Ladies and gentlemen, thank you for standing by. Welcome to TransDigm Group Inc. Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jaimie Stemen, Director of Investor Relations. Please go ahead.

Thank you, and welcome to TransDigm's Fiscal 2024 Second Quarter Earnings Conference Call. Presenting on the call this morning are TransDigm's President and Chief Executive Officer, Kevin Stein; Co-Chief Operating Officer, Mike Lisman; and Chief Financial Officer, Sarah Wynne. Also present for the call today is our Co-Chief Operating Officer, Joel Reiss. Please visit our website at transdigm.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 Investors 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, everyone. 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 '24 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. 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 a 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 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 had a strong quarter. Our Q2 results ran ahead of our expectations, and we once again raised our guidance for the year. Commercial aerospace market trends remain favorable as the industry continues to recover and progress towards normalization. Global air traffic…

Good morning, everyone. I'll start with our typical review of results by key market category. For the remainder of the call, I'll provide commentary on a pro forma basis compared to the prior year period in 2023. That is assuming we own the same mix of businesses in both periods. In the commercial market, which typically makes up close to 65% of our revenue, we will split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 21% in Q2 compared with the prior year period. Sequentially, total commercial OEM revenues grew by about 12% compared to Q1. Bookings in the quarter were strong compared to the same prior year period. These booking levels continue to support the commercial OEM guidance for revenue growth of around 20% for fiscal '24. OEM supply chain and labor challenges persist, but appear to be progressing. Broadly speaking, we continue to be encouraged by the elevated and healthy airline demand for new aircraft. Supply chains remain the primary bottleneck in this OEM production ramp-up. As many of you know, concerns have recently arisen around the expected 737 MAX production rate ramp. Time will tell how this plays out. At this time, we remain cautious and are watching for a potential realignment of our current MAX order backlog to reflect the lower production rates. The commercial OEM guidance we are giving today contains an appropriate level of risk around the MAX production build rate for the balance of our '24 fiscal year. While both the 737 MAX risks as well as other risks remain towards achieving the ramp-up across the broader aerospace sector, we're optimistic that our operating units are well positioned to support the higher production rates as they occur. Now moving on to our commercial aftermarket business discussion. Total commercial…

Thanks, Mike, and good morning, everyone. I'll recap the financial highlights for the second quarter and then provide some more information on the guidance update. First, on organic growth and liquidity. In the second quarter, our organic growth rate was 16.1%, and all market channels contributed to this growth as Mike, Kevin has just discussed. On cash and liquidity, free cash flow, which we traditionally defined as EBITDA less cash interest payments, CapEx and cash taxes was roughly $290 million for the quarter, coming in around $950 million on a year-to-date basis. As a reminder, our fiscal Q1 free cash flow was higher than average due to the timing of our interest and tax payments. For the full fiscal year, our free cash flow guidance is unchanged. We continue to expect to generate free cash flow of approximately $2 billion in fiscal 2024. Below that free cash flow line, net working capital consumed $82 million, driven by AR with the higher sales in the quarter and inventory as we support the second half of our year. We continue to expect our annual dollars invested in net working capital to moderate from the elevated levels we've seen over the prior 2 years, but pinpointing an exact dollar amount of investment for fiscal '24 is difficult. We ended the quarter with approximately $4.3 billion of cash on the balance sheet, and our net debt-to-EBITDA ratio was 4.6x, down from 5x at the end of last quarter. As a reminder, approximately $1.4 billion of this cash is reserved for the anticipated closing of the CPI acquisition. We continue to be comfortable operating in the 5 to 7 net debt-EBITDA ratio range and while we are currently sitting slightly below the low end of this range, our go-forward strategy of capital deployment has not…

[Operator Instructions] The first question comes from Myles Walton with Wolfe Research.

Kevin, I was wondering if you could touch on the aftermarket growth rate in the quarter and the reacceleration implied in the back half of the year? And in particular, if you can parse out the freighter complement to that. I think GE on their call actually raised their freighter outlook for the year on aftermarket. So I'm not trying to align 2 different data points. But just what you're seeing overall? And I know you said that the guidance incorporates drag for the rest of the year, but is it fair to think that, that drag becomes less and less.

Sure, Myles, it's Mike. I'll take that one. Overall, with regard to commercial aftermarket, we had a very solid bookings quarter. We significantly outpaced sales in the segment, commercial aftermarket overall, which sets us up well nicely for the back half and the mid-teens percentage growth for the year that we mentioned. Passenger and interior were both ahead of our expectations. A bit more color on the freight point and to address some of your questions there, we were down about 15%. That was about what we expected, maybe a little bit worse than we has foreshadowed it, I think, on the last 2 calls. I think as you guys know, we have about 3 op units that fall into that freight bucket and facilitate the movement of freight on aircraft, both past and full freighters as well as the belly cargo systems. And that submarket, it's about plus or minus depending on the quarter, 15% or so of our commercial aftermarket bucket. We wait a bit more towards freighter in that bucket. And I think as you guys know, within the freight market, there's been a trend away from freight being carried within full freighters and more towards the belly of the passenger capacity that's coming back into the market on passenger aircraft, the belly systems. And we specifically, we've got a couple of op units that, as I said, they're a bit more freighter weighted. And as that market has trended off and we've seen a shift more towards belly, they've seen a bit of a decline in some of their product sales. It tends to be stuff that's slightly lower margin for us across our commercial aftermarket than the rest of that bucket. So there's not too much of a margin drag or impact as a result of it. But you see the sales decline, and that's part of what drove the 15% drop. For the balance of the year, we do see that continuing in the back half. We factored that into our guidance, and we feel good about the mid-teens percentage rate growth, given the strength we've had in the bookings. But on the freight side, we do expect to see some continued headwinds here in the back half of the fiscal '24 year.

The next question comes from Robert Spingarn with Melius Research.

This is Scott Mikus on for Rob Spingarn. Kevin, to follow up on Myles' question, airlines have been flagging elevated turnaround times in MRO shops, particularly for engines. So I'm just wondering, are any of your operating units getting the sense that volume growth on components for engines isn't as high as they would expect, just because throughput at the MRO shops isn't as fast as it was pre-COVID.

It's Mike again. We have not really seen much of that action. I think we've seen pretty good strength across all of our different products, both on engine and off engine across the commercial aftermarket at this point of the -- at this point in the fiscal year. But I would say we probably have lower exposure to engine aftermarket as a percentage of our business.

Okay. Got it. And then on the defense end market, historically, you've characterized it as a low single-digit organic grower. Armtec has seen some large awards and contracts related to munitions and artillery. Army wants to increase 155-millimeter artillery production to 100,000 shells per month by late 2025. So how should we be thinking about the long-term growth trajectory for your defense sales going forward?

I think you guys know we have an Analyst Day coming up in June, and we don't want to go ahead and give long-term guidance by submarket outside of this year. We do feel good about the mid-teens percentage growth range this year for defense. We're seeing that strength across the OEM and aftermarket. It's pretty broadly distributed across all of our op units. But Armtec, in particular, has had some good flare shipments this year as well as some [indiscernible] product out of their California facility, which is the 155-millimeter program that you mentioned. That growth should continue for a couple of years. You might have seen in the -- some of the Department of Defense budget documents for the next 2 years or so. So we remain optimistic about the growth outlook there, but it's not really driven by just 1 or 2 operating units. It's been pretty evenly distributed across our full group. As we said, we don't expect defense growth of 20% or so that we've seen in the first half of this year to continue, there's just got to be some moderation there. This is always lumpy. Fortunately, for us, in the first half of this year, it's been lumpy to our benefit, probably a bit better than we expected, but we do expect some moderation in the long-term. It's not going to grow anywhere close to 20%.

Next question comes from Ken Herbert with RBC Capital Markets.

I wanted to see either Mike or Kevin, if you could drill down maybe somewhat on the defense commentary. I can appreciate the lumpiness, but is there anything in particular you saw in the first half, either things pulled to the left or sort of an acceleration in shipments that specifically gives you reason to be more cautious on the second half. I can appreciate the step-down in guide probably reflects some conservatism to get to the full year growth. But just wondering if there's anything you'd call out relative to just a track record of lumpiness and conservatism as you think about the second half of the year.

I think we always strive to be conservative in our guidance. We did bring, obviously, our guidance up so for the year. But I take your point that on a quarter basis, that would imply we're going back down. It's difficult to predict. I think what we're seeing is finally the backlog, the demand that is clearly in the defense market space coming out. They're finally placing the orders for this product. We would anticipate that this will be a good tailwind for us, but it's hard given the lack of visibility at times in the defense industry to predict it so accurately. So we don't want to get out over our skis on really any of our submarkets, we choose to be a little bit more conservative as we break things up.

Appreciate that. And if I could then, Kevin, maybe one other way to think about it is how much of your defense aftermarket, in particular, would you classify a short cycle versus sort of backlog-driven?

I think defense aftermarket tends to be different than commercial aftermarket. It can be longer cycle, but there's still drop-ins that happen everywhere.

Next question comes from David Strauss with Barclays.

This is Josh Corn on for David. I wanted to ask in the guidance. Why would EBITDA margins in the second half drop from Q2 on what appears like it would be a similar mix to the second quarter?

I think we're comfortable -- we don't want to get into giving quarterly guidance on these things. We're comfortable for the year at where we sit. Yes, business can be lumpy. We were pleasantly surprised by the EBITDA this quarter. We're not positive how the future quarters will unfolds. But again, our goal is to be conservative. So that is our forecast for now that we're sticking with.

Okay. And then I just wanted to follow up on the first question about sequential aftermarket in the second half, are you baking in any sequential improvement? Or is it just easier comps in Q3 and Q4?

I think we don't tend to give quarterly guidance by end market. But I think as you guys know, if you look at how we did in the first half in commercial aftermarket, what's implied for the second half, you'd expect probably Q4 to be the highest and some ramp up as we proceed through the balance of the year on the commercial aftermarket.

The next question comes from Scott Deuschle with Deutsche Bank.

Kevin, just on M&A. Is there optimism on the pipeline more about the next 12 to 18 months? Or are you still optimistic about the pipeline for the second half of this year specifically?

I'm optimistic about the future. It's difficult for me to unpack it into quarterly buckets. I remain optimistic about what the future holds for M&A. And our M&A tracker that I follow constantly, it has the most names. It's the busiest we've probably ever been in M&A. Again, it doesn't tell you what's going to close. We remain very picky in the businesses that we choose and we will continue to do that. We have a lot of activity in the small and medium size. We announced 2 in our 10-Q today that are smaller sized businesses, but nicely accretive, as I said in my opening comments, yes, there's a lot going on out there. We're very busy.

Great. And then Mike, you're seeing really good leverage on gross margins, but SG&A has been growing. It looks like a bit faster than sales, at least over the last few quarters. So I'm curious if you could talk a bit about what's driving that SG&A expense growth to outstrip sales? And then when we should expect to see better operating leverage on that line specifically?

Yes, I can speak to that one. A large portion of what you see is some of that increase on the noncash stock comp that plays into it. When you look at that just the raw sales, which you'll see in the quarterly and it's published later today, you'll see actually the spend going down.

The next question comes from Gautam Khanna with TD Cowen.

I was wondering if you could expand upon your comments in the prepared remarks about differences in the distribution channel versus what you're seeing direct. So maybe if you could just tell us a little more where you're seeing better sell-through and if that's applying to the freighter market or not yet, et cetera?

The 2 don't always perfectly correlate in terms of what we see through our POS with our distributors and then what we do directly. What goes through distribution now, it bounces around a little bit, but it's about 20% to 25% or so of our CAM sales. And it's a decent leading indicator usually of future orders that will come, obviously, because the distributors sell out their inventory that they hold on our behalf so that we can get product quickly to customers, then we've got to replenish it. So the sales come eventually to replenish the sales, they see, but they on a quarterly basis don't always move exactly in the right direction. But over time, POS tends to be a pretty decent leading indicator of where the full commercial aftermarket is heading. And that's what gives us -- as we see in the remarks, some confidence today as we look out our commercial aftermarkets likely to go for the balance of the year.

And can you comment on biz jet [indiscernible] and freighter specifically? Do you think we're in the early innings of that business declining? Or what's your expectation for when that might actually turn positive again in the aftermarket?

I think it's hard to say. It depends where the freighter market goes. But generally, with the belly capacity having come back, you'd expect '24 to be the year where we take it, most of the decline on the full freighter business. We had saw a great runoff during COVID on the freighters, and now the market is just sort of correcting back to the '19 levels in terms of what goes via full freighter and what goes via belly. So '24 is going to be probably the biggest year for that correction curve.

The next question comes from Peter Arment with Baird.

Nice results. I want to circle back on Joel, you gave some comments about just some of the -- how some of the passenger travel markets were doing, you talked about China. Could you maybe talk about maybe just if you could call out what you're seeing from an aftermarket perspective on a regional basis? Or any color international versus domestic, if you're seeing any big differences?

We don't get great split-outs by region when it comes to our commercial aftermarket sales. A lot of the IATA data, we referenced basically supports the highest growth rates being in China and Asia. A lot of that would go via our distributors. We don't get great visibility into it. We're, of course, benefiting from it. I think we've seen that in the bookings strength we have, but we don't get great data by region.

Okay. That's helpful. Just was curious. And then just could you give us an update just on what you're seeing in the supply chain? Obviously, it's been something that has solely improved, but it's always [indiscernible], I assume? And just any color on what you're seeing in the latest in the supply chain.

I'd say it continues to get better, not back to where it was in 2019 yet, but better than where it was 12 months ago, 24 months ago, continue to have issues with items like certain electronics, castings, certain chemicals or materials, but continued progress.

The next question comes from Robert Stallard with Vertical Research.

This might be for Kevin. Your comments on the Boeing situation on commercial OEM that [indiscernible] what you said 3 months ago. I was wondering if you did actually reduce your Boeing expectations this quarter? And if you did, only being offset or it must be offset by something else, right?

I'll take that one, Rob. I think in the commercial OEM, our first half ran a little bit better than the full year guidance it's something like plus 23%. I think we're cautious on the outlook here in commercial OEM overall and the OEM forecast incorporates an appropriate level of risk around a potential Boeing rate change. Our forecast is a reminder, and I think, as you know, it's a bottoms-up forecast from ops units based on what they're seeing. What they're hearing from their op units. It's not a corporate top-down mandate on, hey, the bill rate you should assume for MAX to say, 38 or so. It's a bottom-up build based on what they're seeing at their specific op unit. And as a reminder, we -- a lot of our content on those aircraft that doesn't go direct to Boeing. It often goes into sub-tiers just given the nature of the components we're selling, who could be taking actions independently based on what they're seeing hearing as well. But in a nutshell, we feel good about the guide for the year of around 20% and any potential reductions we've baked into the guidance we've given today for the year. I think it's also fair to say that Airbus is continuing to do better. So that's going to continue to backfill some of the possible hole created by Boeing in the short-term.

Yes. And then just as a follow-up, Kevin, on your comment on your M&A tracker and it being as busy as you can remember. What do you think is driving that? And is there any sort of change given the amount of target or any change to the pricing that you're seeing being discussed?

Yes. I wish I knew that. It would help me when things slow down to better understand. It just seems to be a busy time right now, whether that's expectations around the market segment. I don't know and it's difficult for me to speculate. It's just a busier time. We haven't changed our standards or our expectations at all. We still view business as the same way we have since the beginning. So you can only swing at the pitches that get thrown as Nick used to say years ago, and that's still true today.

The next question comes from Noah Poponak with Goldman Sachs.

I was curious if you could help me better understand if you are assuming that freight is a drag inside of the aerospace aftermarket in the back half. How does the total aftermarket growth rate accelerate in the back half, is biz jet and helicopter and the passenger side, faster growth in the back half? Or is it just the compares or something else?

I think we're -- I'll take a stab at it, Noah and hopefully it addresses what you're trying to get at. We've seen really strong growth in the passenger, and we see that continuing based on bookings in the back half of the year. Freight, we've continued to see a bit softness on the booking side there, which is how we know in the second half that we're likely to see some continued slight decline there. Biz jet, thus far this year, it was up a bit, I think, in Q1, Q2 was down a bit. For the year, it's about flattish. We expect to see something like that, maybe a little bit better in the back half. But really what's driving the commercial aftermarket overall is the continued strength in passenger and interior. That is the vast majority when you lump those 2 buckets together of that commercial aftermarket bucket, and we're seeing really good strength there that's covering up some of the weakness elsewhere as we look out for the last 6 months.

Okay. Yes, I guess it sounds like you're qualitatively directionally saying you expect passenger and freight to do something similar in 3Q and 4Q as they did in 2Q, but for the aggregate segment or end market growth rate to accelerate somewhat significantly. But I guess if passenger is a little better, freight is a little better and the compares are easier, maybe that gets you there.

I think that's right. Yes.

Okay. Okay. Did the rate of change in price change very much in the aftermarket in the second quarter?

Not appreciably, no. I think we always, as you guys know, we seek the price slightly ahead of inflation. And that's unchanged. This quarter, same expectation as we always have for our operating units and what the teams look to execute on.

Well, I think we don't spend enough time talking about or emphasizing the gains we've made in productivity. We are down thousands of heads compared to where we were at very much comparable volumes are approaching comparable volumes. That's real productivity as we have been reluctant to add back and driving engineering productivity projects in our facilities that is clearly having an impact on our EBITDA.

Yes, you can definitely see that in the margins. Okay. Kevin, you mentioned adding people to the M&A team. Can you quantify that? Like how many people relative to the base or what kind of percentage increase you're making? Just curious there.

Yes. I don't -- we're looking to add 1 or 2 more folks to our M&A team. We are seeing a lot of really interesting smaller-sized deals and small deals take as much time to go through as bigger ones. So we need some more help to go through that. So hopefully, this will produce some more opportunity for us as we're seeing things come across our desks that we haven't seen before.

The next question comes from Sheila Kahyaoglu with Jefferies.

First, I wanted to speed up another aftermarket question. It's been asked several ways. But up 8%. If we take out freight, which is 15% of your aftermarket, just an assumption there, that's 2 points of an headwind. How do we think about where peers were averaging about 15% on the quarter and you guys at 10% and you having more price power, how do we think about what held aftermarket back outside of freight and biz jet?

I think on a quarterly basis, you can always see a little bit of lumpiness as we said here before. I'm not sure how exactly to follow the math on the 2% drag. But as we said today, we saw really strong bookings across our whole business, that can be lumpy. We feel really good about the outlook for the full year with the mid-teens percentage growth there.

Yes. I mean, we sequentially booked more in the aftermarket. We're seeing robust bookings in aftermarket on the commercial side. I think we feel optimistic, right? That's right.

Okay. Great. And then Kevin, I had to buy myself some time to do that math on the headcount productivity you just gave us. So I think head count is 15% below 2019 levels, while sales are up significantly above 2019. So with that productivity benefit in mind, how do we think about EBITDA margins decelerating 100 bps half over half in the second half?

Yes. I take your point. Again, we hopefully aim to be conservative in our forecasting. We're trying to stick to our yearly forecast on EBITDA. We had a very strong Q2. We'll see how the back half of the year unfolds. We certainly don't have any large negatives that we're aware of. So I think it's just our standard conservatism. We don't have any concerning trends that we're trying to peanut butter over here or anything. This is a strong bookings across all of our segments -- and really a good tailwind, both on the OEM, commercial OEM, commercial aftermarket and clearly on the defense side. We remain optimistic.

Next question comes from Kristine Liwag with Morgan Stanley.

Kevin, in previous Investor Days, you've talked about how TransDigm had about 400,000 -- excuse me, 400,000 PMA SKUs. And I think there was a point in time you were averaging something like 20,000 SKUs per year. I guess this has been a few years ago since you've disclosed this. I was wondering if you could size PMA today as a percent of your portfolio and also in an environment where the supply chain is still struggling and you're clearly able to produce parts. Can you provide more color on where that is, that market and how attractive you think it is?

I think we can give more update and color on this topic at our Investor Day coming up at the end of June. But just from a top level, we don't consider PMAs to be a significant impact of our business. We have somewhere around 500,000 part numbers that we sell across commercial and defense. We do monitor it regularly. We are the largest creator of PMA parts in our space that we sell into on our products, that's how you sell into the aftermarket. So I think the -- it's much similar situation to what we've seen in the past. The opportunities exist for us to replace other struggling suppliers. We certainly see that. We -- again, PMA and used and serviceable materials aren't a significant impact to our business on a regular day-to-day basis. It doesn't mean that there aren't some parts that are more impacted. But on a go-forward basis, it's a very, very small leak in our business, if you will.

Thanks, Kevin, and Sarah, if I could follow up on leverage. I mean, you guys are clearly investing in your M&A team with the head count add. But if there are no incremental deals to fund in the near and medium term, -- how do you think about the split between paying a special dividend versus doing more share buybacks?

Yes. I mean, obviously, we look at both of those, obviously, the first and foremost is to invest the capital in our businesses and do M&A, and then we look at those 2, and we look at them all the time. And obviously, we're sitting on plenty of cash, as you know. So at some point in the future, we look to make a decision on which one makes sense and what best to do with the cash.

I think we -- to add to that, I think we just -- we paid a dividend in Q1. I think we'll be able to make a decision in Q4 probably this year about our plants.

One moment for the next question. The next question comes from Michael Leshock with KeyBanc.

I think you had previously alluded to volume growth within aftermarket in 2025. And if we look ahead a bit further, is that still your view? And is there anything you could call out that needs to happen to meet the strong demand within aftermarket that we're seeing? And continue to grow volumes, just given some of the constraints that we're seeing out there right now?

Sorry, is the question about whether 2025 commercial aftermarket volume growth will continue?

Yes, that's right.

I think, generally, as you look at the forecast from IATA, the investment bank forecasts that are out there, generally folks are expecting RPMs and takeoffs and landings to continue to tick up next year. That said, it's at a moderating pace relative to what it's been in the past couple of years as we come out of COVID. So there's still growth but maybe not quite as high as it was in, say, 2022. We've already seen some of that moderation. But yes, of course, if you look at IATA forecast, other forecasts, the world is flying a lot. People continue to fly. That's reflected in takeoffs and landings and expected RPM growth. So we very much expect as a result of that continued volume growth in commercial aftermarket.

And then just on capital allocation on your priority of reinvesting in the business. Could you talk to what areas of the business you expect to invest the most or anything you're targeting, whether it be bottlenecks or just any way to frame the organic investments you're making?

Yes, the biggest investment and use of our capital has been to the productivity comment Kevin made earlier, it's automation projects. We have said -- as we said before, when we were in the depths of COVID will not add costs back ratably as we come out of it, and we haven't done that. That's reflected in the head count we have today. And the operating unit teams have done an exceptional job of finding good automation projects, whether it's cobots or material movers or new machining centers to basically increase the amount of automation in their facilities and reduce the headcount, reduce the cost footprint. That's why you're seeing the better margins that we delivered this quarter.

The next question comes from Pete Osterland with Truist Securities.

I'm on for Michael Ciarmoli. I just had a follow-up on the question on Boeing production expectations. I appreciate the color you gave on the bottoms-up approach to your forecast. But could you share any specifics on what monthly rate you would estimate you are currently producing to for the MAX on average? And just directionally, what assumptions are embedded in your guidance there for the balance of the year?

I think it varies a lot op unit by op unit based on the demand they're seeing from their customers. Obviously, sometimes that subtiers, as we said. So it's hard to go and back calculate into some kind of rate, I'd expect that something around 38, maybe a little bit less, but it's hard to say there's some kind of averaging exactly what it is across their ranch.

Okay. Understood. And then just as a follow-up, has the uncertainty around OEM production and some of the delayed deliveries we've heard about showed up in any meaningful way in your bookings? Have you seen any shift in the bookings environment between commercial OEM and aftermarket? .

No. Continued good strength that supports the guidance on both.

I show no further questions at this time. I would now like to turn the call back over to Jaimie for closing remarks.

Thank you all for joining us today. This concludes the call. We appreciate your time, and have a good rest of your day.

This does conclude today's conference call. Thank you for participating. You may now disconnect.