TransDigm Group INC Q2 FY2025 earnings call

• Kevin Stein announced his retirement at the end of 2025 fiscal year, to be succeeded by Mike Lisman effective October 1, 2025. • Company strategy focuses on proprietary aerospace businesses with aftermarket content, simple operating methodology, decentralized structure, accretive M&A, and strategic capital allocation. • Strong Q2 with growth in commercial aftermarket and defense market channels, EBITDA margin 54%, cash balance over $2.4B. • Capital allocation includes share repurchases, M&A, and reinvestment in businesses. • Active in M&A, looking for aerospace businesses with high aftermarket content and proprietary products.

The company's segments include commercial and defense markets. The commercial market typically makes up close to 65% of revenue. Total commercial OEM revenue was about flat in Q2 compared with the prior year period, while total commercial aftermarket revenue increased by approximately 13% compared with the prior year period. The defense market, which traditionally is at or below 35% of total revenue, grew by approximately 9% compared with the prior year period. Commercial aftermarket submarkets had varied growth, with engine content operating units posting solid growth, and defense revenue growth was well distributed across businesses and customer base.

• Fiscal 2025 revenue midpoint $8.85 billion, up ~11%. • EBITDA midpoint $4.685 billion, up ~12%, margin ~52.9%. • Adjusted EPS midpoint $36.47, up ~7%. • Revised commercial OEM revenue growth to low single-digit to mid single-digit range, defense revenue growth to high single-digit to low double-digit range, commercial aftermarket growth unchanged at high single-digit to low double-digit. • Guidance incorporates impact of tariffs with no material headwind anticipated.

• Macroeconomic uncertainty affecting airline schedules and OEM performance. • Tariffs and their potential indirect impact on the aerospace supply chain. • OEM production challenges and supply chain bottlenecks. • Volatility in the M&A market and potential overvaluation of targets.

Q: Comment on interest in purchasing Jeppesen from Boeing?

A: Looked at Jeppesen as it ticked boxes but was disciplined and had to say no to deals.

Q: Will tariffs require passing on costs to customers?

A: Tariffs have small impact, not spending much time on impact.

Q: Capital deployment and share repos?

A: Capital allocation priorities include investment, accretive M&A, and returning capital via repurchases.

Q: Margin conservatism and second half outlook?

A: Conservatism built in, second half may see lower margins due to commercial OEM picking up at lower margins.

Q: M&A in software-related businesses?

A: Look at all aerospace deals, including software if they fit criteria.

Q: Aftermarket booking momentum and submarkets?

A: All submarkets up nicely, engine continues to outperform.

Q: Tariff pre-buy activity in aftermarket?

A: Did not see unusual pre-buy activity related to tariffs.

Q: Free cash flow and working capital?

A: Free cash flow guidance unchanged, networking capital impact varied by quarter but in line overall.

Q: Freight and cargo market performance?

A: Freight business performed well, growth exceeded commercial aftermarket overall growth.

Q: Defense market growth and booking strength?

A: Defense growth uniform across businesses, bookings outpaced sales.

Q: Regulatory changes in defense acquisition?

A: Very early, no specific comments yet.

Q: PMA parts and competition?

A: No meaningful uptick in PMA parts from competitors.