Transdigm Group Incorporated

And thank you for standing by. Welcome to the Q4 2022 TransDyne Group Incorporated Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised, today's conference call is being recorded. I would now like to turn the call over to Jamie Steeman, Director of Investor Relations. Please go ahead.

Thank you, and welcome to Transdime's Fiscal 2022 Fourth Quarter Earnings Conference Call. Presenting on the call this morning are Transdime's President and Chief Executive Officer, Kevin Stein, Chief Operating Officer, George Valadares, and Chief Financial Officer, Mike Lisman. Please visit our website at transdime.com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filings with the SEC available through the investor section of our website or sec.gov. The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income, and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation on the most directly comparable GAAP measures and applicable reconciliation. I will now turn the call over to Kevin.

Good morning. Thanks for calling in today. First, I'll start off with the usual quick overview of our strategy, a few comments about the quarter, and discuss our fiscal 2023 outlook. Then George and Mike will give additional color on the quarter. To reiterate, 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 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. We follow a consistent long-term strategy specifically. We own and operate proprietary aerospace businesses with significant aftermarket content. We utilize a simple, well-proven, value-based operating methodology. We have a decentralized organizational structure and unique compensation system closely aligned with shareholders. We acquire businesses that fit this strategy and where we see a clear path to PE-like returns. Our capital structure and allocations are a key part of our value creation methodology. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we closed out the year with another good quarter considering the market environment. We continue to see recovery in the commercial aerospace market and remain encouraged by the favorable trends in air traffic. Our Q4 results show positive growth in comparison to the same prior year period, as we are lapping the fourth fiscal quarter of 21, which was more heavily impacted by the pandemic. Although our results have improved over the prior year quarter, they continue to be adversely affected in the comparison to pre-pandemic levels as the demand for air travel remains depressed. We are happy to see the continuation of the favorable trends in global air traffic recovery, with domestic air travel still leading and international air traffic catching up. The majority of countries have fully reopened to international travelers. However, China air traffic lags the recovery seen in other countries. Domestic air travel in China continues to experience steep falls due to strict zero COVID policies that limit travel. China's international air traffic remains very depressed and has only made modest improvement from COVID lows. In our bookings, we saw another quarter of robust growth in our commercial revenues and bookings. I am very pleased that despite this challenging environment, our EBITDA's defined margin was 49.8% in the quarter. Contributing to this strong margin is the continued recovery in our commercial aftermarket revenues along with our strict operational focus and disciplined approach to cost structure management. Additionally, we had good operating cash flow generation in Q4 of almost $275 million and closed the quarter with approximately $3 billion of cash. we expect to steadily generate significant additional cash through 2023. Next, an update on our capital allocation activities and priorities. During fiscal 22, we are pleased to have allocated about $2.4 billion of capital in the aggregate across M&A and return of capital to our shareholders. Specifically, these activities included the acquisition of DART Aerospace, a special dividend of $18.50 per share, and share buybacks. As mentioned earlier, we are exiting fiscal 2022 with a sizable cash balance of approximately $3 billion, which leaves us with significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Regarding the current M&A pipeline, we are actively looking for M&A opportunities that fit our model. Acquisition opportunity activity continues, and we have a decent pipeline of possibilities, as usual, mostly in the small to midsize range. I cannot predict or comment on possible closings, but we remain confident that there is a long runway for acquisitions that fit our portfolio. Both the M&A and capital markets are always difficult to predict, but specifically so in these times. Now moving to our outlook for fiscal 2023. As you saw in the earnings release, we initiated full fiscal year 2023 guidance. The guidance assumes no additional acquisitions or divestitures and is based on current expectations for a continued recovery in our primary commercial end markets through fiscal 2023. Guidance was previously suspended as a result of the significant disruption in our primary commercial end markets related to the COVID-19 pandemic. Throughout fiscal 22, we were encouraged by the recovery seen in our commercial revenues and strong booking trends. Total commercial bookings in fiscal 22 exceeded sales by a healthy double-digit percentage that supports the fiscal 23 commercial and market revenue guidance, which I will comment on shortly. We are cautiously optimistic that the prevailing conditions will continue to evolve favorably. However, as Our fiscal 23 progress, we will continue to monitor the ongoing uncertainty and risks in market conditions closely and will react as necessary. Changes in market conditions and the impact to our primary end markets could lead to revisions in our guidance for 2023. Our initial guidance for fiscal 2023 continuing operations is as follows and can also be found on slide 7 in the presentation. The midpoint of our fiscal year 2023 revenue guidance is $6.09 billion, or up approximately 12%. As a reminder, and consistent with past years, with roughly 10% less working days than subsequent quarters, fiscal 23 Q1 revenues, EBITDA, and EBITDA margins are anticipated to be lower than the other three quarters of 23. This revenue guidance is based on the following market channel growth rate assumptions. We expect commercial aftermarket revenue growth in the mid-teens percentage range, commercial OEM revenue growth also in the mid-teens percentage range, and finally, defense revenue growth in the low to mid-single-digit percentage range. The midpoint of fiscal 2023 EBITDA's defined guidance is $3.045 billion, or up approximately 15%, with an expected margin of around 50%. This guidance includes about 50 basis points of margin dilution from our recent DART aerospace acquisition. We anticipate EBITDA margin will move up throughout the year with Q1 being the lowest and sequentially lower than Q4 of our fiscal 2022. The midpoint of adjusted EPS is anticipated to be 2138 or up approximately 25%. Mike will discuss in more detail shortly the factors impacting EPS along with some other fiscal 2023 financial assumptions and updates. We believe we are well positioned as we enter fiscal 23. As usual, we'll 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 in this period of recovery for the commercial aerospace industry. We remain sharply focused on our value drivers, cost structure, and operational excellence. We look forward to fiscal 2023 and the opportunity to continue to create value for our stakeholders through our consistent strategy. Now, let me hand it over to George to review our recent performance and a few other items.