cash back to our shareholders in one form or another all three capital allocation options significant acquisitions share buybacks and dividends remain on the table with that.

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

Speaker 1: Thank you. We will now conduct the question and answer session. As a reminder, to please ask a question, you'll press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, you'll press star 1 1 again. Please stand by while we compile the Q&A roster.

Thank you we will now conduct a question and answer session.

As a reminder to please ask a question you press star one on your telephone and wait for your name to be announced to a J. Your question you Press Star One again, please stand by while we compile the Q&A roster.

Speaker 1: Our first question comes from line of David Strauss of Barclays. Go ahead. Thanks, Maureen.

Our first question comes from the line of David Strauss of Barclays. Please go ahead.

Thanks, Good morning.

Speaker 6: uh kevin i don't know if it was for everyone or just me but your your comments around the mna pipeline cut out at least for me so would you mind repeating kind of where where you are from uh from a pipeline standpoint i think i think you had some interest in the uh in the raytheon property and and maybe what happened there

Good morning.

Kevin I don't know what to do with forever, one or just me, but your comments around the M&A pipeline cut out at least for me. So would you mind repeating kind of where where you are from a from a pipeline standpoint, I think I think you had some interest in the AR and the Raytheon property and maybe what happened there.

Speaker 7: Well, we can't comment, as you know, the process. We can't comment on deals due to NDAs that you put in place. So whether we were interested or not, we don't comment. The M&A pipeline, though, is, I said, I'll reread my words. We continue to actually look for M&A opportunities that fit our model. As we look out over the next 12 to 18 months, we continue to have slightly stronger than typical pipeline of potential targets.

Well, we can't comment as you know the process, we cannot comment on on deals due to our NDA is that you've put in place so well.

We were interested or not we don't comment.

Yeah.

The M&A pipeline, though is I've said I'll reread My words, we continue to actively look for M&A opportunities that fit our model as we look out over the next 12 to 18 months, we continue to have slightly stronger than typical pipeline of potential targets as usual, we can't comment yada yada.

Speaker 7: As usual, we can't comment Yada Yada. It's similar to what I said last quarter. We are seeing a pretty interesting time right now. A lot of properties that we have been closely following for a long time are becoming available. And, you know, difficult to predict.

It's similar to what I said last quarter, we are seeing a.

Pretty interesting time right now a lot of properties that we have been closely following for a long time are becoming available.

Speaker 7: which if any of them will close. Again, we are extremely disciplined in our M&A approach.

Difficult to predict.

If any of them will close again, we are extremely disciplined in our M&A approach.

Speaker 6: Okay, thanks. A quick follow up. So in prior quarters, your comments, your comment on the slide around bookings was that bookings were outpacing shipments. In this quarter, you just went to a, things are strong. What do we read anything? To that, I mean, relative to kind of the bookings rate, maybe on a sequential basis, both for the African market and the new equipment side.

Okay. Thanks, a quick quick follow up.

So in prior quarters your comments your comment on the slide around bookings was that.

Bookings were outpacing shipments in this quarter you just went to us things are strong.

What do we read anything to that I mean relative to kind of the bookings rate maybe on a on a sequential basis, both for the aftermarket and the new equipment side.

Speaker 7: Well, I think across the business we built backlog. So, booked a bill for the company was still positive. It is true that, you know, some things can be lumpy. We saw strengths in OEM and defense. Aftermarket was a little bit, the rate of change of expansion of the order book slowed a little bit, but still have a positive book to bill there for the year.

Well I think across the business, we built backlog so book to Bill for the company was still positive.

It is true that.

Some things can be lumpy, we saw strength in OEM and defense.

Aftermarket was a little bit.

The rate of change of expansion of the order book slowed a little bit, but still have a positive book to bill there for the year.

Alright, thanks very much.

Thank you our next question.

Speaker 1: comes from a line of Kristen Lee Wang from Morgan Stanley . Go ahead, Christine. Hey, good morning, guys. How are you doing?

Okay.

From the line of Christian Li Wang from Morgan Stanley Go ahead Christine.

Hey, good morning, guys.

How are you doing.

Good morning, good morning.

Speaker 8: So you know, with a strong growth in aftermarket, we're hearing that MRO facilities are fully booked this year and slots are even difficult to come by by next year or even the year after that.

With a strong growth in aftermarket we're hearing that MRO facilities are fully booked this year and slots or even difficult to come by by next year or even the year after that.

Speaker 8: Can you provide any color in terms of how much of your aftermarket parts are linked to heavy maintenance versus the normal wear and tear? And does the limited MRO shop availability essentially limit the volume of parts you can sell to the aftermarket? How should we think about that dynamic?

Can you provide any color in terms of how much of your aftermarket parts are linked to heavy maintenance versus the normal wear and tear and the limited MRO shop availability.

Essentially limit the volume of parts you could sell to the aftermarket how should we think about that dynamic.

Speaker 4: Yeah, I don't think we have the specific data around the MRO and what the implications are. I think we continue to see the commercial aftermarket growth in all of our submarkets. And I think we continue to see the positive momentum as revenue passenger miles continue to move up year to date. We're now down to just 10 percent below pre-pandemic levels.

Yes, I don't think we have the specific data around the MRO and what the implications are I think we continue to see the commercial aftermarket growth.

Growth.

And all of our Submarkets and our I think we continue to see the positive momentum as revenue passenger miles continue to move up year to date, we're now down to just 10% below pre pandemic levels.

Speaker 4: and continue to see the expectancy trends continues long as the people continue to fly.

And continue to see the expect to see trends continue as long as the people continue to block.

Speaker 8: Great, thanks. And I'm one if I can do another follow up. You know, what we're hearing from the supply chain is that in commercial OE terms, there have been improving pricing for new airplane parts and OE side. So does that mean that when OE volume starts coming back for you guys, could you also get some of that pricing benefits? And could that alleviate some of the mixed headwind you could experience should the ramp materialized sooner than expected?

Great. Thanks, and I wanted if I could ask you. Another follow up you know what we're hearing from the supply chain is that in commercial OE term there have been improving pricing.

For new airplane part in the OE side, So does that mean that when OE volume starts coming back for you guys, but could you also get some of that pricing benefit and could that alleviate some of the mix headwinds you could experience should be ramp materialize sooner than expected.

Speaker 6: I think, you know, we don't usually comment on margins and increases across the board. It is fair to say that our, you know, as we always state, our aftermarket is more profitable. You know, our goal in pricing is to pass along inflation. So we have seen a very inflationary environment. That's probably all we can comment on on that. You know, we definitely make more money in the aftermarket.

I think we don't usually comment on on margins and increases across the board. It is fair to say that our as we always state our aftermarket is more profitable.

Our goal in pricing is to pass along inflation. So we have seen a very inflationary environment.

Probably all we can comment on on that.

<unk>.

We definitely make more money in the aftermarket.

Great. Thanks, guys.

Speaker 1: Thank you. Our next question comes from the line of mild 12 tin hold on one second.

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

Yes.

Speaker 9: Thanks so much. Kevin, the margins in the quarter were particularly strong, given what I would think would have been a little bit more adverse mix with cal span folding in. Aftermarket is a percent of sales, it's actually lower sequentially. Can you come in on the dynamics that would help do that in the quarter sequentially? And then also, I guess, why they're going to go down a hundred basis points sequentially into 4Q.

Go ahead Myles.

Thanks, so much.

Kevin the margins in the quarter were particularly strong given what I would think would have been a little bit more adverse mix with Cal span folding in.

Aftermarket as a percent of sales is actually lower sequentially.

Can you comment on the dynamics that would help to do that in the quarter sequentially. And then also I guess why theyre going to go down 100 basis points sequentially into <unk>.

Speaker 6: Well, I hope we forecast conservatively as we look at the future.

Well I hope, we forecast conservatively as we look at the future.

Speaker 6: That's a conservative look at what might happen.

That's a conservative look at what might happen.

Speaker 6: Given that aftermarket is such a significant driver for

Given the aftermarket is such a significant driver for.

Speaker 6: the business and that some of it isn't booked yet for the quarter. It makes it prudent for us to be a little more conservative as we forecast the quarter.

The business and some of it isn't booked yet for the quarter it.

It makes it.

Prudent for us to be a little more conservative as we forecast the quarter.

Speaker 6: We'll see how it plays out. I'll tell you on the margins line, it, you know, a pleasant outcome that we continue to see the progress and cost productions across the

We'll see how it plays out I will tell you on the margins line.

You know a pleasant outcome that we continue to see the progress in cost reductions across the business.

Speaker 6: even selective new business programs have been successful for us. There were not any significant one-time accounting adjustments or anything in these numbers. So this was real performance of the business.

Even selective new business programs have been.

Successful for US there were not any significant one time accounting adjustments or anything in these numbers. So this was real performance of the business.

Speaker 9: Thank you. And just a quick follow up. As you go into next year, given EBITDA's higher your net interest expense is coming lower, the tax rate, I know kicked up because of the EBITDA rule of interest and variability, is the tax rate now going to kick back down a couple hundred base points. Thanks.

Got it thanks, and just a quick follow up as you go into next year, given EBITDA is higher.

Non interest expenses coming lower.

Tax rate I know kicked up.

Because of the EBITDA rule of interest deductibility is the tax rate now going to kick back down a couple hundred basis points.

Speaker 6: I think we'll give guidance. That's really a question for Sarah, but we'll give guidance on 24 next quarter. We get into it and we'll have a detailed look at the interest and tax rates and all the pieces. So if you can hold your question until that, is that fair, Sarah? Yes, that's right. We're still, yeah. I'm going through the planning process, yeah. Thanks, Kim.

I think we will give guidance thats really a question for Sarah but we'll give guidance on 'twenty for next quarter, we get into it and we will have a.

A detailed look at interest and tax rates and all of the pieces.

So if you can hold your question until that is that fair, Sir yes, that's right yes.

Having gone through the planning process yet.

Okay. Thanks, Kevin.

Thank you.

Our next question comes from that.

Speaker 1: Kevin Herbert from RBC Capital Markets. Please go ahead.

Right.

Shannon.

From RBC capital markets. Please go ahead.

Speaker 10: Yeah, good morning. Kevin. Morning. Maybe, yeah, maybe just to stick on the aftermarket.

Yeah, Hey, good morning, Ken.

Kevin Good morning, maybe yes, maybe just to stick on the aftermarket.

Speaker 10: I think you've raised guidance for aftermarket growth each quarter this year. You're going to likely end the year sort of 2X, the initial guidance in terms of the growth.

I think you've raised guidance for aftermarket growth each quarter, this year and you're going to likely end the year at sort of <unk>. The initial guidance in terms of the growth and I'm just wondering if theres anything in particular, you could call out as you've gone through fiscal 'twenty. Three that's been a particular source of upside there was maybe unexpected or where you think that's.

Speaker 10: And I'm just wondering if there's anything in particular you could call out as you've gone through fiscal 23 that's been a particular source of upside that was maybe unexpected or where you think

Speaker 10: that significance would have outperformed us relative to the initial expectations where it's really come from.

Thats significant sort of outperformance relative to the initial expectations were surely come from.

Speaker 6: I think China was the big player. We initially had our look at the business. That was the unclear point that we didn't see in our planning. So I think a lot of what we're seeing today for upside and the revisions favorably have been due to that expanding market. And really the better recovery than I think any of us anticipated when we initially planned the year.

I think China was the big player.

Player we initially.

Had our look at the business that was the unclear point that we didn't see in our planning. So I think a lot of what we're seeing today for upside in the revisions favorably have been due to that expanding market.

Really the.

Better recovery than I think any of us anticipated when we initially planned for the year.

Speaker 10: Is there any concern that you've seen, you know, some of the elevated activity, any of the sales in the aftermarket pulled into 23 that could be a potential headwind in 24? Or just how do you think about sort of the booking strength and the initial outlook into 24 relative to the 23 strength?

Is there is there any concern that you've seen.

Some of the elevated activity any of the sales in the aftermarket pulled into 'twenty three that could be a potential headwind in 'twenty four or just how do you think about sort of the booking strength in the out of the initial outlook into 24 relative to the 20th restraints.

Speaker 4: Joel, well, obviously we're not going to provide any guidance towards 2024, but look, our order book continues to evolve. Light activity continues to increase.

Joel.

Well, obviously, we're not going to provide any guidance towards 2024, but look our order book continues to evolve flight activity continues to increase.

Speaker 4: You said the traffic in Asia Pacific has increased significantly, but even there is still about 20% below 2019 levels, global air traffic still below the pre-pandemic level. So I think we're all realistic that the rate of change has to slow at some point as you get closer and closer back to the pre-pandemic levels, but I don't think we see anything else beyond that changing.

You said the traffic in the Asia Pacific increased significantly, but even there is still about 20% below 2019 levels Global air traffic is still below the pre pandemic level. So.

I think we're all realistic that the rate of change has to slow at some point as you get closer and closer back to the.

Pre pandemic levels, but I.

I don't think we see anything else beyond that changing.

Great. Thank you.

Speaker 11: Thank you.

Thank you.

Speaker 1: Our next question comes in line of Robert Stollard from Vertical Research Group. Please go ahead. The next question comes in line of Robert Stollard from Vertical Research Group.

Our next question comes from the line of Robert Stallard.

Vertical research. Please go ahead.

Speaker 12: Morning, morning. Kevin, first of all, on the M&A pipeline, as you said, your comments found pretty similar to what you said three months ago that things are looking quite interesting out there. But what you worried, everyone else is saying the same thing, and this is starting to bid for these asset prices up too high.

Thanks, so much good morning.

Good morning, good morning.

Kevin first of all on the M&A pipeline as he said.

Sound pretty similar to what we said three months ago that things ever King are quite interesting.

While everyone else is saying the same thing and this is starting to bid some of these set prices up too high.

Speaker 6: You know, it's in fullness of time. I don't think you can overpay for good assets that meet our criteria. So I'm not worried about more competition. If business is meet our criteria, we will rise to meet the challenge.

In.

Fullness of time I don't think you can overpay for good assets that meet our criteria. So I'm not worried about more competition if businesses meet our criteria.

We will.

<unk>.

Rise to meet the challenge.

Speaker 13: And then secondly, on the aftermarket price, it's quite a shame that it's a pool for their pretty Christmas, by not the two months of this year. It's not some of your businesses are doing, or you're still on a fairly standard for the 12 month, how difficult.

Okay.

Okay.

And then secondly on the after market price in terms of your question.

It's approved for that price increase by another two months this year.

Some of your businesses.

Still on a fairly standard.

12 months out Chris.

Speaker 6: Could you repeat your question, you broke up a bit, and I couldn't hear some of the details? Yes, sorry, okay. There was a heart in the CFM had pulled forward that price increase by another two months, and I was wondering if there's something that a trans-dying businesses are doing or that you stick to your usual 12 month capital of price increases.

Could you repeat your question you broke up a bit and I couldnt hear some of the details.

Yes, sorry.

Huntington that CFM it pulled forward thats.

Price increase by another two months and I was hoping to get something Thats, a churns business is doing or that you're sticking to your usual 12 months catalog price increases.

Speaker 6: I think we do regular catalog price increases, but in a high inflationary environment, dynamic pricing becomes more of the norm. So I don't think our businesses necessarily are augured into only once a year. It really depends on the inflationary inputs that they're seeing. OK, that's great. Thank you.

I think we do regular catalog price increases, but in a high inflationary environment dynamic pricing becomes more of the norm.

So I don't think our business is necessarily are augured into only once a year it really depends on the inflationary inputs that theyre seeing.

Okay. That's great. Thank you.

Thank you our next question.

Speaker 1: comes from line of Robert Finngard from Melius Research. Please go ahead. Take you morning.

Yes.

Comes from the line of Robert Spingarn.

Please go ahead.

Hey, good morning.

Speaker 6: On on margins just as OEMix increases assuming that OEM growth overtakes aftermarket growth at some point here, can you mitigate the headwind to margins from that just from productivity and pricing? Perhaps on the other side in the in aftermarket?

Good morning, Kevin.

On margins, just as OE mix increases assuming that OE growth overtakes aftermarket growth at some point here can you mitigate the headwind to margins from that just from productivity and pricing.

Speaker 6: I think there will be challenges to doing that, but that would

Perhaps on the other side and aftermarket.

I think there will be challenges to doing that but that would.

Speaker 4: Certainly be one of our aspirational goals as we go forward to continue to drive cost improvements and improvements in general to our business.

Certainly be one of our aspirational goals as we go forward to continue to.

Drive cost improvements and improvements in general to our business.

Speaker 4: to drive that. It will be difficult as we have very strong...

To drive that it will be difficult as well.

Speaker 4: After market growth, but we're seeing the OEM growth somewhat muted.

We have very strong.

Aftermarket growth, but we're seeing the OEM growth somewhat muted.

Speaker 4: as they are slower to ramp up, meaning there's more pressure in the after-market, I think that we continue to enjoy this for a while into the future. Maybe not the wild recovery we've seen over the last few years, but still I think that the market conditions really in all of our market segments.

As they are.

Slower to ramp up meaning there's more pressure in the aftermarket.

We continue to enjoy this for a while into the future.

Maybe not the a wild recovery, we've seen over the last two years, but still I think that the market conditions really in all of our market segments set up very favorably for us even in the aftermarket in the future.

Speaker 4: Set up very favorably for us even in the aftermarket in the future. Okay, thanks so much.

Okay. Thanks, so much.

Thank you.

One second for the next question.

Speaker 1: Our next question comes from Pierre Armit from Beard. Please go ahead.

Our next question comes from Pierre Amit from Baird. Please go ahead.

Speaker 14: Yes, thanks. Good morning, everyone. Kevin, maybe if you could just give a broader comment on the wide body side of things, we're really starting to see kind of an uptick really across the board. And I know last quarter, you make some comments that your interior's business has been recovering nicely. Just any further color there would be helpful, thanks.

Yes. Thanks, good morning, everyone. Kevin maybe if you could just give a broader comment on the on the wide body side of things, we're really starting to see kind of an uptick really across the board and I know last last quarter. You made some comments that youre interiors business has been recovering nicely just any further color there would be helpful. Thanks.

Speaker 4: Yeah, I'd say on the interior of this Joel, I'd say on the interior side, I think we're seeing a similar trend as we are in the overall commercial aftermarket a good increase year over year and continuing the positive trend. We've seen for several quarters now. To date is primarily being driven by the repair side but we're seeing in the night's recovery. Obviously as they continue to utilize the existing fleet, it'll be beneficial for us in the future for modifications of the refurbishment.

Okay.

Yes, I'd say on the interior of this Joel I'd say on the interior side I think we're seeing a similar trend as we are in the overall commercial aftermarket a good increase year over year and continuing the positive trend we've seen for several quarters now.

To date is primarily being driven by the repair side, but we're seeing a nice recovery.

Obviously as they continue to utilize the existing fleet it'll be beneficial for us in the future for modifications of the Refurbishments.

Speaker 14: Please leave that comment below. And then just as a follow up quickly, Kevin, I had no last quarter there was some comments that made about aftermarket volumes still being 10 to 15% light. Is that still how you see kind of the year shaking out or is that starting?

Yes.

I appreciate that color and then just as a follow up quickly Kevin I know last quarter. There was a comment made about aftermarket volumes still being 10% to 15% light.

Is that still how you see kind of the year shaking out or is that starting to improve.

Speaker 4: Well, I think it improves every quarter, but I still see 10 plus percent opportunity. You know, RPMs are still 12 percent below, take-off and landings in certain regions, still below where they were a pre-pandemic. I still see opportunity and suppress demand, which I have every belief will return.

Well I think it improves.

Every quarter, but I still see 10 plus percent opportunity.

Rpms are still 12% below takeoff and landings in certain regions still below where they were pre pandemic I still see opportunity in suppressed demand, which I have every belief will return.

I appreciate it thank you.

Yes.

Speaker 1: Thank you. Our next question comes from a line of Jason Gerzki of City Bank.

Thank you.

Next question comes from the line.

Jason Gursky of Citibank. Please go ahead.

Speaker 10: A good morning everybody. I'm curious I'm gonna be the first to congratulate. Yeah, I can't believe I'll be the first to congratulate everybody on their respective promotions and return.

Okay.

Hey, good morning, everybody.

I'm going to be the first to congrats yes carefully that'd be the first to congratulate everybody on their respective promotions and retirements, but congrats to all thank you for doing that because it's always good to hear.

Speaker 4: Thank you for doing that. It's always good to hear. Sometimes we're just the machine that keeps moving and people forget their phones. Okay. Now I appreciate all the hard work for sure that goes into achieving.

Sometimes we're just the machine that keeps moving and people forget that.

Okay No I appreciate all the hard work for sure that goes in they are achieving.

Speaker 10: that level of success. Just a quick question for you related to the situation at Pratt with the GTF. They're talking about bringing in 100.

That level of success.

Just a quick question for you related to the situation at Pratt with the GTS there.

Speaker 10: 3040 engine tier in the near term and then 1200 over the next

Talking about bringing in 100.

340 engines here in the near term and then 200 over the next year.

Speaker 10: or so and I'm just kind of curious what you're hearing from some of your customers about how they're going...

Year, or so and I'm just kind of curious what you're hearing from some of your customers about how theyre going.

Speaker 10: with that. You think there's an opportunity for more planes to kind of come out of the desert here. Do you think there will be more expansive work that gets done?

To deal with that.

Do you think there's an opportunity for more planes to kind of come out of the desert here do you think.

There will be more expansive work.

Speaker 10: of these engines and perhaps aircraft get grounded that might accelerate some work for you all.

It's done.

Some of these engines and perhaps aircraft get grounded.

Might accelerate some work for you all.

Speaker 10: later if the engine could come in under normal course. I'm just trying to get a sense of how this GTF engine issue might impact.

That would have maybe come later, if the engine should come in under normal course, I'm, just trying to get a sense of.

How this GTS engine engine issue might impact transcon.

Speaker 4: Yeah, I think I'll kick that one to Joel for comment. He's very close to the customers and business.

Yes, I think I'll kick that one to Joel.

For comments, he is very close to the customers and businesses.

Speaker 6: Yeah, I don't think we think it has any significant change. Engines coming in sooner means one set of components get replaced earlier because they're going to do maintenance on the engine. But then there's another set of components that you really want to have implying and the starts and stops are what they're takeoffs and landings. It makes the big difference, I think. We're not here and anything that makes a significant change of what we're seeing today.

Yes, I don't think we think it has any significant change engines coming in sooner means one set of components get replaced earlier, because theyre going to do maintenance on the Eric on the engine, but then there's another set of components that you really want to have implying in the starts and stops or what theyre takeoffs and landings what makes them.

Big difference I think.

Karen anything that makes a significant change of what.

We're seeing today.

Okay, Great I'll leave it with one thanks guys.

Speaker 15: Thanks. Thank you.

Thanks.

Thank you.

Speaker 1: Come for a line of Noah Pupinak of Golden Jacks. Go ahead Noah.

Our next question.

Comes from the line of.

Noah <unk> of Goldman Sachs go ahead Noah.

Hey, good morning, everyone.

Speaker 16: Was the book to bill greater than 1.0 in all three end markets?

Good morning.

What's the book to Bill greater than 1.0 in all three markets.

Speaker 4: I guess we don't really give that kind of granularity usually. It was up across the company for aftermarket. It was slightly off, but your to date still positive.

For the quarter or a year to date.

I guess, we don't really give that kind of granularity usually.

It was up across the company.

For aftermarket it was slightly off.

Year to date is still positive.

Okay that clears it up for <unk>.

Speaker 16: Yeah, that clears it up. Yeah. And then on the defense side, I mean, can you spend another minute on what happened there? You reference how outlays are trailing authorization and that has started to catch up. What are you seeing and hearing from your customer there? And you'll have easy compares and that outlay gap is pretty wide and then these higher growth rates sustained for a period of time.

Yes that clears it up.

And then on the defense side I mean can you spend another minute on.

What happened there you referenced how outlays are trailing authorization and that has started to catch up.

What are you seeing and hearing from your customer there.

You'll have easy compares in that outlet gap is pretty wide.

That means higher growth rate sustained for a period of time.

Speaker 4: Well, I think we're seeing steady improvement in the outlays. The outlays are still a little bit slow in terms of solicitations converting into orders compared to historical levels.

Well I think we're seeing steady improvement in the outlays that that laser is still a little bit slow in terms of a.

Cetaceans converting into orders compared to historical levels, but.

Speaker 4: As Kevin dis mentioned, bookings were stronger than shipment, so I think we continue to anticipate some runway there.

As Kevin just mentioned bookings were stronger than shipments. So I think we continue to anticipate.

Speaker 7: Yeah, I think in really in all three of our market segments, including commercial aftermarket, although maybe booking slowed ever so slightly this quarter. Remember, bookings can be lumpy quarter to quarter. And all three of our commercial OEM, commercial aftermarket and defense all look favorable into the future. I can't stress that enough.

Some runway there.

Yes, I think in really in all three of our market segments, including commercial aftermarket, although maybe bookings slowed ever so slightly this quarter remember bookings can be lumpy quarter to quarter.

And all three of our commercial OEM commercial aftermarket and defense all look favorable.

Into the future.

I can't stress that enough.

Okay. Thanks.

Thanks, guys I appreciate it.

Yes.

Speaker 1: Our next question comes from a line of Ron Epstein from Bank of America. Please go ahead.

Thank you.

Our next question comes from the line.

Ron Epstein from Bank of America. Please go ahead.

Please go ahead Ron.

Speaker 17: Ron's on mute. Oh, sorry about that. I was on mute. Yep, just trying to. Yeah, yeah, hey. So just a quick one. A lot of stuff, good stuff to ask. But Kevin, which you're, you're moved for a fixer upper. I mean, as you, as you look at stuff out there, is, is kind of M&A you want to do fixer upper style or stuff that just kind of sticks right in with the, you know, the, the trans-time model.

Runs on mute sorry.

Sorry about that.

Yes.

Yeah. So.

So just a quick one.

Good stuff good stuff's been asked but Kevin what's your your mood for a fixer upper.

Good stuff out there.

Is this kind of M&A you wanted to do fixer upper style or stuff that just kind of fits right in with that.

The transparent model.

Speaker 7: It's where, where do we see the likelihood of, you know, upper-core-tile private equity-like returns, you know? We've always talked about the 20% IR threshold for M&A activities. I'm not against fixed or uppers generally speaking, though. We acquire good businesses. We heavily invest in them, and we make them much better.

I guess.

It's where do we see.

The likelihood of.

Upper quartile private equity like returns.

We've always talked about the 20% IRR threshold for <unk>.

M&A activities.

I'm not against fix or uppers generally speaking, though.

<unk> good businesses, we heavily invest in them and we make them much better.

Speaker 4: Fixer upper might fit that as you're listing, but we usually don't look for those per se, and everything must stand on its own and generate the return.

A fixer upper might fit that as your listing.

But we usually don't look for those per se.

Everything must stand on its own and generate the return.

Speaker 17: Got it, got it. I didn't, what? I'm just trying to get a sense. I think a lot of people are, what are you not interested in? I mean, do you think you need to open the... Appetite chart? Look ahead.

Got it yes.

Got it got it and then what.

I'm just trying to get a sense of I think a lot of people are what are you not interested in.

I mean do you think you need to open.

Yes.

Aperture, but go ahead.

Sure.

Speaker 4: Sorry, we don't think we need to open the aperture per day. I think there's still plenty of activity in the aerospace world for a creative M&A. It's just important for us to stay disciplined. Historically, we do one, two deals a year, some years you get a bunch more, but it's important for us to stay very disciplined in our approach.

Yes.

Look I think we need.

Sorry, we don't.

Don't think we need to.

Open the aperture per se I think theres still plenty of activity in.

The aerospace world for accretive M&A.

Just important for us to stay disciplined historically, we do one or two deals a year. Some years you get a bunch more.

But it's important for us to stay very disciplined in our approach so.

Speaker 4: So we're still seeing a lot of activity in core M&A that fits our model. What we look for is that 20% IRR, we're still seeing those opportunities quite a few of them right now.

We are still seeing a lot of activity in core M&A.

Fits our model what we look for is that 20% IRR, we're still seeing those opportunities.

Speaker 4: But I think what's critical for us is to be disciplined in this process. If we continue to be disciplined, then we'll continue to find the great businesses that we look for. And there's certainly a lot of interesting properties available as we look over the next 12 to 18 months as I alluded to in my comment.

A few of them right now, but I think what's critical for us is to be disciplined in this process. If we continue to be disciplined and we'll continue to find the.

Great businesses that we look for.

And Theres certainly a lot of interesting properties available.

As we look over the next 12 months to 18 months as I alluded to in my comments does that help you better understand what we're seeing yes, I think that if I may just one last quick one gross margins in the quarter were really quite good at 59%.

Speaker 4: Does that help you better understand what we're seeing? Yeah, yeah, yeah. I think it does. If I may, just one last quick one. Gross margins in the quarter were really quite good at 59%.

Should we expect that to continue.

Speaker 4: You know, our goal is to always drive margins up. So our track record I think in that speaks for itself. Got it. All right. Thank you very much.

Our goal is to always drive margins up.

So.

Our track record I think and that speaks for itself.

Got it alright, thank you very much.

Thank you.

Our next question comes from the line.

Speaker 1: That's Seatman of JP Morgan. Please go ahead. Okay. Thanks for.

Thus seitman of J P. Morgan. Please go ahead.

Speaker 18: Just going back to the question of capital deployment. I think you said the majority of M&A opportunities kind of naturally are in the small and mid-sized category. And so given the capacity that you'll have by year end, unless something really significant shakes loose.

Okay, Thanks, very much and good morning.

Good morning.

Good morning, just going back to the question of capital deployment. I think you said the majority of M&A opportunities kind of naturally are in the small and mid sized category and so given the capacity that you'll have by by year end unless something really significant shakes list should investors be thinking about.

Speaker 18: You know, should investors be thinking about, you know, if there is something in that small and mid-sized category that there is, you know, plenty of opportunity for capital return as well.

If there is something in that small and mid sized carrier category that there is plenty of opportunity for capital return as well.

Speaker 5: Yeah, I mean, our capital allocation priorities remain unchanged. So we'll continue to evaluate our options over the course of the calendar year. We'll see how the market conditions look. But ultimately, we operate at disciplined approaches. We'll continue to do so.

Yes, I mean, our capital allocation priorities remain unchanged. So we will continue to evaluate our options over the course of the calendar year, we'll see how the market conditions look, but ultimately we operate a disciplined approach and we'll continue to do so.

Speaker 18: Okay, okay, thank you. And then just as a quick follow up, I know maybe not the most part of the business that gets focused on most, but the...

Okay. Okay. Okay. Thank you.

And then just as a quick follow up I know maybe not the most.

Speaker 18: BizJet and helicopter aftermarket been up kind of 20% the past couple of quarters. And we generally think about aftermarket revenues kind of tracking flight hours plus some price and business shed flight hours in the US at least have been pretty flat year to date. And so is there something you point to you that accounts for the continued strong growth there given that it seems like the underlying end market just isn't really growing that much?

The part of the business that gets focused on most but.

As jet and helicopter aftermarket, it's been up kind of 20% in the past couple of quarters.

We generally think about aftermarket revenues kind of tracking flight hours, plus some price and business jet flight hours in the U S. At least have been pretty pretty flat year to date and so is there something you can point to that that accounts for the continued strong growth there given that it seems like.

And market just isn't really growing that much right now.

Speaker 6: Well, I think some of it's the timing of bookings and shipments. So the the business jet market expanded pretty significantly during the pandemic and has really only slowly reduced each quarter at something will continue to monitor as I said in my opening remarks. Great.

So I think some of it's the timing of bookings and shipments so.

The biz jet market.

Expanded pretty significantly during the pandemic and is really only slowly.

Reduced.

Each each quarter, it's something we'll continue to monitor as I said in my.

Opening remarks.

Great. Thanks very much.

Okay.

Speaker 1: My next question comes from a line of... Nice.

Thank you.

Our next question comes from the line of.

Nicola CMO Lee.

Speaker 19: Hey, good morning guys. Thanks for taking the questions and congrats. Just, Kevin, just maybe back to March.

Hey.

Good morning, guys. Thanks for taking the questions and congrats.

Sure.

Speaker 19: you know, obviously I think Rob brought up the OE ramping in the mix, but you know, when you guys are always trying to execute and drive March entire, but have you been got March? March?

Kevin just maybe back to margins.

Obviously, I think Rob brought up the <unk> ramping in the mix, but.

You guys are always trying to execute to drive margins higher but have EBITDA margins peaked and then I guess as we think about OEM ramping does your commentary around dynamic pricing apply apply to some of your OEM commercial OEM sales.

Speaker 19: And then I guess as we think about OEM ramping, does your commentary around dynamic pricing apply to some of your OEM commercial OEM sales?

Speaker 4: Yeah, it doesn't. The commercial OEM tends to be longer, you know, more like year or two, to, you know, address any inflationary pressures. But, yeah, generally speaking, little different on the OEM side, but still you can find a way to pass along inflation. And that's again, what we strive to do. What was the first part of your question?

Yes, it doesn't commercial OEM tends to be longer.

More like year or two too.

The address any inflationary pressures, but.

Yes generally speaking.

Is a little different on the OEM side, but still you can find a way to.

Ill pass along inflation and Thats again, what we strive to do what was the first part of your question.

Speaker 18: Just eat it down margins. I mean, you know, record level in the quarter had that. Have they peaked? That's right. No, they haven't peaked. You know, there's still room to grow and expand, and that's how we look at it. We're still looking for those opportunities. And I don't see any reason why there is in for room to continue to improve. That's our goal. Is steady, consistent, disciplined improvement, M&A, capital allocation. We're still looking for those opportunities.

Just EBITDA margins, I mean record level and the other half of the peak.

So that is no they haven't peaked.

There is still room to grow and expand and Thats, how we look at it we're still looking for those opportunities.

And I don't see any reason why there isn't room to continue to improve that's our goal is steady consistent disciplined improvement to M&A capital allocation to continue to allow the machine to operate.

Speaker 4: to continue to allow the machine to operate.

Speaker 10: Got it. They helpful. I'll leave it at that. Thanks guys.

Got it helpful.

I'll leave it at that thanks Scott.

Take care.

Our next question comes on line.

Speaker 1: of Guteram, come on out of the TD coin. Please go ahead. Hey, good morning guys.

Okay.

Good gentlemen.

No no.

TD Cowen. Please go ahead.

Hey, good morning, guys and congrats to everyone.

Speaker 20: Good morning. Hey, I didn't want to ask just quickly on whether you're seeing any discernible difference in demand patterns through your distribution.

This change roles.

Good morning, Hey, I just wanted to ask just a quick quickly on.

Whether youre seeing any discernible difference in demand patterns through your distribution.

Speaker 20: channels versus direct and just how shortening lead times if they have have impacted ordering patterns by customers. Is there less of a

Channels versus direct and just how shortening lead times, if they have have impacted ordering patterns by customers is there less of a.

Speaker 20: Cueing effect, you know, because they don't have the place in order as far in advance. Is that something that might be impacting the bookings?

Queuing effect, because they don't have to place an order as far in advance is that something that might be impacting the bookings as well. Thanks.

Speaker 6: Yes, and when we look at the point of sale information from our distribution partners, it matches.

Yeah. So when we look at the point of sale information from our distribution partners it matches.

Speaker 6: Pretty well with what we're seeing as we go direct to customers. So I don't think we're seeing anything significant there. It comes to lead times, every operating unit sets their own unique set of lead times for products and customers. They're often not the same. Given that the recovery we've seen in the aftermarket, the functions and the

Pretty well with what we're seeing as we go direct.

To customers. So I don't think we're seeing anything significant there when it comes to lead times are every operating unit sets their own unique set of lead times for products and customers. They are often not the same.

Given that the recovery we've seen in the in the aftermarket.

Speaker 6: We've invested in the inventory to be able to support the customer base. I think that's helped out a little bit.

We've invested in the inventory to be able to support the customer base I think thats helped out a little bit.

Speaker 6: But no real significant change, at least from what I'm seeing from either the distribution point of sale or what we're seeing direct and no significant change due to lead time.

But no no real significant change.

Change at least from what I'm seeing from the either.

Either the distribution point of sale or what we're seeing direct and no significant change due to lead time.

Speaker 20: Thanks, and then just a quick follow up on CalSPAN because it's a little bit of a different profile, more service oriented.

Thanks, and then just a quick follow up on Cal spend because it's a little bit of a different profile a more service oriented.

Speaker 20: I'm just curious have you any surprises anything?

I'm just curious have you any surprises anything that.

Speaker 20: that we should think about that will be different with respect to its integration or its margin potential over time relative to the hardware business.

That we should think about that will be different with respect to its integration or.

Its margin potential over time relative to the hardware businesses.

Speaker 6: I don't think so. I think as George said last quarter, in our view of value creation is a three-pronged approach. You know, we focus on value-based pricing of our products, managing our cost structure, and providing innovative solutions. We've only recently closed on it, but we're looking to leverage all three. We think it's a great business. That's been well run. And...

I don't think so I think as George said last quarter, our view of value creation is a three pronged approach we focus on value based pricing of our products managing our cost structure and providing innovative solutions.

We've only recently closed on it.

But we're looking to leverage all three we think it's a great business that's been well run.

Speaker 6: Our goal is to optimize it, similar to what we've done in past acquisitions. We've got to, as I mentioned in my opening remarks, we've got a seasoned executive and Paula Wheeler leading the integration. And I think we think it'll fit well into the transplant formula.

Our goal is to optimize it similar to what we've done in past acquisitions, we've got a as I mentioned on my opening remarks, we got a seasoned executive and Paula Wheeler.

Leading the integration and I think we think it will fit well into the transplant formula.

Speaker 20: And just last one, sorry, with respect to service oriented businesses, is that something that you're also kind of seen more of in your M&A pipeline?

And just last one sorry.

With respect to service oriented businesses is that something that you're also kind of see more of in your M&A pipeline.

Speaker 20: That's stuff you're. No, I think we've always seen a few of them. Just nothing as compelling as CalSPAN was to us. I mean, at the end of the day, we're looking for businesses that we can identify that upper quartile private equity, like return 20% plus. That's what we're looking for. And, you know, we believe today that CalSPAN will absolutely deliver that for us. Thanks.

So that stuff here.

I think we've always seen a few of them.

Just nothing is compelling as Cal spend was to us at the end of the day, we're looking for businesses that we can identify that upper quartile private equity like return, 20% plus and that's what we're looking for in.

We believe today that <unk> will absolutely deliver that for us.

Thanks, a lot guys I appreciate it.

Thank you our next question.

Speaker 21: cultural line of

Okay.

Speaker 1: Sheila Kayoglu from Jeffries. Go ahead, Sheila. Thank you. Good morning, guys. Thank you for the time. Good quarter and congrats to all this emotions. When you put up 34% aftermarket growth and 50% markets, you're gonna get to negatively by his questions. So bear with me here. Are you seeing any negative signs in the aftermarket, whether it's inflation cooling, cargo weakness, or low cost carriers, you're seeing yield softness?

Comes from the line.

Sure.

From Jefferies go ahead, Sheila. Thank you. Good morning, guys. Thank you for the time good quarter and congrats on the promotion.

When you put up 34% aftermarket growth and 50% margins are going to get scale negatively by his questions. So bear with me here.

Are you seeing any negative signs in the aftermarket whether its in place and cooling cargo weakness.

Our low cost carriers.

Speaker 4: I think cargo and maybe some business jets softening in the aftermarket tool, do you have anything to add to that? Yeah, I think the cargo side, the...

Yield softness.

I think cargo and.

Maybe some business jet softening.

The aftermarket Joel do you have anything to add to that.

I think the you know on the cargo side.

Speaker 6: uh... yields are down for them significantly they obviously increased the significant amount of belly capacity in the uh... last several months as international travel has kicked up and and you know we'll see how that all shakes out but we think it has had some impact uh... this quarter we'll see how it uh... shakes out going forward

Yields are down for them significantly they've obviously increase the significant amount of belly capacity in the.

Last several months as international travel has kicked up and ramped to see how that all shakes out, but we think it has had some impact.

This quarter, we will see how it shakes out going forward.

Speaker 3: Thank you for that. And then just on the EBITDA margins, 52%, I think be all time high. They expanded 120% sequentially, despite CalSPAN being, I think, 70 basis points by root has given 25% margin. So are we just wrong on CalSPAN margins or what drove the margin expansion in the quarter?

Thank you for that and then just on EBITDA margins I think your first time I think the all time high.

The standard 120, Bips sequentially, despite cat span being I think.

70 basis points I would have given 25% margin so.

Are we just wrong on Caspian margins are what drove the margin expansion in the quarter.

Speaker 4: I think it was strong performance in Q3. The results, the market mix, and we didn't own CalSPAN for all of the quarter. I think that will impact us a little bit more as we go forward. But it was just a strong all-around quarter, good performance in the aftermarket and OEM side of the house.

I think it was strong performance in Q3 the results the market mix.

And we didn't own <unk> for all of the quarter I think that will.

Impact us a little bit more as we go forward.

But it was just a strong all around quarter good performance in.

The aftermarket and OEM side of the house.

Great. Thank you.

Speaker 1: I am showing you all for the questions at this time. I would now like to turn the conference back to Jamie Steeman for closing remarks.

Thank you.

I'm showing no further questions at this time I would now like to turn the conference back to Jamie Stevens for closing remarks.

Speaker 22: Thank you all for joining us today. This concludes the call. We appreciate your time and have a good rest of your day.

Thank you all for joining US today. This concludes the call. We appreciate your time and having the rest of your day.

Okay.

Yes.

Okay.

Okay.

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Sure.