Transdigm Group Incorporated

Good day and thank you for standing by. Welcome to the Q3 2025 Transdime Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker, Jamie Steeman, Director of Investor Relations. Please go ahead, ma'am.

Thank you, and welcome to TransDimes Fiscal 2025 Third Quarter Earnings Conference Call. Presenting on the call this morning are TransDimes 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 Transim.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 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 output. Then Mike and Sarah will give additional color on the quarter. Before we get into the business of today, as I am nearing my retirement date of September 30, I wanted to briefly reiterate what a privilege it has been to serve as CEO of Transdyn over these past seven plus years. TransDyme is an exceptional company, and it has been incredibly rewarding to witness its growth and the value it has created for shareholders. Mike is ready to take the helm as TransDyme CEO, and I am confident the company will be in excellent hands under his leadership. Mike will do an outstanding job and continue delivering the kind of value that has long defined TransDyme's success. Additionally, I will remain advisor to TransDyme to aid in any transition topic. Now moving on to the business of today. To reiterate, we believe we are unique in the industry in both the consistency of our strategy in 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. First, we 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 organizational structure and unique compensation system closely aligned with shareholders. Fourth, we acquire businesses that fit this strategy and where we see a clear path to PE-like returns. And lastly, our capital structure and allocation 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 first earnings release, we had a decent Q3. During the quarter, we saw a healthy growth in the revenues for both our commercial aftermarket and defense market channels. Commercial OEM revenues were down on this quarter compared to prior year, which Mike will discuss further in his market segment commentary. Suffice it to say, OEM revenue was a limiter for our quarterly performance, but this is only transitory and a lingering effect of the Boeing strike and continued rate ramp challenges at Airbus. Commercial aerospace market trends remain favorable. Air traffic continues to steadily progress, and airline schedules remain fairly stable. In the commercial OEM market, there is still much progress to be made for OEM rates, and our results continue to be adversely affected by OEM performance. Airline demand for new aircraft remains high, and the OEMs have long backlogs. OEMs are working to increase aircraft production to meet this demand. However, Boeing aircraft production rates continue to lag pre-pandemic levels, and Airbus has also encountered difficulties in ramping up production. Our EBITDA-defined margin was 54.4% in the quarter. Contributing to this strong Q3 margin is the continued growth 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 Q3 of over $630 million, and we ended the quarter with a cash balance of almost $2.8 billion. We expect to continue generating additional cash in our fiscal quarter, in our final quarter of fiscal 2025. Moving to our outlook for fiscal 25, as noted in our earnings release, we are decreasing our full fiscal year 25 sales guidance and increasing our EBITDA as defined guidance to reflect our third quarter results and our current expectations for the remainder of the year. This guidance now incorporates the recently acquired Servotronics business. At the midpoint, sales guidance was lowered $60 million, and EBITDA's defined guidance was raised $40 million. The sales guidance reduction is driven primarily by lower commercial OEM build rates versus our expectations in inventory destocking, which Mike will further discuss later on. The guidance assumes no additional acquisitions or divestitures and is based on current expectations for continued performance in our primary commercial end markets throughout the remainder of fiscal 25. Our current guidance for fiscal 25 is as follows and can be found also on slide 6 in the presentation. Note that the pending acquisition of Simmons Business is excluded from this guidance until the acquisition closes. The midpoint of our fiscal 25 revenue guidance is now $8.79 billion, or up approximately 11% over prior year. In regards to the market channel growth rate assumptions that this revenue guidance is based on, for the commercial OEM market, we are updating the full year growth rate assumptions as a result of lower than expected third quarter results and current expectations for the remainder of the year. For commercial OEM, we now expect revenue growth in the flat to low single-digit percentage range. This is a decrease from our previous guidance of low single-digit to mid-single-digit percentage range. We are not updating the full-year market channel growth rate assumptions for commercial aftermarket and defense, as underlying market fundamentals have not meaningfully changed. Commercial aftermarket and defense revenue guidance is still based on our previously issued market channel growth rate assumptions. We expect commercial aftermarket revenue growth in the high single-digit to low double-digit percentage range and defense revenue growth in the high single-digit to low double-digit percentage range. The midpoint of fiscal 2025 EBITDA as defined guidance is $4.725 billion or up approximately 13% with an expected margin of around 53.8% This guidance includes about an additional 70 basis points of margin dilution from recent acquisitions compared to fiscal year 24. The midpoint of adjusted EPS is expected to be $36.74 or up approximately 8%. Sarah will discuss in more detail shortly the factors impacting EPS along with some other fiscal 25 financial assumptions and updates. We believe we are as well positioned for the last quarter of fiscal 25. We continue to closely watch how the aerospace and capital markets continue to develop and react accordingly. Lastly, I want to express how pleased I am with our team's ability to successfully navigate the challenges of uneven demand in our commercial OEM market and deliver a healthy EBITDA's defined margins. We continue to stay focused on our core value drivers, maintaining an efficient cost structure, and delivering operational excellence. Now let me hand it over to Mike Listman, our Transdime Group co-COO and CEO-elect, to review our recent performance and a few other items.