Transdigm Group Incorporated

Good day and thank you for standing by. Welcome to the fourth quarter 2024 Transline Group Earnings Conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to speaker today, Jamie Seaman, Director of Investor Relations. Please go ahead.

Thank you, and welcome to TransDyme's Fiscal 2024 Fourth Quarter Earnings Conference Call. Presenting on the call this morning are TransDyme's President and Chief Executive Officer, Kevin Stein, Co-Chief Operating Officer, Mike Lisman, and Chief Financial Officer, Sarah Wynn. Also present for the call today is our Co-Chief Operating Officer, Joel Reese. 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 statement, please refer to the company's latest filing 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 release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. 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 25 outlook. Then Mike and Sarah will give additional color on the quarter. To reiterate, we believe we are unique in the industry in both the consistency of our strategy in both 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 first own and operate proprietary aerospace businesses with significant aftermarket content. Second, we utilize a simple, well-proven, value-based operating methodology. Third, we have a decentralized organization structure and unique compensation system closely aligned with shareholders. Fourth, we acquire businesses that fit this strategy 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 closed out the year with another good quarter. We had solid operating performance in Q4 with both total revenue and EBITDA as defined margin coming in strong. For the full year, fiscal 24 revenue came in above the high end of our most recently published guidance, and our fiscal 24 EBITDA as defined margin surpassed the guidance. Commercial aerospace market trends remained favorable in the industry. The commercial aftermarket has normalized as global air traffic continues to surpass pre-pandemic levels and demand for travel persists. In the commercial OEM market, there is still much progress to be made for OEM rates, and our results continue to be adversely affected in comparison to pre-pandemic productions. Airline demand for new aircraft remains high, and the OEMs are working to increase aircraft production. However, OEM aircraft production rates remain well below pre-pandemic levels as the struggles in the OEM supply chain persist. And the lingering effects of the recently resolved machinist strike at Boeing likely pushes the OEM recovery further to the right. In our business, during the quarter, we saw healthy growth in our revenues for all three of our major market channels, commercial OEM, commercial aftermarket, and defense. Our EBITDA as defined margin was 52.6% in the quarter, contributing to the strong Q4 margin as the continued strength in our commercial aftermarket, along with diligent focus on our operating strategy, which is allowing margin performance to expand across all segments. Additionally, we had strong operating cash flow generation in Q4 of over $570 million and ended the quarter with almost $6.3 billion of cash. we expect to steadily generate significant additional cash through 2025. Next, an update on our capital allocation activities and priorities. During fiscal 24, we are pleased to have allocated approximately $6.5 billion of capital in the aggregate across M&A and return of capital to our shareholders. Specifically, these activities included the acquisition of the SEI Industries CPI Electron Device Business, Raptor Scientific, among others, and a special dividend of $75 per share. This dividend of $75 is our largest to date. As you know, we are continuously assessing our capital allocation options, and we are very pleased to return this capital to our shareholders. Regarding the current M&A activities and pipeline, we continue to actively look for M&A opportunities that fit our model. As we look out over the time horizon, we continue to see an expanding pipeline of potential M&A targets, as we demonstrated this year, and we do not see this environment slowing in the near term. As usual, the potential targets are 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 of the FITMAR portfolio. The capital allocation Priorities at Transdyn are unchanged. Our first priority is to reinvest in our businesses. Second, do accretive, disciplined 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, but both M&A and capital markets are difficult to predict. As always, we continue to closely monitor the capital markets and remain opportunistic. As mentioned earlier, we exited fiscal 24 with a sizable cash balance of almost $6.3 billion. Pro forma for the special dividend paid in October, we still have a sizable cash balance of around $2 billion. Our capital allocation actions still leave us with significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Moving to our outlook for fiscal 25, the guidance assumes no additional acquisitions or divestitures and is based on current expectations for continued performance in our primary commercial end markets throughout fiscal 25. Our initial guidance for fiscal 25 is as follows and can also be found on slide seven in the presentation. The midpoint of our fiscal 25 revenue guidance is $8.85 billion, or up approximately 11%. As a reminder, and consistent with past years with roughly 10% less working days than subsequent quarters, fiscal 25 Q1 revenues EBITDA and EBITDA margins are anticipated to be lower than the other three quarters of 2025. This revenue guidance is based on the following market channel growth rate assumptions. We expect commercial OEM revenue growth in the mid-single-digit percentage range, which is highly dependent on the evolution of the production rates in the commercial OEM environment. Commercial aftermarket revenue growth in the high single-digit to low double-digit percentage range, and defense revenue growth in the high single-digit percentage range. The midpoint of fiscal 2025 EBITDA's defined guidance is $4.685 billion, or up approximately 12%, with an expected margin of around 52.9%. This guidance includes about an additional 70 basis points of margin evolution from recent acquisitions. We anticipate EBITDA margins will move up throughout the year, with Q1 being the lowest and sequentially lower than Q4 of our fiscal 2024. The midpoint of adjusted EPS is anticipated to be $36.32, or up approximately 7%. Sarah will discuss in more detail short the factors impacting EPS, along with some other fiscal 25 financial assumptions and updates. We believe we are well positioned as we enter fiscal 25. As usual, we continue to closely watch how the aerospace and capital markets continue to develop and react accordingly. Let me conclude by stating that I am very pleased with the company's performance this year. We remain focused on our value drivers, cost structure, and operational excellence. We look forward to fiscal 2025 and expect that our consistent strategy will continue to provide the value you have come to expect from us. Now let me hand it over to Mike Listman, our Transdyn Group Co-COO, to review our recent performance and a few other items. Good morning.