TransDigm (TDG) 4 Aug 202020 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2020 TransDigm Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. now today, hand Ms. would to conference I speaker your Instructions] like the to over [Operator Liza Treasurer Sabol, and Director of IR. you. Thank ahead. go Please,

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

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

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

in. Good calling morning, thanks and for

To good intrinsic the as as the overview creation both all with expand shareholder Kevin our of cycle. phases will significant industry in summary quick steady and the in strategy, consistency we're times, then color. of on start in reiterate, in give a well our I'll and items a more and usual, aerospace quarter, As through few of our value of focus bad the a unique and Mike strategy

we here very summarize, shareholders To generated some give of focused we proprietary our this. returns this, careful we private dropped sales believe relative goal equity which typically allocation sales public Most due the which air have other sole are our believe are our The comes products period we and stay About has the market. largest with aftermarket, to must extended most and the as of as stability reasons long-standing are the we from for commercial our value from steep well details margin, and downturns. the over do of products, of by of revenue, liquidity our come a To expected decline our is creation of the like the portion XX% over on shocks. aftermarket to higher of both happened Our the in three-quarters revenues, time, sharply, net revenue capital. net as source provide any significantly in severe of during of EBITDA aftermarket profitable This products. travel.

happen, far this it in will indications to but longer in of We fly spotty not to the recover situation, as will follow worldwide Simply though from lockstep. again, start strategy. unique stated, to this long-term of our is However, aftermarket recover. necessarily improvement clear. are a commercial There people rate consistent likely and starting take

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

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

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

puts wasn't timing, roughly EBITDA, you badly. and down planning was aftermarket comps the with our to quite defense backlog The quarter. a QX due in quite As worse To OEM specific the not for revenues scenario we was commercial substantially, a business strong, roughly as down versus tough tough had little our release, a as assumptions, but two commercial and and used were we as our the and with situations. unit planning sizing. operating from decent takes, press line saw in very performance defined, frame Revenue

the year-to-date ahead defense bode bookings which Fortunately, well available the defense ship of are QX backlog shipments, and is strong. well, running to continues to in

of addition and for cost costs our possible. reducing important quarter his quickly. items very outstanding safety, to on as team In first, last the did focused two Kevin quickly reducing we most as the an were: job these

down revenues and rate we were quickly. almost got very cost from run roughly previous Our ratably the our a-third down

in fourth get cost to expect the some quarter. We reduction further

We come closed with a is substantial it. positions. and amounts great market anyone little We additional products could you out trouble billion condition outstanding need firepower. uncertain This of run the the is filled million in we pretty The of only with liquidity these of you times. a if and quarter QX tanks insurance Second under priority a company, situation price. way as large we market due in some The serious that this to and much as than becomes fuel $X.X liquidity. or substantial down, dislocation full worse cash. assure good. out shut expects cash. get to unlikely Absent our additional $X.X beginning money actual was generated We positive flow This of of an this we new billion reasonable cash raise $XXX for It's in or policy quarter. will raised an at was at should with the is almost the

and opportunities in minimal. Both We at especially unexpected. isn't This attentive the the M&A capital so capital the last today. are look always markets predict, are continue to difficult Acquisition opportunities but possible and to to always quarter were M&A our allocation.

proprietary aerospace as bad businesses in We not tend for looking good sell are to they times.

for be be into we longer. too still In model. recovery until to more actively We tend little on clearly. capital this won't Hopefully, general, focus are the allocation, opportunities much picture our looking fit will that cautious M&A comes a

There is suspend continue too uncertainty. We much to guidance. just still

QX. have the guidance we or dislocation better revenues We feel reinstitute a any expect additional We do clearer should picture. we than when absent QX that, large be shutdown, will

Depending some margin reductions expect we positioned on watch exact in on and right we in could as QX. We'll mix, And this react cost also in our now. are the as shipping believe now expansions and accordingly. present hand assumptions Kevin We additional about could We review quarter. market to expand the well to modest next result be let activities. over COVID-related performance me and it our the

unprecedented the In my defined, QX slowdown by our was prior will details saw travel QX versus were to on quarter on was key Due a headwinds, on a as I as QX, against commercial significant outlook the QX, cost GAAP difficult financials cover a XX% business an challenging EBITDA provide from aerospace quarter achieve Mike across I at and of defined declined focus and the margin rapid related am this results Today, impact Nick. EBITDA Despite margin will continued Achieving year in the and for some for and were COVID-XX COVID-XX, demand of actions our pleased first a backdrop year. swift pandemic operating industry our pace topics. business these then review Thanks, has the as was down the the the regular XX.X%. global depressed. more to prior EBITDA provide as unfavorable preemptive later we of down and able profitability and of market of economy. approximately our primarily strategy. reduction that defined remained XX% a versus call. revenues result we and

review we Now market will our category. revenues by

and forma pro XXXX. commercial the in same In on which For of discussion prior market to compared That the remainder aftermarket. period into of the we up I will call, the close a makes year basis assuming own color the both our split provide XX% we our to will is revenue, of businesses periods. commentary mix in OEM

approximately Our from compared XXX XX% total revenue declined impact year XXXX. the the the of QX halt. in OEM when minimal quarter commercial a reflect of fiscal headwind MAX in The QX did decline ongoing with production market

is primarily the However, pandemic. the due to decline

is impact were bookings to prior XX% believe over quarter some as production that due caused down a OEM continue We will pandemic significant continue. market, likely will believe level COVID-XX's has believe versus OEM this commercial negative the demand. on we commercial rate and Our The commercial we inventory impact adjustment of result. year on that -- of in quarterly cuts a and result OEM the aircraft we

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

driven business primarily by by passenger the prior aftermarket revenues moving in Total decline rate. transport Now commercial free approximately commercial in a was decreased on In the the submarkets. quarter, year quarter. discussion. decline the commercial less our interior and aftermarket but driven demand aftermarket commercial market, XX% transport the in decreased to over was impactful the by also a There at declined

results. approximately down aftermarket quarter prior XX% bookings commercial year quarterly Our versus were

business experienced global our result while air parked The demand markets closed late of added have some orders flight to shelter-in-place and decline since the particularly the a with have which in some significant global line COVID-XX, pandemic. of Airlines reduction others, COVID-XX enforcing air went rapid the effect revenue declines. surrounding restrictions dramatic a directionally back uncertainties and a of international as passenger QX world. for began and quarantines. capacity response cases This on capacity. is aircraft As in have markets, mile are flight in decrease resurgence in remain in reopened, across demand led observed into or travel in to Certain which in travel

off XXX, mostly improving on in the in Considering XX% crisis have seems shape in high revenue result of to rest recovery an the world slowed declined and of to Cargo global compared the speed FTKs the to as was U.S., remains revenue unprecedented miles calendar the uncertain. forecast all-time still at the the passenger a be XXXX. touch though have recently variables, a bottom from IATA demand prior of as XXXX. events weaker few To year lows, in are recent COVID-XX consideration, these of a miles recovery pandemic. However, while decrease the points the passenger key slowly.

by of to economic and operations opportunities. travel loss belly much pointing lesser have extent stagnant a to utilization cargo some was provide before this data has. However, impacted reduced growth a due commercial been to jet could cargo passenger passenger demand downturn. than unexpected Business COVID-XX Cargo flight

trend outlook due to but flights rebounding, leisure is and to remains difficult as unpredictable the as are this during jet business this business foresee. personal for sustainability jets opposed the to Now pandemic travel. aftermath, The and of in business travel

same percentage We in we As which USM not focused a I landing our of surplus used gear-related. large USM are well commercial exceeding did are We review study TransDigm. below high-value price $X,XXX from in of wave parts a to to systems. future material and augment Most focuses serviceable typically material on not and USM. or repairable unit the parts around refer conclusion. at few market, been retirements that the has will fall conducted retirements. level, of mainly a A the or years are low may a validate back potential to aftermarket, rise or exposure $XX,XXX, low-risk consumable market to that concern $X,XXX landing refresh and This airframe the the avionic see the $XX,XXX impact of legacy could have as TransDigm. risk on to a a our study engine-, do this for USM a gear resale historically recently USM avionic for resulted business market a engine,

market Additionally, validating our in and our parts searches for an available of of percentage USM part sale TransDigm for USM sale TransDigm. USM immaterial targeted for found numbers aftermarket the in examination low USM parts the resale for of the market, for risk

continue for any to trends. closely these However, monitor watch in historical to we changes USM will

to longer-term pandemic to are predict. the As believe situation are will unclear ongoing, as hard the severity We as improve. air and is the impacts continues still long recover aftermarket for the and do the commercial commercial aftermarket traffic duration of COVID-XX

So a of that not is if. recovery when, question aftermarket

QX. about revenue. defense OEM the Now our aftermarket let and is of which our year XX% both market, typically me by approximately compared which declined defense speak revenues, total about The includes to prior market, XX%

revenue a bookings prior comparisons As lapping in year defense XXXX. reminder, we tough solidly have outpaced Year-to-date, accelerated most were our mid-single are of sales. digits fiscal up and year-to-date defense as

be can times, lumpy. bookings many be can have sales defense we said and As sales

there a were delayed timing-related related airborne issue, delays quarter, and shipments at This in specific parachute safety issues due systems Armtec. which to international of out sales

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

continues primarily or global down post for approximately Moving of light for with to year. versus as largest difficult $XXX margin and expectations we operating the the operating defined focus EBITDA margin about commercial Despite in able TransDigm as I'm EBITDA are year cost to we in that We close. about am EBITDA of our mitigation impact this a strategy. economy held profitability. flat of as defined. progress an aerospace On performance were of acquisitions. was to efforts our Esterline, defined talk last XX% margin a going COVID, EBITDA defined a EBITDA our QX and exceed of industry, as achieve prior million now such as pleased defined growth was result on the I XX.X%. to integration a and consistent in almost quarter as QX. over the our

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

Now let's look outlook. our at

for and a assumption expect the As COVID-XX EBITDA and I half conditions adversely to that least of the previously will under sales, commercial pandemic's to the OEM to assumed on defined of impact pandemic due that impacted the impact commercial want year continue at fiscal second significant being we the and to our XXXX demand fiscal we market the adverse aftermarket air most travel customer we income reiterate negatively XXXX on have remainder for mentioned, impact worldwide. as currently net disclosed. do the

guidance to organizational used for a was reduction analysis levels to implemented force As drove that reminder, be our not meant date. was in this but the rightsizing

likely of we following to XXXX. OE our with better with for aftermarket Defense line perform possible. utilizing to appears which Commercial XX%, We XX% fiscal of in prior XX%, for of will are worse perform guidance end here. sizing the half and still bit XX% the digits, in mid-single a here. defense market, organization to Commercial the may declines growth needs still regard second we the this is declines

on COVID-XX and customers to review while confident detail. the mitigating over Next, are our response impact COVID-XX business remain I in like would our the model our in of more business We to long-term and supporting focused employees.

a has led by businesses few. have experienced technologies, of to engineered Additionally, antimicrobial explore one new on solutions most many our name touchless the put to Vice place, from help team working needs this of opportunities developing and for A technology, highly our air Presidents, opportunity cross in antiviral, business arising Reiss, taken emerging purification been COVID Executive effort. drive Joel to TransDigm by including

production downturn cannot We but demand more ensure to items of includes market on in the second quarter than both we to in update the response more fiscal saving actions COVID-XX control with to include including continue align provided the the can an cost a as from provide changes reduction utilized these me We of focused let resulting in the specific react in in quarter Now current but the extremely compares we the disclosed pandemic. the rate These permanent realized. XXX due the be have to call. reduced efforts temporary and earnings in greater that cost permanent factors the earnings view This taken even thoughtfully demands structure. This to the implemented closely, were workforce we total and so operations always on previously XX% due external reduction reductions. uncertainty and force costs monitor was and of target implemented, understand reduction that second to can and on environment. downturn, we control cost until our previous those to be to – a customer third response remain the XXXX. swiftly favorably mitigation MAX we such Furloughs

monitor and will or quickly, to cost and have, operations will further as needs. vigilantly to external continue events we our forecasts control We always react

dealing I speed while actions am which pandemic, conclude stating, TransDigm to me immediate the the pleased of impact uncertainty with from pandemic industry. the let been and also reality aerospace taking commercial duration the broader responded has protect and to The on has the with of harsh virus, and by shape the remains the the unprecedented, employees confronting about pace recovery. So market spread at any

ever cost the turn commercial the business in our the management our of I mitigation structure. primary operating utmost our the efforts through poised strongly own strong Mike and company ongoing act a ongoing tenured remain end markets confidence best we and to Officer, quickly Lisman. have on over an I that and and action. to in developments the continues to to would with commercial swift monitor cost it determine our due aerospace However, We will have Chief that emerge our purpose. diligent focus to to Financial continually that, industry ready course from the like weakness now strategy, more improved team With

our year included billion year. GAAP benefits and CARES to driven expense our good be initial guide can rates adjusted presentation today. on interest that not expectations quarter much on X will XXXX quarter deck the and should in quick too approximately in taxes, one the then unchanged Two detail, than and Act. taxes. everyone. that primarily and percentage commercial going updates the be press was Kevin end fiscal the for I'm for for expense to declines are Organic the due information the morning, referenced. for release and operating fiscal points to in Kevin, quarter Thanks, elaborate by $X.XX On growth results you see cash from more last as Interest on more lower the negative the XX%, for X market the

our quarter, see rate EBT in the This to slides FY the of spike will tax quarterly despite a noise to the XX% you'll there that to XXXX rate, the high be with expected a GAAP XX% due bit in resulted for year was as But GAAP in full today, rate low zipcode. rate still our XXX%. call

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

computation. of primarily net in of roll capital air for on will a continue ticking from up working last Assuming than LTM collection as This quarter are we driven mainly the remains at was EBITDA travel this receivable, by the as out expected. customers stronger liquidity, our operating quarters, inflows depressed, accounts who was quarters cash ratio coming levels. stronger year generation now reduced activity result a commercial On from

standpoint, is end the the forward and well here continue there of cash going our for we time. overall free the some flow currently environment we think balance commercial positive From commercial While now, liquidity we balance cash position depressed to substantial quite right prepared sheet markets good a in running uncertainty and for in remain expect to year. an withstand

is I'll debt the XXXX, the revolver balance cash structure, now to and $X.X we should sizable additionally, over back we reminder, a on to years $XXX so billion, our now. we Q&A. And million access With that, almost our of kick maturities four to capital of just any Our off turn have as operator face under need from don't July it. it until

Suisse. comes Thank with Spingarn you. from question Robert first Our [Operator Credit Instructions]

is now Your open. line

Hi, good morning.

morning. Good

we should down the What just the I XX% XX%, XX%, but here? just down XX% a there well, as here? able downside we still we the is how think you're about outperform Is bookings sales think level I that, aftermarket said, pricing that just - follow-up from lag of guess, to diving jet. to about to what or, reconcile Kevin, large And then number? wanted if a And capture? you right do you'd in,

first question your I [ph] forecasts, on on So CAM is pricing. think and

hit going up drive pricing seen I'll on this. as limit I value we our downturns, ability to think or restriction our have are pricing, in needed. first. costs previous quite a Clearly, In a significantly not

them little not yes, On bit we're on CAM uncertain. - haven't forecast before. So and our seen is price, a issues we anticipating any

year-over-year As the amount our strong. commercial aftermarket of you remains will and you our is unfold. It's a reasonably of within I know, and chunk tell will reasonably this ship there's flat. that some or close how flat quarter, unknown book to in backlog

seeing drawdown not a we're our So massive in backlog.

as a and exact leads of The lot either, We a the until cancellations will little have. confident us look will anticipating -- things But split This is question forward. flights bottom But QX will We're in better. uncertain there QX not people as how there the are reschedules seeing of be world. and here are market out there plays as may modestly and seeing that which be consistency we we better. uncertainty will is happen are be is not market consistency get consistent that to pushouts. be in the end

we that So follow closely.

how you in And about just you're what's are thinking as what distribution channel follow-up, producing? a the the to relative in channel,

them Well, about which some but industry. is comparison of that rest on the to the minor channel, is aftermarket, of our levels, by XX% visibility distribution have we inventory to do our of some

on channel, no the So but indication currently. times don't stocking have or OEM that's side, at inventory of I I that I what what of be partners amount in the have airlines OEM surprised are to now. that the on right tend no, visibility

don't what the we inventory like. know So is

seeing expedite demand seeing demand. some are in the aftermarket. We're urgent We

So move be starts is to that as that and tell would forward. fits this going me we of recovery

very much, Kevin. Thanks

Thank you.

with from Copeland Carter Research. comes Melius Our question next

now Your line is open.

Hey. Good team. morning,

Good morning.

Good morning, Carter.

on you expect do Kevin, kind down? peak your themselves couple a might if developing work have, and expand this guys second Thanks. those One, on And inventories, but need just to here? profitably? be anticipate of previous in that is of own the by niches front that anything external going see we're of an on, kind temporary a ways that do is When then, that in don't comment, know, you could not Just -- but downturns, after much get peak that you exposed, those you quick worth that too know so I one nature, ones. there find when that found question opportunities. that's I do to channel, revealed. new And your inventory

So due and continuing have and would business to finished levels, increase seen goods. shelves scheduled sticking our opportunity. than producing material them On liked. on to These receipts levels is largely. run. levels This we inventory more we've were new inventory inventory raw not And

So we have work to do there.

think needs that that would on to has as but and inventory, to Mike it been the well, I our be. extent admit AP performance not AR decent,

Joel have We to cockpit work continue post-X/XX in to -- understand interest developed of was we've I opportunities out. And to So occurred around I'll the there That mechanism, with There's you driven we'll that from lot to we for and was grow. a fantastic And came that people back locking back We've We've why by business the do had modules, now. to drive And looking we've and we see be the with seasoned some opportunities product helping business this that do there, this flying, world. and about, the because We're outlined us, with cockpit OEMs. airlines door and put opportunities that pandemic. and X/XX, similar a interest. have plays to development every dislocation. the of depressurization has new of for market business, door bring our coming That team. role as that cockpit to we a module, confidence about to and fully door. On with gone necessary that's for business forward. out that help how veteran talked that, new of Reiss may it the opportunities, obviously go bring as the think, of forward.

and in we that there's So see my We'll anything have efforts. comments, we very of much comes, position I that recognize this. But offer. less in antiviral, so we our It's technologies, if Like exciting… antimicrobial, in to because said active busy. very touch our are are

just Kevin quick… very

forward talks a assuming just add so. thing. any get that the don't thing just flow, going just about be add free working free Mike that's conservative, -- I'd flow, In to I'd cash reduction, capital cash one you one

Okay.

That also we point. yes, its with important deal can it,

my I cash from my flow. When not a inventory -- that's mentioned from with issues, operating cash,

just products as way, And primary on is you business. the other And Kevin, I produce, that, provide? certification? making like insulated you're in here whatever comment follow-up, it the guess, many hurdle a Is of Okay. some that going the to new the to

how don't that. answer I know to

will put of is. there course of on need I -- way of don't think really a always. I and and be Certainly, gets society. the thing issue the I I technology, suppose, unfolds? what be needs It certified. that around an how I a certification market desire think to And be will to flying, useful, think, would in be be demand touchless around think will well, thinking I lot to different of aspects seeing a

feel XX achieve stuck hours to more plane offer help So, this put that being flying, we like on comfortable for place more. that. And can what make people does of to or about is in what would look and trying one aspect just products that a

Okay. Thanks, guys.

Thank you.

from David comes Strauss next Our with question Barclays.

is Your now open. line

everyone. Good Thanks. morning,

Morning.

limited from to the underlying there just and or aftermarket flight expect exposure level see a still In around would level you to overall the departure commentary given potential aftermarket USM, of activity? the thinking aftermarket of Kevin, between and Do track your is -- overall your your hours? wide about levels you variation here, the think just to flight

more how dislocation the lag. some that comments flying always market to there I prepared There's think a said That's that he bit lumpy people of it and a Nick be would the recovers. be would and could in anticipate natural.

adjust us. thoughts these how to mean that stress; We We do respond. the we're to yet. again, As variable I see thought we quickly not when happening We'll seeing coming at everything react be the cost, have those we happens. it to at driving whipsaw costs - But how can market. eliminating of the We quickly how costs. we we and -- for fixed what I look through chain, want react are we prepared We and quickly now. to flows right supply -- the are it our

we Our last It in the and are be delivered don't disconnects as see USM what promise us. us. I quarter front us. quick that's to impacting you see we'll unfolds is What fluid execution, here of aftermarket and this know. what and I we deliver as could there. that's often, don't There impacting some be PMA could forecasts can continue lumpy.

people eventually, will the business fly, So, as come.

primary the people worrying use number there's thing to I'd start many much of watching just flight about until are some the the add, are flights, now flights off. on how taking degree, -- is we because flights it's the not

Yeah, take-off and landing.

what I mean we're now. watching that's

for And one would margin to relative a said potential improvement QX. I above expect mix to in then And where in underlying stand sustainable do Okay. think quarter given think we you we fourth comment? you for the about ask comment, assuming above the point, from what here? today, are are -- What you Thanks. this EBITDA in XX% continued that margin there's of at you kind adjusted saw margins

Yes, let me made take that comment. the because I

or think absent above shutdown is not quarter, or next I I we're think fine above assumption speak again, substantial some -- to year, XX% is dislocation but XX% a a going like the next that. out into the -- something good for

be mix But or we sure, -- know we I'm will additional should is Kevin so what sure am We will expect are some we reductions quarter. -- shipments. the exactly of so next cost in we the have not -- and I

cost larger that would book ship -- that's and and the -- I the you -- of the you is in get business. the of band say is get commercial portion margin might get reduction. tolerance highest the You do I could out savings And the aftermarket, would than do be that say the the around some place

So little just to hard it's little it's a a predict. --

a would I XX it's is more think fine. to get I little the the get we might but expect know until above exact. hard we increase, mix

All right. much. Thanks very

Sure.

you. Thank

Our next question Herbert comes with from Ken Canaccord.

now is line open. Your

Hi, good morning.

morning. Good

what I'm particular -- a Kevin, in wanted or might comment to by over just seen reason called geographic and if trends Just relative some aftermarket or broader could in And on the your out on specifically seeing region various industry in you're follow-up your there's Kevin comments, aftermarket we've revenues regions I just wondering Nick, why the breakout? the be comments. you aftermarket any variability to underweighted if geographically.

Ken, like review that. geography booking, orders, performance we our by aftermarket don't sales

difficult through get visibility it's where things partners, end for don't up. go the So some or things of When that distribution we us. OEM

partners. insight rest any the the the I've starting that on Asia in have partners is canary from to only use, for using anecdotally, for pick don't how you better. much the is our doing. as on that We're mine that our coal geographies. conversations heard that the can We're China distribution be thing I So up. can improving, the with should that now. offer I of right say see from geography again, That's business only I doing

obviously, And commentary it provide bookings maybe any the helpful. any seen sounds, in you seeing and you're on or sequential that expecting through just trends you've July of Can out That's quarter? aftermarket, Okay. sequentially, some improvement. coming of the second the

just is -- that Yeah, I I again, an this say comment and on What can can't July. indicator. is

across POS it's down amount bookings business. low During our look quarter April. it the improve also our seen to – of in improve at month-over-month the during start quarter total same Directionally, the distribution the POS, quarter, in in very improve we we've that partners, start we've but early the deep on saw business month-over-month. down, as I off our is And seen to the

on offer try demand and I So as some that from to things – shipments. improving gradually I are color

Thank you Okay. very I much. leave it there.

Sure.

next from Thank comes Walton UBS. you. Myles And our question with

open. now is line Your

– commented Nick, lack you on sell desire to lack the and of counterparties maybe morning. downturn. a Thanks. Good in of

back looking the softer that your deal in period time. flow of or prior of pauses situations was there it's kind not any in clear even Just during mid-XXXXs, that big to XXXX-XXXX

you you So that sensing the I'm Or offerings to seeing curious, be reluctant? are that, market? just are of the reluctance

We seeing aren't much.

aren't would it a that to We to we business, you say the aren't me good And, particularly choice. have significant particularly much. be a it, data seeing this seeing be or time – seems to if number. you selling as And commercial any any any have frankly, if not

Yeah.

on and mentioned? Is this, think, you quantify situation the you it it you Okay. there came Armtec maybe itself? And how resolves with something, can then, quickly And Kevin, comment I safety can Esterline.

a incident Armtec procedures. us is products, resolved, safety competitive and well, caused ongoing chaff, had an Yeah. and flares The business us. that it's for And down effort armament the production our a makes, for shut us, of rework we to – of like. has It's this military. will be This manufacturing not revenue but have processes, business to some but is driver very competitive, to

has is a through but for big So headache been the it. driver revenue, a team EBITDA. us, great driver working not of it's a This of

Is it get get the that for precursor? mid-single-digit up to necessary to Is to that the year? back

Interesting question.

to necessary – for running. think I back up it's and Armtec As don't I be

across other We continue progress this, of was there, we to called as do some which businesses out just a and make that airborne we lumpiness. few

– out forward, it to to look the that. our into It look be pass. – QX, But all have It's forward you to We it's we be more on comes we we in the to military consistent. booked forecast. backlog just backlog as further need if to advance. tends can count tends necessary see support As we now –

So we – this QX. here, the quarter about next confident feel reasonably

great. Okay, Thanks.

Yeah.

Thank you.

next with Khanna comes Cowen. Gautam from Our question

Your line open. now is

morning Yeah. Thanks. Good guys.

Good morning.

Just two questions.

I based the to customers? are indications impact can quarters. question, on wondering will from going follow-up Myles' cited an impact we the duration of those And product the the quantify And did be, on anticipate what – the you Like, at destocking of that two issues up how many you First, defense from units. would eventually? much make just sales to you then how was if lastly, OEM

we'll don't really know, long I Obviously, scheduled are rule. Well, yes, the inventory the will to don't know. we of I that that they I in out account the burn some deliveries. for closely. products, There know you. lion's as a – for anticipated down, levels they the product have certain. follow order, don't in on lumpiness of are out I restocking far was have jump things that our But impact, the again, anticipate share to shake but out business was that seems in On it. of the that rest system, have really how mean, you that watch that those as that levels. all to bore don't lot QX. the to you it inventory visibility in have doesn't That any

So can't destocking how will give on time long you I frame last. any

Thank you.

Thank you.

with Our comes Vertical from Stallard next question Research. Robert

Your is now line open.

Thank you so much. Good morning.

Good morning.

This different is probably far, they have you've downturn at prior down Kevin, what seen doing are what far done a unprecedented. wondering, described your as if so customers in seen question so Nick. you've you look was from But anything you I airline the cycles? for

the last still up April in come X/XX, would starting slam I to after in say point, probably good, and it was very it levels ordering longer. mean by I and is in value Even the is harder the down to just appears essentially froze just back. aftermarket. not this

Right. That’s helpful.

a know, but day. around I mean, up publishes rate the the be slow stalled little of XX% And XX% off you well, can XX who will run slowly. but the look David it every stalled seems at pickup remember U.S. They've flights you back is watch rate. a a determine But wounds. can't the little coming Ultimately, picking -- at of and the that, you world. particularly if all spotty. domestic and I that recovery is fairly Europe has to think rate China I about Strauss to little. the

just more I that. in or you wondering there'd of phasing know, restructuring are you've just about lot was survival these the airlines been mode. I if like wondering aggressive was if destocking any seen anything of a of maintenance, more structural

haven't have don't think Kevin, I we? We --

We've No. not just there. anything that. seen not like Yes,

you as bad as debts yet on seen the a Okay. - And then to airline with that, Mike? problems Nick Howley A any follow-up have side?

but at the monitor of in and area weekly limited it, look material. Very nothing $X million. We

great. Thank That’s Okay. you.

you. Thank

from question Seth comes JPMorgan. Seifman next with Our

now open. is line Your

good Thanks very much morning. Thanks. and

Good morning.

if guess, coming back your would the revenues to it's XXXX, revenues range, probably where the it's where XXXX, traffic think lead levels you can now XXXX, imagine guess, How IATA of would there I your level? which, about prior I'd was about time say, time sooner. aftermarket of return I think back kind we forecasts in aftermarket get kind that to

follow I it and don't following I throw it's estimates or We that on We're out, -- whether we're planning thereafter. closely. same really reason XXXX analyst the know. have any the just guidance can goal have better to to execute quickly, don't slightly marketplace, whatever again, will we you see react I do on that. to number say than to on quickly us But is that. count a the community our in

the we at world. how look that's So

the How picking -- only the start to to up no once then the into are future. around thing don't have flights And I'd again, the full are back to and is world? first. I add flights the I the I'd then a start And how they -- close insight get up number, flights getting. get watch

Yes.

EBITDA little fourth a quarter? costs business. to as there maybe the And in safety the bit a were mentioned the if that then related And margin the probably average that -- there just to beat dead the in you Okay. were follow-up, adjusted But further. Armtec any a quarter there issues then was Was lower away were… horse in than it go

head. is so. shaking think don't his Mike I

really and the They material in had that's took on as issue ramping an add-back partial costs. have but guys. Nothing shutdown that material, up, nothing facility that we a back quarter

much. very Okay. Thanks

Thank you.

from comes question with next Jefferies. Our Sheila Kahyaoglu

line now open. Your is

I seeing commentary, as these morning it, just in cut of apologize Hey, but more of commentary, RPKs? you if pricing some I terms good in pricing are what you maintenance of CapEx airline guys. what expenses terms or missed airlines on than are seeing

and anticipating something Yes. in guess, prices The our commercial -- possibility I the stick, world, we've downturns, previous in commercial -- we're pricing the this pricing similar. lever space, seen

through justification and we as this. yes, worked significantly costs to pass some as We quite have seen fits way we've go our of to customers starts And our that. is forward. it's our is -- go work The with that up market along

conversion, cash cash uncertainty balance the time? about paydown year? good the then really a think the deployment, end free the Okay, does flow great. more And capital just to just first was quarter. do it given we it appealing on for then on recovery, make debt in in commercial aftermarket How And

but year, obviously, it of quarter, million the a from to but should out and expect What It flow the came free running the one. we I by minimum bulk be tens of higher ten receivable. question? will balance, cash hopefully, it EBITDA several at don't it -- we bit what depends up million a accounts not higher. generate QX. happens a we be on positive. Well, higher. number end tick quarter like are was $XXX few than will more on but next just That's millions. dollars, at The the this and It $XXX be cash it it up little this will pick second quarter think of of But did we in millions the It

buy on selling, recovery, revenue nobody with don't projections. recovery, is you prolonged want to probably Just aftermarket

So, what about debt paydown?

Instead of acquisitions.

if be I'd acquisitions. of surprised next in Instead quarter. do anything we like the that

Thank Okay. you.

you. Thank

Peter question next question Baird. comes next from Arment Our with

Your line is now open.

quarter, but this morning the you maybe good need just just quick Nick, Nick, just you Kevin, this question it. you follow-up probably raised $X.X regarding is Yes, you for Mike. said past a billion when won't

your throughout what you over thinking need a you line was were Or this that was on time that? downturn I time what won't of for of Just thinking terms the looking just maybe it?

out only that seem it the might whole longer way us. market little insurance and much And on and debt of the anybody going absolutely the for of to more It like – worse pretty at the the a it end for get much up fuel. condition price to didn't anticipates you. simple. give than were now run we as raising, wanted and you and have it protection looked sure thinking the beginning just of this wasn't and we be possibly it market risk follow And dislocating a excessive I price March April. great during our the could was a And of was this world said, Well, was is business

would some cash, preference like feel national but shutdown, to international say, shouldn't and to always, on decide view or that. our shutdown world, the feel we our always with clearer very is we acquisitions. we'll or little think dislocation problem, substantial more that we a then as it's I preference will cash I I again, fund large absent comfortable additional to we positive. think got When a because unlikely is continue we we very Well, once up and be make accretive believe, I what first develop of do they’re businesses, our pile to firepower. clears, it. smoke will the need

our of changed. Our we make shareholders hasn't to them. given them, the our and some that last And to debt, in next our third the is always choice can't form, accretive give choice can fit off particularly choice we pay our that priority acquisitions If find strategy back is find to level when it cost probably now. of the is to debt

we As aerospace and acquisition out. our will end on market, – we down the both market market through capital up the priorities. ring our of play kind dropped the – Exactly the we where depends how market

color. good That’s Nick. Thanks,

you. Thank

question Epstein Bank Ron with of Our America. comes next from

open. now is line Your

guys. Good morning,

morning. Good

follow-up actually think right, a to we questions don't maybe of back traffic XXXX air get a at change does the global right, strategy about earlier. it until happened that about to is into highly back XXXX, couple engineered, is think I levels had how This and or you were? If products? business? you differently? it M&A get a where become we little everything other do to the on of all that stay diversifying just engineered important? Does would takes mean, Do What you more just the longer same,

as that watch to it goes have we'll along. think I

Our priorities. love always -- do But We'd there to hard what see good we we well. to in our inclination, inclination again, to come we're some stay if up, predict. our do space out that's with acquisitions but stay I what choice strong is And can't have are our we that's we money And won't away I to to chipping be still shareholders. give the generally those -- extra next think if something. the it at imagine our find rock, would back

the that's way to we went accrete pecking order But pretty Now right to we think value, if far what have might want on and down and to on no else about do. on, and now. saw things we

Thanks. great. Okay,

question Thank Ciarmoli from you. SunTrust. comes next with And Michael our

open. now is line Your

think cuts clearly, it improve. into being this OEM I'm without Maybe, the to guys the perspective. parts. improvement taking guys. and the channel deck if to a not morning, recall kind slide But planes Thanks mean, flying recent at by is anymore good it guess side, about Boeing just quarter, like planes Hey, I headwinds the trying the seems you I just older from are you fourth on the or consuming But the bookings touched kind quarter? USM knowing mean, – Thinking XX%. was there's from mean, on lot there. It scenarios mean, I XXXs, in coming into figure exposures for aftermarket I I old of XXs. those of And a had can being going a guys touched I account Airbus. And some looking unknowns down the to thinking of know how taking I the I – defense just I'm probabilities still how out Nick, out of the question. about about inventory sounds real in fourth the don't of your guess, from improvement do you like to retired

in pretty will the not There to hard for course, a was third next that particularly commercial revenue additional give – kind fourth exactly. arms the we’re the get are any higher be or – don’t But to of than again, in comfortable it fourth we aftermarket around we're because quarter, – number and absent significant quarter going is unknowns the of your shutdown, surely the dislocation I quarter.

more I you specificity not comfortable we're than that Kevin, with. agree? think do much

we to – add alluded It's passengers important earlier, I airlines. about Whether is, It's how or we some matter people certainly that a to walls of and plane also the at the cycles, as for landings. necessarily a what. – great true from disproportionate of it's why not weighted business or products counting I the at needs And and and flight of plane. It's share do. our believe a driver those lot plane, narrow But not we're wear Nick matter no think We boarding I factors, takeoff materials wide-bodies them But they're we on the floors it, Clearly, for obviously, to be cycles. out load that takeoff talked are is what the a matter content. a would our of on In seat there's account and market there's a be large No lot the flights. RPMS, international look to think disembarking to the and that's on. people wide-bodies look think, serviced and everything. And no aftermarket landing and what. on have many for what not on impact changed are aftermarkets, we bodies. belts. way will that's that's a we're

the legacy going be What those is are cycles that about for marketplace. big platforms retired? mean, a gotten mean, headwind? have I that just those to I gone

old flying. let's but of to and is make them are Certainly, going aftermarket this impact. planes back that's most newer sand a certainly But from It's There's planes not realm, generally Yes. that, that's money what mix. no back. legacy more planes Whether remember in there's entered or that newer are the our points headwind. planes about brought very it. bury as pretend have warranty. old yes, We're of slightly percentage the plans in to Clearly, matters to more they're doubt heads off that an the the on brought on and in aftermarket retirements, going less be legacy not us it's many that you

what market cycles, flights. the those that's the we'll takeoff following weighted matters is to we're And So in. That's what us. it's again, that again, – and landings, drive

expect results have our be shown so We'll will this it that. lumpy. how far continues. I think I see

the including will markets. forward, improve go people as defense on we But it As aftermarket, both business fly.

guys. Thanks, Helpful. it. Got

disproportionate retired. believe waiting airplanes being old any don't there's We that when are

That's right.

Okay. Thanks, guys.

call this you. And in closing Liza Thank the I'm showing to turn queue back Sabol to for like any remarks. at questions further time. the no I'd

you, This today. us time you today's call. again. Thank for and joining your Thank concludes for

may now thank Ladies today's your conclude and participation you conference. for does disconnect. you This program, on and your gentlemen,