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spk23: Thank you for standing by and welcome to the Transdime Group's 2023 first quarter results call. At this time, all participants are in a listen-only mode. After the speaker 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. I would now like to hand the call over to Jamie Steeman, Director of Investor Relations. Please go ahead.
spk12: Thank you and welcome to Transdime's fiscal 2023 first 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 Lichtman. 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 at 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 call for a presentation of the most directly comparable GAAP measures and applicable reconciliation. I will now turn the call over to Kevin.
spk13: 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 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. And lastly, our capital structure and allocations are a key part of our value creation methodology. Our longstanding goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we had a good start to fiscal 23 and increased our guidance for the year. We continue to see recovery in the commercial aerospace market. Our Q run results show positive growth in comparison to the same prior year period. We are encouraged by the progression of the commercial aerospace market recovery to date. and trends in the commercial aerospace market remain favorable as demand for travel remains robust. International air traffic is closing in on the domestic travel recovery, and China reopened its air travel in January with the lifting of its pandemic restrictions. However, there is still progress to be made for the industry as our results to continue to be adversely affected in comparison to pre-pandemic levels since the demand for air travel is still depressed. In our business, we saw another quarter of very healthy growth in our total commercial revenues and bookings. Bookings also outpaced revenues in all three of our major market channels, commercial OEM, commercial aftermarket, and defense. We also attained an EBITDA as defined margin of 50% in the quarter, Contributing to this strong margin is the continued recovery in our commercial aftermarket revenues, along with diligent focus on our operating strategy. Additionally, we had strong operating cash flow generation in Q1 of almost $380 million and ended the quarter with close to $3.3 billion of cash. We expect to steadily generate significant additional cash throughout the remainder of 2023. Next, an update on our capital allocation activities and priorities. The capital allocation priorities at Transdime are unchanged. Our first priority is to reinvest in our businesses, second, to do accretive M&A, and third, return capital to our shareholders via share buybacks or dividends. 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. As mentioned earlier, we ended the quarter with a sizable cash balance of close to $3.3 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 and 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 especially so in these times. Now moving to our outlook for fiscal 2023. As noted in our earnings release, we are increasing our full fiscal year 23 sales in EBITDA as defined guidance, both by $65 million, to reflect our strong first quarter results and current expectations for the remainder of the year. The guidance assumes the continued recovery in our primary commercial end markets through fiscal 23 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 $6.155 billion or up approximately 13%. In regards to the market channel growth rate assumptions that this revenue guidance is based on, for the commercial aftermarket, we are updating the full year growth rate assumptions as a result of our strong first quarter results and current expectations for the remainder of the year. We now expect commercial aftermarket revenue growth in the high teens percentage range, which is an increase from our previous guidance of mid-teens percentage range. At this time, we are not updating the full year market channel growth rate assumptions for commercial OEM and defense, as underlying market fundamentals have not meaningfully changed. Commercial OEM and defense revenue guidance is still based on our previously issued market channel growth rate assumptions, where we expect commercial OEM revenue growth in the mid-teens percentage range and defense revenue growth in the low to mid-single-digit percentage range. The midpoint of our EBITDA as defined guidance is now $3.11 billion, or up approximately 18%. with an expected margin of around 50.5%. This guidance includes about 50 basis points of margin dilution from our recent DART aerospace acquisition. We anticipate EBITDA margins will continue to move up throughout the remainder of the year. The midpoint of our adjusted EPS is increasing primarily due to the higher EBITDA as defined guidance and is now anticipated to be dollars and 17 cents or up approximately 29%. Mike will discuss in more detail shortly some other fiscal 23 financial assumptions and updates. As our fiscal 23 progresses, should the favorable trends in the commercial aerospace market recovery continue, including the expansion of flight activity in China, we could see further upward revisions to our guidance. We believe we are well positioned for the remainder of fiscal 2023 We'll continue to closely watch how the aerospace and capital markets continue to develop and react accordingly. On the organization side, I wanted to announce the retirement of Hallie Martin, our general counsel, chief compliance officer and secretary. Hallie has been an integral part of our team since 2012 and long before as outside counsel. Jess Warren has been promoted from her position as associate general counsel to fill this critical role as part of our robust succession planning process. Thank you, Hallie, for all of your great counsel and dedication to Transdyn. Let me conclude by stating that I am very pleased with the company's performance this quarter and throughout the recovery of the commercial aerospace industry. We remain focused on our value drivers, cost structure, and operational excellence. Let me hand it over to George to review our recent performance and a few other items.
spk11: 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. The market discussion includes the May 2022 acquisition of Dart Aerospace in both periods. Dart has been included in this market analysis discussion since the third quarter of fiscal 22. In the commercial market, which typically makes up close to 65% of our revenue, we'll split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 20% in Q1 compared with the prior year period. Bookings in the quarter were strong compared to the same prior year period and solidly outpaced sales. Sequentially, the bookings improved almost 15% compared to Q4. We continue to be encouraged by build rates steadily progressing at the commercial OEMs and the strong demand for new aircraft. However, ongoing labor instability and supply chain challenges across the broader aerospace sector present risks to achieving OEM production rates. Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 31% in Q1, when compared with the prior year period. Growth in commercial aftermarket revenue was primarily driven by 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 Q1. Sequentially, total commercial aftermarket revenues grew by approximately 7%, and bookings grew more than 25%. Commercial aftermarket bookings were robust this quarter compared to the same prior year period, and Q1 bookings significantly outpaced sales. Turning to broader market dynamics, global revenue passenger miles remain lower than pre-pandemic levels, but have continued to steadily trend upwards over the past few months. Airline passenger demand remained strong throughout the fall and holiday seasons. IATA currently forecasts calendar year 23 air traffic will be within about 15% of pre-pandemic. The recovery in domestic travel continues to be stronger than international travel, although international traffic is catching up. In the most recently reported IATA traffic data for December, global domestic air traffic was only down 20% compared to pre-pandemic. For the U.S., domestic travel in December was within 10% of pre-pandemic levels. Domestic travel in China continued to lag other major air traffic regions and was down about 55% compared to pre-pandemic. However, the lifting of COVID restrictions and the reopening of China to international travelers bodes well for air traffic growth. Roughly a year ago, international travel globally was depressed about 60%. but in the most recently reported IATA traffic data for December, international travel was only down about 25% compared to pre-pandemic levels. International traffic in North America and Europe were within 5% and 15% of pre-pandemic, respectively. Asia Pacific international travel was still down about 50%, but should improve subsequent to the January reopening of China. Global air cargo demand has continued to pull back over the past few months. As of IATA's most recent data, December was another month in which air cargo volumes showed year-over-year decline and were below pre-pandemic levels. The recent easing of pandemic-related restrictions in China could be favorable for air cargo in 2023, but it's too early to determine. Business jet utilization has come down from pandemic highs and has continued to temper over the past handful of months. However, activity is still above pre-pandemic levels and business jet OEMs and operators forecast strong demand in the near term. Time will tell how this plays out as there is softening optimism for the business jet market due to the uncertainty within the current macro and financial environment. Shifting to our defense market, which traditionally is at or below 35% of our total revenue, the defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 3% in Q1 when compared with the prior year period. Defense bookings are up significantly this quarter compared to the same prior year period, and Q1 bookings strongly outpace sales, which bodes well for future defense order activity. Impacting our defense market revenues are the ongoing delays in the U.S. government defense spend outlays. While these delays appear to be slowly improving, they do remain longer than historical average levels. Our teams are steadily making progress with the supply chain but continue to face challenges. The lack of electronic component availability continues to be the primary focus for our teams. As Kevin mentioned earlier, we continue to expect low to mid-single-digit percent range growth this year for our defense market revenues. Lastly, I'd like to wrap up by stating how pleased I am by our operational performance in this first quarter of fiscal 23. We remain focused on our value drivers in meeting increased customer demand for our products. With that, I'd like to turn it over to our Chief Financial Officer, Mike Listman. Morning, everyone. I'm going to quickly hit on a few additional financial matters for the quarter and then expectations for the full fiscal year. First, on organic growth and liquidity. In the first quarter, our organic growth rate was 15% driven by the continued rebound in our commercial OEM and aftermarket end markets. On cash and liquidity, free cash flow, which we traditionally define as EBITDA, less cash interest payments, CapEx, and cash taxes, was roughly $400 million for the quarter. We ended the quarter with approximately 3.3 billion of cash on the balance sheet, and our net debt to EBITDA ratio was exactly six times, down from 6.4 times at the end of last quarter. On a net debt to EBITDA basis, this puts us right at the five-year pre-COVID average level. Additionally, our cash interest coverage ratios, such as EBITDA to interest expense, are currently in line with where we've historically operated the business. We feel comfortable here given the benefit of our interest rate hedges and fixed rate debt instruments that were entered into in a lower interest rate environment. As always, we continue to watch the rising interest rate environment and the current state of the debt markets very closely. During the first quarter, we completed an extension of our nearest maturity term loan, pushing the maturity date from mid 2024 out into 2027. Pro forma for this refinancing, our nearest term maturity is now 2025. As a result of this refi, our interest expense estimate for FY23 picked up very slightly, as you can see in today's updated interest expense guidance. Over 75% of our total $20 billion gross debt balance is at a fixed rate through a combination of fixed rate notes and interest rate caps and swaps through 2025. This provides us adequate cushion against any rise in rates, at least in the immediate term. Going forward, we expect to continue both proactively and prudently managing our debt maturity stacks. Practically, for us, this means pushing out any near-term maturities well in advance of the final maturity date, and then also utilizing hedging instruments where we can in order to lock in the cash interest costs. As we sit here today, from an overall cash liquidity and balance sheet standpoint, we think we remain in good position with adequate flexibility to pursue M&A or return cash to our shareholders via share buybacks or dividends during fiscal 23. With that, I'll turn it back to the operator to kick off the Q&A.
spk23: As a reminder, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Our first question comes from the line of Noah Poppenack of Goldman Sachs. Your line is open, Noah.
spk02: Hey, good morning, everyone.
spk25: Good morning, Noah.
spk02: How are you anticipating the commercial aerospace aftermarket revenue to progress sequentially through the year compared to the first quarter?
spk13: I would expect much like... flight activity that it should keep trending upwards. That's our expectation. We'll see if that plays out.
spk02: Okay. And you mentioned bookings ahead of shipments across the board. Do you have any quantification of that?
spk11: We've historically not given book to bills across the end markets, Noah, but I think it's pretty healthy growth that supports the revised guidance on revenue for today. So we feel good about in that, you know, healthy growth and healthy outperformance and really positive book-to-bill ratios across the end markets.
spk02: Okay. And just last one, the EBITDA guidance revision is the same as revenue at the midpoint. So, you know, it implies a 100% incremental on the additional revenue. I know it's not that simple, but can you just walk me through how the EBITDA is able to be the same as the revenue on the guidance revision?
spk11: Yeah, I think, Noah, what you're seeing there is just the upside mainly in the commercial aftermarket space, which is our most profitable end market of the three. And then separately, some better cost performance, right? You're not typically getting 100% drop through to your point, but we are doing slightly better on the cost than we expected. So that's what you're seeing there.
spk02: Okay. Appreciate the time. Thanks.
spk23: Thank you. Our next question. comes from the line of Robert Stallard of Vertical Partners. Your line is open, Robert.
spk20: Thanks so much. Good morning.
spk23: Good morning.
spk20: Kevin, you mentioned that the M&A pipeline is still looking pretty active. I was wondering if you were seeing any sign of these higher interest rates starting to impact the appetite of financial buyers.
spk13: Yeah, I think we've seen some impact over the last six months or so. I think you see that in a general lack of activity, although we've been busy evaluating different targets. I think we see that changing, though, as there seems to be some important properties coming to market in the next six months or so. I think this should change. So we remain relatively optimistic, as always. But I think that... you know, gives you some indication of what we're looking at in the future.
spk20: And wonderful, Mike, in related topic, actually. You mentioned there's some debt due in 2025. If you were to refinance that today, what sort of interest rate would you be expected to pay on that?
spk11: It's hard to say. Something like what we got on the December refi we just did a month or two ago. You know, the interest rate ticked up by about 1.0% from LIBOR plus 225 to SOFR plus And debt markets are a little bit better, given what's come out on inflation and the Fed rate move since that December raise. So maybe you do a little bit better than that. But it's, you know, it's hard to say. That's just a guess.
spk19: Yeah, that's great. Thanks so much.
spk23: Thank you. Our next question comes from the line of Scott Duschel of Credit Suisse. Your line is open, Scott.
spk08: Hey, good morning. Kevin, I wanted to get your thoughts on M&A outside of A&D. Is that something you'd ever do? And if you were to do something outside of A&D, should we expect you to start small or could we see you start with something bigger? Thank you.
spk13: Well, we don't like to speculate on that. We have studied what it would look like to acquire something outside of M&A, but of A&D specifically. But we think it's best to stay focused on aerospace. There are still so many great opportunities and a number of them coming up, like I said, in the next six months that keep us very focused on the pure play aerospace and defense. For intellectual reasons and also because we may have to one day in a distant future, we do look at other areas, but none of them have appeared interesting enough to overshadow our desire to keep growing in aerospace and defense.
spk08: Great. That's really helpful. And for Mike, you showed some really good leverage on SG&A this quarter. I think your sales were up 17%, but SG&A was actually down. So curious if you could outline a bit what the cost mitigation efforts are that you're running there, and then how SG&A might trend as we move throughout the year. Thanks.
spk11: Yeah, we really look at the EBITDA line. Historically, we've not gone back and commented specifically on gross profit versus SG&A trends, just because the accounting puts and takes there. And as we think about forecasting for the year, we really look at EBITDA's defined ratio and feel good about hitting the 50.5% or maybe slightly better that we gave the guidance for today. And it's hard to comment specifically where SG&A could go for the balance of the year. on a quarterly basis. Yeah, I would just add, you know, I think in general, as we've had and we've performed in past downturns and the uptick, you know, we did a lot of heavy lifting with restructuring as a result of the COVID pandemic. And the teams have done a nice job managing to the lower cost structure and supporting the additional demand. And I think we'll continue to do so throughout the year.
spk23: Great. Thanks, guys. Thank you. Our next question comes from the line of David Strauss of Barclays. Your question, please, David.
spk24: Hi, good morning. This is Josh Korn on for David. Working capital was fairly neutral in Q1. Do you still see the $150 million drag for the year? Thanks.
spk11: We do. I mean, as we come back to pre-COVID levels, that's going to go in over the course of the year. It's kind of lumpy in how it happens and the progression and forecasting. It's tough, but we do expect that amount to go back in.
spk24: Thanks. And it looks like overall aftermarket revenues were back pretty much to pre-pandemic levels. Can you give us a sense of where volumes are?
spk13: I think we're... still 20 to maybe 30% off in volumes. There are still a lot of regions, as George reviewed, that have not fully come back.
spk23: Thank you. Our next question comes from the line.
spk14: of peter arment of baird please go ahead hey thanks thanks good morning everyone uh nice results hey good morning hey uh and i'm sorry if you missed your opening remarks but just on china um just kind of assumptions around uh what you expect there just as you know we get the reopening traffic picking up pretty materially hopefully wide body activity comes back just reminds kind of the mix that we should be thinking about with China and just how you kind of incorporated that in your forecast. Thanks, Kevin.
spk11: Sure, I'll take that one. You know, from our perspective, we're still in the early innings of China opening up, obviously, this past month. Our teams, as they always do, do a bottoms-up analysis and planning process as we enter any fiscal year. And, you know, there was some recovery expected baked into our forecast and our plan. We'll see how it plays out. Generally, you know, we don't have and we don't track specific regions. We think we're fleet weighted. And obviously, it's a big market. So hopefully, that will be helpful as we progress throughout the year.
spk14: I guess it's just a follow up quickly on just the wide body activity. Could you make a comment, George, just on what you're seeing regarding some of the airline's behavior on wide body? Thanks.
spk11: Yeah, I don't think we've seen much shift. Again, the opening for China international travel is pretty new. You would logically expect the wide body usage to improve, given those types of routes. But we're still, again, in the early innings of this.
spk22: Appreciate the call. Thanks so much. Sure.
spk23: Thank you. Our next question comes from the line. of Gautam Khanna of Cohen. Your line is open, Gautam.
spk16: Hey, guys. Good morning.
spk04: Good morning.
spk18: In the past, you've sometimes given color on discretionary versus non-discretionary aftermarket demand. Any color there? Or by channel distribution versus direct?
spk11: Yeah, I think most of our revenues are on direct sales. In general, we're seeing good strength and good recovery across all of the individual submarkets. And on the discretionary versus non-discretionary point, we think consistent with what we've said in the past, we're mostly non-discretionary when it comes to the commercial aftermarket buckets.
spk18: And that's where you're seeing kind of the incremental strength is in the nondiscretionary.
spk17: I'm just curious. It's hard to break it out.
spk11: I think it's across all. I would reiterate, I think we're seeing strength across the board in all of the submarkets.
spk18: Okay. And just curious, what you're seeing in terms of inflation this year from your suppliers? You know, what? Do you have a dollar value you could give to us and what you're doing to offset it with pricing?
spk11: Yeah, I don't have a specific dollar value to give you. In general, we really focus on productivity. We are seeing inflationary pressures from the supply chains. We've got all of our teams have individual decentralized procurement organizations that are doing a nice job working with the supply chain, trying to minimize the level of inflation. And we continue to work the productivity to offset that, and you're seeing that flow through in terms of the lower cost structures.
spk00: Thanks, guys. Sure.
spk23: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Your question, please, Matt.
spk10: Yeah, hi. Thanks. Good morning. I wonder if you could elaborate. There's the comment we could see further upward revision in the guidance as we go through the year. How much of that kind of uncertainty is China versus kind of OE bill rates? I don't know if you can kind of quantify what the biggest buckets of that uncertainty could be.
spk13: I think it's probably a big piece from China, but clearly OEM is not performing at where it was prior to the COVID pandemic. So there's room really in all of the market segments for improvement.
spk03: Okay, got it.
spk10: And then I guess on your cash balance, it's kind of come down from where it was during COVID, but still higher than what we saw a few years ago. How much higher should we expect you to kind of leave that just so you have kind of the optionality in case a deal comes through or something like that?
spk11: Yeah, obviously we're sitting on more than we've had historically, to your point. We feel good about the M&A pipeline, as Kevin said, and what's coming. We do have far more than we need to operationally run the business, but it's something we think about quite a bit, just in terms of the capital allocation priorities that Kevin provided and want to make sure we have enough firepower for potential M&A in the current environment.
spk09: Got it. Thank you.
spk23: Thank you. Our next question comes from the line of Seth Safeman of JP Morgan. Please go ahead, Seth.
spk07: Good morning. This is Rocco Barbera on for Seth. Now that leverage is a six times range that has been stated in the past to be the general ballpark range for the company, how do you think about new acquisitions and or capital deployment moving forward? Also, where would you consider returning cash again?
spk11: Yeah, it's hard to say exactly. Like I just mentioned, we're always looking at the capital deployment options, right? We're doing that today. We do it quite a bit, obviously, monthly, and we want to be strategic with our capital and make sure we have enough at all times for M&A if it comes, and then also it's the shareholders' capital, so we want to be efficient with it, and if we don't find a use for it, give it back. With regard to the leverage ratio, we are at about six times, which is historically where we were, in a lower interest rate environment. I think, as I mentioned, we feel comfortable where we are today at the six times level and given the benefit of the hedges. It's hard to say if we pick up from here, if we went and found a good acquisition candidate and used a little bit of debt, you could always do that, though you'd then be adding EBITDA. So I think it's safe to say going forward, given that we have the hedges and also that our interest rate hasn't moved much because of those, it's probably likely that we stay sort of at the six times ballpark with some movement this way or that way, consistent with the last five years of history or so. But no real material change with the approach to leverage expected.
spk07: Great. Thank you. Then as a quick follow-up, You had mentioned earlier that you expect EBITDA as defined margin to kind of expand as we go through this year. Should we be expecting that expansion to continue in the out years or are we approaching a range where the margin will begin to plateau?
spk13: You know, we are still navigating 2023. We'll give guidance on 24 and beyond when it's appropriate. But obviously our model is to keep expanding, keep improving our business.
spk06: Great, thank you.
spk23: Thank you. Our next question comes from the line of Andre Madrid of Bank of America. Your line is open, Andre.
spk15: Hi, everyone. Thanks for the time. Good morning. I kind of wanted to take a look back at the supply chain. Obviously, there's a lot of financial stress in the lower tiers. Do you guys see that as a boom for opportunity when it comes to M&A? Just kind of wanted to gauge your outlook on that.
spk13: Not really. We don't look to vertically integrate. We look to acquire phenomenal aerospace and defense businesses that we can further improve. Buying up parts of the supply chain vertically integrating usually doesn't meet our criteria for highly engineered, unique aerospace components with aftermarket content, and we like to stay very disciplined in that approach. That's been the secret to our success, I think, in our M&A culture.
spk09: All right. That's helpful. I'll keep it at one. Thanks.
spk23: Thank you. Once again, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Our next question comes from the line of Pete Osterlin of Truist.
spk05: Your line is open, Pete. Thanks for taking our question. I just wanted to ask, how are you managing through the current labor market environment? Has attrition been manageable? Do you need additional hires to meet the growth you're anticipating this year, or have there been any challenges related to productivity?
spk11: Yeah, I'll take that. I think generally the teams have done a really nice job. We continue to focus on CapEx and productivity. Over the last couple of years, we've been able to invest in the business and find different automation opportunities to take labor out of the process here and there. I think in general, the labor market conditions have been improving over the last couple of months. Most teams have plans in place to support uh potential oe production rate increases as we're all hoping will occur so i don't see any significant issues and i'd say in general terms it's probably improved a little bit the last couple of months all right i'll leave it at one thank you thanks thanks thank you at this time i'd like to turn the call back over to jamie steeman for closing remarks madam
spk12: Thank you all for joining us today. This concludes today's call. We appreciate your time and have a good rest of your day.
spk23: And this concludes today's conference call. Thank you for participating. You may now disconnect.
spk04: The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. Hello. Thank you. Thank you. Thank you.
spk23: Thank you for standing by, and welcome to the Transdime Group's 2023 first quarter results call. At this time, all participants are in a listen-only mode. After the speaker 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. I would now like to hand the call over to Jamie Steeman, Director of Investor Relations. Please go ahead.
spk12: Thank you and welcome to Transdime's fiscal 2023 first 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 Lichtman. 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 at 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 call for a presentation of the most directly comparable GAAP measures and applicable reconciliation. I will now turn the call over to Kevin.
spk13: 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 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. And lastly, our capital structure and allocations are a key part of our value creation methodology. Our longstanding goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we had a good start to fiscal 23 and increased our guidance for the year. We continue to see recovery in the commercial aerospace market. Our Q run results show positive growth in comparison to the same prior year period. We are encouraged by the progression of the commercial aerospace market recovery to date. and trends in the commercial aerospace market remain favorable as demand for travel remains robust. International air traffic is closing in on the domestic travel recovery, and China reopened its air travel in January with the lifting of its pandemic restrictions. However, there is still progress to be made for the industry as our results to continue to be adversely affected in comparison to pre-pandemic levels since the demand for air travel is still depressed. In our business, we saw another quarter of very healthy growth in our total commercial revenues and bookings. Bookings also outpaced revenues in all three of our major market channels, commercial OEM, commercial aftermarket, and defense. We also attained an EBITDA as defined margin of 50% in the quarter. Contributing to this strong margin is the continued recovery in our commercial aftermarket revenues, along with diligent focus on our operating strategy. Additionally, we had strong operating cash flow generation in Q1 of almost $380 million and ended the quarter with close to $3.3 billion of cash. We expect to steadily generate significant additional cash throughout the remainder of 2023. Next, an update on our capital allocation activities and priorities. The capital allocation priorities at Transdime are unchanged. Our first priority is to reinvest in our businesses, second, to do accretive M&A, and third, return capital to our shareholders via share buybacks or dividends. 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. As mentioned earlier, we ended the quarter with a sizable cash balance of close to $3.3 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 and 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 especially so in these times. Now moving to our outlook for fiscal 2023. As noted in our earnings release, we are increasing our full fiscal year 23 sales in EBITDA as defined guidance, both by $65 million, to reflect our strong first quarter results and current expectations for the remainder of the year. The guidance assumes the continued recovery in our primary commercial end markets through fiscal 23 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 $6.155 billion or up approximately 13%. In regards to the market channel growth rate assumptions that this revenue guidance is based on, for the commercial aftermarket, we are updating the full year growth rate assumptions as a result of our strong first quarter results and current expectations for the remainder of the year. We now expect commercial aftermarket revenue growth in the high teens percentage range, which is an increase from our previous guidance of mid-teens percentage range. At this time, we are not updating the full year market channel growth rate assumptions for commercial OEM and defense, as underlying market fundamentals have not meaningfully changed. Commercial OEM and defense revenue guidance is still based on our previously issued market channel growth rate assumptions, where we expect commercial OEM revenue growth in the mid-teens percentage range and defense revenue growth in the low to mid-single-digit percentage range. The midpoint of our EBITDA as defined guidance is now $3.11 billion, or up approximately 18%. with an expected margin of around 50.5%. This guidance includes about 50 basis points of margin dilution from our recent DART aerospace acquisition. We anticipate EBITDA margins will continue to move up throughout the remainder of the year. The midpoint of our adjusted EPS is increasing primarily due to the higher EBITDA as defined guidance and is now anticipated to be dollars and 17 cents or up approximately 29%. Mike will discuss in more detail shortly some other fiscal 23 financial assumptions and updates. As our fiscal 23 progresses, should the favorable trends in the commercial aerospace market recovery continue, including the expansion of flight activity in China, we could see further upward revisions to our guidance. We believe we are well positioned for the remainder of fiscal 2023 will continue to closely watch how the aerospace and capital markets continue to develop and react accordingly. On the organization side, I wanted to announce the retirement of Hallie Martin, our general counsel, chief compliance officer and secretary. Hallie has been an integral part of our team since 2012 and long before as outside counsel. Jess Warren has been promoted from her position as associate general counsel to fill this critical role as part of our robust succession planning process. Thank you, Hallie, for all of your great counsel and dedication to Transdyn. Let me conclude by stating that I am very pleased with the company's performance this quarter and throughout the recovery of the commercial aerospace industry. We remain focused on our value drivers, cost structure, and operational excellence. Let me hand it over to George to review our recent performance and a few other items.
spk11: 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. The market discussion includes the May 2022 acquisition of Dart Aerospace in both periods. Dart has been included in this market analysis discussion since the third quarter of fiscal 22. In the commercial market, which typically makes up close to 65% of our revenue, we'll split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 20% in Q1 compared with the prior year period. Bookings in the quarter were strong compared to the same prior year period and solidly outpaced sales. Sequentially, the bookings improved almost 15% compared to Q4. We continue to be encouraged by build rates steadily progressing at the commercial OEMs and the strong demand for new aircraft. However, ongoing labor instability and supply chain challenges across the broader aerospace sector present risks to achieving OEM production rates. Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 31% in Q1, when compared with the prior year period. Growth in commercial aftermarket revenue was primarily driven by 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 Q1. Sequentially, total commercial aftermarket revenues grew by approximately 7%, and bookings grew more than 25%. Commercial aftermarket bookings were robust this quarter compared to the same prior year period, and Q1 bookings significantly outpaced sales. Turning to broader market dynamics, global revenue passenger miles remain lower than pre-pandemic levels, but have continued to steadily trend upwards over the past few months. Airline passenger demand remained strong throughout the fall and holiday seasons. IATA currently forecasts calendar year 23 air traffic will be within about 15% of pre-pandemic. The recovery in domestic travel continues to be stronger than international travel, although international traffic is catching up. In the most recently reported IATA traffic data for December, global domestic air traffic was only down 20% compared to pre-pandemic. For the U.S., domestic travel in December was within 10% of pre-pandemic levels. Domestic travel in China continued to lag other major air traffic regions and was down about 55% compared to pre-pandemic. However, the lifting of COVID restrictions and the reopening of China to international travelers bodes well for air traffic growth. Roughly a year ago, international travel globally was depressed about 60%. But in the most recently reported IATA traffic data for December, international travel was only down about 25% compared to pre-pandemic levels. International traffic in North America and Europe were within 5% and 15% of pre-pandemic, respectively. Asia Pacific international travel was still down about 50%, but should improve subsequent to the January reopening of China. Global air cargo demand has continued to pull back over the past few months. As of IATA's most recent data, December was another month in which air cargo volumes showed year-over-year decline and were below pre-pandemic levels. The recent easing of pandemic-related restrictions in China could be favorable for air cargo in 2023, but it's too early to determine. Business jet utilization has come down from pandemic highs and has continued to temper over the past handful of months. However, activity is still above pre-pandemic levels and business jet OEMs and operators forecast strong demand in the near term. Time will tell how this plays out as there is softening optimism for the business jet market due to the uncertainty within the current macro and financial environment. Shifting to our defense market, which traditionally is at or below 35% of our total revenue, the defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 3% in Q1 when compared with the prior year period. Defense bookings are up significantly this quarter compared to the same prior year period, and Q1 bookings strongly outpace sales, which bodes well for future defense order activities. Impacting our defense market revenues are the ongoing delays in the U.S. government defense spend outlays. While these delays appear to be slowly improving, they do remain longer than historical average levels. Our teams are steadily making progress with the supply chain but continue to face challenges. The lack of electronic component availability continues to be the primary focus for our teams. As Kevin mentioned earlier, we continue to expect low to mid-single-digit percent range growth this year for our defense market revenues. Lastly, I'd like to wrap up by stating how pleased I am by our operational performance in this first quarter of fiscal 23. We remain focused on our value drivers in meeting increased customer demand for our products. With that, I'd like to turn it over to our Chief Financial Officer, Mike Lissman. Good morning, everyone. I'm going to quickly hit on a few additional financial matters for the quarter and then expectations for the full fiscal year. First, on organic growth and liquidity. In the first quarter, our organic growth rate was 15% driven by the continued rebound in our commercial OEM and aftermarket end markets. On cash and liquidity, free cash flow, which we traditionally define as EBITDA, less cash interest payments, CapEx, and cash taxes, was roughly $400 million for the quarter. We ended the quarter with approximately 3.3 billion of cash on the balance sheet, and our net debt to EBITDA ratio was exactly six times, down from 6.4 times at the end of last quarter. On a net debt to EBITDA basis, this puts us right at the five-year pre-COVID average level. Additionally, our cash interest coverage ratios, such as EBITDA to interest expense, are currently in line with where we've historically operated the business. We feel comfortable here given the benefit of our interest rate hedges and fixed rate debt instruments that were entered into in a lower interest rate environment. As always, we continue to watch the rising interest rate environment and the current state of the debt markets very closely. During the first quarter, we completed an extension of our nearest maturity term loan, pushing the maturity date from mid 2024 out into 2027. Pro forma for this refinancing, our nearest term maturity is now 2025. As a result of this refi, our interest expense estimate for FY23 ticked up very slightly, as you can see in today's updated interest expense guidance. Over 75% of our total $20 billion gross debt balance is at a fixed rate through a combination of fixed rate notes and interest rate caps and swaps through 2025. This provides us adequate cushion against any rise in rates, at least in the immediate term. Going forward, we expect to continue both proactively and prudently managing our debt maturity stacks. Practically, for us, this means pushing out any near-term maturities well in advance of the final maturity date, and then also utilizing hedging instruments where we can in order to lock in the cash interest costs. As we sit here today, from an overall cash liquidity and balance sheet standpoint, we think we remain in good position with adequate flexibility to pursue M&A or return cash to our shareholders via share buybacks or dividends during fiscal 23. With that, I'll turn it back to the operator to kick off the Q&A.
spk23: As a reminder, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Our first question comes from the line of Noah Poppenack of Goldman Sachs. Your line is open, Noah.
spk02: Hey, good morning, everyone.
spk25: Good morning, Noah.
spk02: How are you anticipating the commercial aerospace aftermarket revenue to progress sequentially through the year compared to the first quarter?
spk13: I would expect much like... flight activity that it should keep trending upwards. That's our expectation. We'll see if that plays out.
spk02: Okay. And you mentioned bookings ahead of shipments across the board. Do you have any quantification of that?
spk11: We've historically not given book to bills across the end markets, Noah, but I think it's pretty healthy growth that supports the revised guidance on revenue for today. So we feel good about
spk02: in that you know healthy growth and healthy outperformance and really positive book to bill ratios across the end markets okay and just last one the the EBITDA guidance revision is the same as revenue at the midpoint so you know it implies a 100 percent incremental on the additional revenue I know it's not that simple but can you just walk me through how the the EBITDA is able to be the same as the revenue on the guidance revision
spk11: Yeah, I think, Noah, what you're seeing there is just the upside mainly in the commercial aftermarket space, which is our most profitable end market of the three. And then separately, some better cost performance, right? You're not typically getting 100% drop through to your point, but we are doing slightly better on the cost than we expected. So that's what you're seeing there.
spk02: Okay. Appreciate the time. Thanks.
spk23: Thank you. Our next question. comes from the line of Robert Stallard of Vertical Partners. Your line is open, Robert.
spk20: Thanks so much. Good morning.
spk23: Good morning.
spk20: Kevin, you mentioned that the M&A pipeline is still looking pretty active. I was wondering if you were seeing any sign of these higher interest rates starting to impact the appetite of financial buyers.
spk13: Yeah, I think we've seen some impact over the last six months or so. I think you see that in a general lack of activity, although we've been busy evaluating different targets. I think we see that changing, though, as there seems to be some important properties coming to market in the next six months or so. I think this should change. So we remain relatively optimistic, as always. But I think that... you know, gives you some indication of what we're looking at in the future.
spk20: And wonderful, Mike, in related topic, actually. You mentioned there's some debt due in 2025. If you were to refinance that today, what sort of interest rate would you be expected to pay on that?
spk11: It's hard to say. Something like what we got on the December refi we just did a month or two ago. You know, the interest rate ticked up by about 1.0% from LIBOR plus 225 to SOFR plus And debt markets are a little bit better, given what's come out on inflation and the Fed rate move since that December raise. So maybe you do a little bit better than that. But it's, you know, it's hard to say. That's just a guess.
spk19: Yeah, that's great. Thanks so much.
spk23: Thank you. Our next question comes from the line of Scott Dussel of Credit Suisse. Your line is open, Scott.
spk08: Hey, good morning. Kevin, I wanted to get your thoughts on M&A outside of A&D. Is that something you'd ever do? And if you were to do something outside of A&D, should we expect you to start small or could we see you start with something bigger? Thank you.
spk13: Well, we don't like to speculate on that. We have studied what it would look like to acquire something outside of M&A, but of A&D. But we think it's best to stay focused on aerospace. There are still so many great opportunities and a number of them coming up, like I said, in the next six months that keep us very focused on the pure play aerospace and defense. For intellectual reasons and also because we may have to one day in a distant future, we do look at other areas, but none of them have appeared interesting enough to overshadow our desire to keep growing in aerospace and defense.
spk08: Great. That's really helpful. And for Mike, you showed some really good leverage on SG&A this quarter. I think your sales were up 17%, but SG&A was actually down. So curious if you could outline a bit what the cost mitigation efforts are that you're running there, and then how SG&A might trend as we move throughout the year. Thanks.
spk11: Yeah, we really look at the EBITDA line. Historically, we've not gone back and looked and commented specifically on gross profit versus SG&A trends just because the accounting puts and takes there. And as we think about forecasting for the year, we really look at EBITDA as the fine ratio and feel good about hitting the 50.5% or maybe slightly better that we gave the guidance for today. And it's hard to comment specifically where SG&A could go for the balance of the year. on a quarterly basis. Yeah, I would just add, you know, I think in general, as we've had and we've performed in past downturns in the uptick, you know, we did a lot of heavy lifting with restructuring as a result of the COVID pandemic. And the teams have done a nice job managing to the lower cost structure and supporting the additional demand. And I think we'll continue to do so throughout the year.
spk23: Great. Thanks, guys. Thank you. Our next question comes from the line of David Strauss of Barclays. Your question, please, David.
spk24: Hi, good morning. This is Josh Korn on for David. Working capital was fairly neutral in Q1. Do you still see the $150 million drag for the year? Thanks.
spk11: We do. I mean, as we come back to pre-COVID levels, that's going to go in over the course of the year. It's kind of lumpy in how it happens and the progression and forecasting. It's tough, but we do expect that amount to go back in.
spk24: Thanks. And it looks like overall aftermarket revenues were back pretty much to pre-pandemic levels. Can you give us a sense of where volumes are?
spk13: I think we're... still 20 to maybe 30 percent off in volumes there are still a lot of regions as george reviewed that have not fully come back thank you our next question comes from the line
spk23: of Peter Arment of Baird. Please go ahead, Peter.
spk14: Hey, thanks. Thanks. Good morning, everyone. Nice results. Good morning. Hey, good morning. And I'm sorry if you missed your opening remarks, but just on China, just kind of assumptions around what you expect there just as, you know, we get the reopening traffic picking up pretty materially, hopefully wide body activity comes back. Just remind us of kind of the mix that we should be thinking about with China and just how you kind of incorporate that in your forecast. Thanks, Kevin.
spk11: Sure, I'll take that one. You know, from our perspective, we're still in the early innings of China opening up, obviously, this past month. Our teams, as they always do, do a bottoms-up analysis and planning process as we enter any fiscal year. And, you know, there was some recovery expected baked into our forecast and our plan. We'll see how it plays out. Generally, you know, we don't have and we don't track specific regions. We think we're fleet-weighted, and obviously it's a big market. So hopefully that will be helpful as we progress throughout the year.
spk14: I guess it's just a follow-up quickly. On just the wide-body activity, could you make a comment, George, just on what you're seeing regarding some of the airline's behavior on wide-body? Thanks.
spk11: Yeah, I don't think we've seen much shift. Again, the opening for China international travel is pretty new. You would logically expect the wide body usage to improve, given those types of routes. But we're still, again, in the early innings of this.
spk22: Appreciate the call. Thanks so much. Sure.
spk23: Thank you. Our next question comes from the line. of Gautam Khanna of Cohen. Your line is open, Gautam.
spk16: Hey, guys. Good morning.
spk04: Good morning.
spk18: In the past, you've sometimes given color on discretionary versus non-discretionary aftermarket demand. Any color there? Or by channel distribution versus direct?
spk11: Yeah, I think most of our revenues are on direct sales. In general, we're seeing good strength and good recovery across all of the individual submarkets. And on the discretionary versus non-discretionary point, we think consistent with what we've said in the past, we're mostly non-discretionary when it comes to the commercial aftermarket buckets.
spk18: And that's where you're seeing kind of the incremental strength is in the non-discussionary.
spk17: I'm just curious.
spk18: It's hard to break it out.
spk11: I think it's across all. I would reiterate, I think we're seeing strength across the board in all of the submarkets.
spk18: Okay. And just curious, what you're seeing in terms of inflation this year from your suppliers? You know, what? Do you have a dollar value you could give to us and what you're doing to offset it with pricing?
spk11: Yeah, I don't have a specific dollar value to give you. In general, we really focus on productivity. We are seeing inflationary pressures from the supply chains. We've got all of our teams have individual decentralized procurement organizations that are doing a nice job working with the supply chain, trying to minimize the level of inflation. And we continue to work the productivity to offset that, and you're seeing that flow through in terms of the lower cost structures.
spk00: Thanks, guys. Sure.
spk23: Thank you. Our next question comes from the line of Matt Akers of Wells Fargo. Your question, please, Matt.
spk10: Yeah, hi. Thanks. Good morning. I wonder if you could elaborate. Yeah, there's the comment we could see further upward revision in the guidance as we go through the year. How much of that kind of uncertainty is China versus kind of OE bill rates? I don't know if you can kind of quantify what the biggest buckets of that uncertainty could be.
spk13: I think it's probably a big piece from China, but clearly OEM is not performing at where it was prior to the COVID pandemic. So there's room really in all of the market segments for improvement.
spk03: Okay, got it.
spk10: And then I guess on your cash balance, it's kind of come down from where it was during COVID, but still higher than what we saw a few years ago. How much higher should we expect you to kind of leave that just so you have kind of the optionality in case a deal comes through or something like that?
spk11: Yeah, obviously we're sitting on more than we've had historically, to your point. We feel good about the M&A pipeline, as Kevin said, and what's coming. We do have far more than we need to operationally run the business, but it's something we think about quite a bit, just in terms of the capital allocation priorities that Kevin provided and want to make sure we have enough firepower for potential M&A in the current environment.
spk09: Got it. Thank you.
spk23: Thank you. Our next question comes from the line of Seth Safeman of JP Morgan. Please go ahead, Seth.
spk07: Good morning. This is Rocco Barbera on for Seth. Now that leverage six times range that has been stated in the past to be the general ballpark range for the company, how do you think about new acquisitions and or capital deployment moving forward? Also, where would you consider returning cash again?
spk11: Yeah, it's hard to say exactly. Like I just mentioned, we're always looking at the capital deployment options, right? We're doing that today. We do it quite a bit, obviously, monthly, and we want to be strategic with our capital and make sure we have enough at all times for M&A if it comes, and then also it's the shareholders' capital, so we want to be efficient with it, and if we don't find a use for it, give it back. With regard to the leverage ratio, we are at about six times, which is historically where we were, in a lower interest rate environment. I think, as I mentioned, we feel comfortable where we are today at the six times level and given the benefit of the hedges. It's hard to say if we pick up from here, if we went and found a good acquisition candidate and used a little bit of debt, you could always do that, though you'd then be adding EBITDA. So I think it's safe to say going forward, given that we have the hedges and also that our interest rate hasn't moved much because of those, it's probably likely that we stay sort of at the six times ballpark with some movement this way or that way, consistent with the last five years of history or so. But no real material change with the approach to leverage expected.
spk07: Great. Thank you. Then as a quick follow-up, You had mentioned earlier that you expect EBITDA as defined margin to kind of expand as we go through this year. Should we be expecting that expansion to continue in the out years or are we approaching a range where the margin will begin to plateau?
spk13: You know, we are still navigating 2023. We'll give guidance on 24 and beyond when it's appropriate. But obviously our model is to keep expanding, keep improving our business.
spk06: Great. Thank you.
spk23: Thank you. Our next question comes from the line of Andre Madrid of Bank of America. Your line is open, Andre.
spk15: Hi, everyone. Thanks for the time. Good morning. I kind of wanted to take a look back at the supply chain. Obviously, there's a lot of financial stress in the lower tiers. Do you guys see that as a boom for opportunity when it comes to M&A? Just kind of wanted to gauge your outlook on that.
spk13: Not really. We don't look to vertically integrate. We look to acquire phenomenal aerospace and defense businesses that we can further improve. Buying up parts of the supply chain vertically integrating usually doesn't meet our criteria for highly engineered, unique aerospace components with aftermarket content, and we like to stay very disciplined in that approach. That's been the secret to our success, I think, in our M&A culture.
spk09: All right. That's helpful. I'll keep it at one. Thanks.
spk23: Thank you. Once again, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 on your telephone to ask a question. Our next question comes from the line of Pete Osterlin of Truist. Your line is open, Pete.
spk05: Thanks for taking our question. I just wanted to ask, how are you managing through the current labor market environment? Has attrition been manageable? Do you need additional hires to meet the growth you're anticipating this year, or have there been any challenges related to productivity?
spk11: Yeah, I'll take that. I think generally the teams have done a really nice job. We continue to focus on CapEx and productivity. Over the last couple of years, we've been able to invest in the business and find different automation opportunities to take labor out of the process here and there. I think in general, the labor market conditions have been improving over the last couple of months. Most teams have plans in place to support uh potential oe production rate increases as we're all hoping will occur so i don't see any significant issues and i'd say in general terms it's probably improved a little bit the last couple of months all right i'll leave it at one thank you thanks thanks thank you at this time i'd like to turn the call back over to jamie steeman for closing remarks madam
spk12: Thank you all for joining us today. This concludes today's call. We appreciate your time and have a good rest of your day.
spk23: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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