Good day, ladies and gentlemen, and welcome to the TransDigm Group Incorporated Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to Liza Sabol, Investor Relations. Ma'am, you may begin.

Thank you, and welcome to TransDigm's fiscal 2016 third quarter earnings conference call. With me on the call this morning are TransDigm's Chairman and Chief Executive Officer, Nick Howley; Chief Operating Officer from our Power Group, Kevin Stein; and Chief Financial Officer, Terry Paradie. A replay of today's broadcast will be available for the next two weeks and details are contained in this morning's press release and on our website at transdigm.com. Before we begin, we 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 earnings release or our presentation for the most directly comparable GAAP measures and a reconciliation of EBITDA and EBITDA As Defined, adjusted net income and adjusted earnings per share to those measures. With that, let me now turn the call over to Nick.

Good morning. And thanks again, everybody, for calling in this quarter. Today, I'll start off, as usual, with some comments about our consistent strategy, then give you an overview of our fiscal year Q3 and year-to-date performance, an update on our 2016 guidance, then Terry will run through the financial activity for the quarter. To restate again, we believe our business model is unique in the industry, both in its consistency and its ability to sustain intrinsic shareholder value through all phases of the aerospace cycle. About 90% of our net sales are generated by proprietary products. That is products for which we own the intellectual property. And for most of these, we are the sole source provider. Over half of our revenues and a much higher percent of our EBITDA come from aftermarket sales. Aftermarket revenues have historically produced a higher gross margin and have provided relative stability through the cycles. Because of our uniquely high EBITDA margins, TransDigm has year-in and year-out generated strong free cash flow. This gives us a lot of operating and financial flexibility. We follow a consistent long-term strategy; one, we own and operate proprietary aerospace businesses for significant aftermarket content; second, we have a simple well-proven value-based operating strategy based on our three value driver concept; third, we maintain a decentralized organization structure and a unique compensation system that closely aligns the management with shareholders; fourth, we acquire proprietary aerospace businesses with significant aftermarket content, where we see a clear path to private equity-like returns. And lastly, we view our capital structure and capital allocation as a key part of our efforts to create shareholder value. As you know, we regularly look closely on our choices for capital allocations, and we basically have four: invest in our existing businesses; two, make accretive acquisitions…

Thank you. Nick. I will now review our financial results. Third quarter net sales were $798 million, or approximately 15% greater than prior year. Almost half the growth came from the collective impact of acquisitions of Pexco, PneuDraulics and Breeze. Organic sales were up approximately 8.3%, driven by strong growth in the commercial aftermarket, partially offset by weaker commercial OEM and defense sales. The organic growth also was positively impacted due to the prior period including only two months of Telair and Franke due to a reporting lag. Q4 2015 included four months of Telair and Franke to catch up on that lag. Our third quarter gross profit was $444 million, an increase of 23% over the prior year. Our reported gross profit margin of 55.6% was about 3.5 margin points higher than the prior year. A decrease in acquisition-related costs versus the prior year, partially offset by the acquisition operating margin dilution contributed about one-half a point to the higher reported margin. Excluding all acquisition-related accounting adjustments and operating activity, our gross profit margin in the business versus the prior-year quarter improved 3 margin points. The operations continue to expand margins as a result of the strength of our proprietary products and continuing improving our cost structure. Additionally, sequential gross profit margins improved about a half a point excluding all acquisition activity. Our selling and administrative expenses were 11.8% of sales for the current quarter and the same in the prior year. Excluding acquisition-related expenses and noncash stock compensation, SG&A was about 9.7% of sales, compared to 10% of sales a year ago. We have an increase in interest expense of approximately $14 million versus the prior year quarter. This is the result of an increase in the weighted average total debt to $8.7 billion in the current quarter…

Operator, we are currently ready to open the lines. We do ask that you limit your questions to two per caller and then reinsert yourself into the queue to allow time for everyone to ask questions.

Thank you. And our first question will come from Ken Herbert at Canaccord. Your line is now open.

Hi. Good morning.

Good morning.

Hey, Nick, I just wanted to first ask, on the commercial aftermarket, it sounds like the airlines continue to spend pretty substantially. Are you seeing upside there relative to your expectations? And is maybe the helicopter and business jet weakness, I know there are more than perhaps you expected, but are you seeing surprise to the upside from what you're hearing from your airline or commercial transport customers?

Well.

Yeah. Yeah. I also just to point out, the freighter business, which isn't a big part, but it doesn't help, is a little – that's probably a little softer than we might have thought. But if we are – I mean, just almost mathematically if we are holding our guidance, but the biz jet and helicopters are lower, that means the rest of it has to be a little better.

Yeah. Okay. It sounds like, though, you're maybe walking us away from the upper end of the guidance a little bit, from your comments.

That was the comment. I have to admit I'm a little concerned. And, I don't have any particular inside knowledge here, but I'm a little concerned where the bottom is on biz jet and helicopter aftermarket.

Okay. Okay. That's helpful. And then, just...

I don't think it's a big deal for the balance of the year here. We can't move it much, but could move it a hair.

But it sounds like that could certainly spill into fiscal 2017?

No. We'll comment on that when we get there. And Ken, I don't want to start to speculate on that piece by piece.

Okay, fair enough. And then, if I could, have you seen anything different in terms of inventory levels – again on the aftermarket – either within your distribution channel or within end users over the last quarter?

I can't say anything. We have, I would say, individual units. We see some distributor movement, but on balance, I don't think it's a substantive impact.

Okay. Perfect. Well, thank you very much and nice quarter.

Thanks.

Thank you. And our next question will come from Ron Epstein of Bank of America. Your line is now open.

Yeah. Hey, good morning, Nick and everyone.

Thanks.

Yeah. Nick, in your prepared remarks, you'd mentioned that you're seeing some more softness in the wide-body market but the narrow-body market seems to be okay. I don't know if you could just maybe add some color to that, wax on on both of those a little bit more on what you're seeing, because it really does seem like there's a bit of a bifurcation in the market.

Yeah. And I don't – I mean, all I'm doing is reporting on – I'm just sort of reporting back what we hear from our customers, which is very close to the same things they're announcing publicly. You've seen the A330, A380 and 747 rates get cut back. Whereas on the wide body – or in the narrow body, you're not seeing that. If anything, they're still rumbling, they might step them up a little. And I don't have any more insight into that. And I would say our business roughly reflects that same thing.

Yes. Yes. Yes. And then, if I may, just a quick follow-on. Over at Farnborough, we've talked to several different suppliers, and some of them mentioned that some of the OEs might be trying to second source some things today that are currently sole sourced. Has that had any impact on your business? And what is your thought on that? Is it an opportunity, a threat?

It is not. I would point out that, one, we tend to have agreements in place with most of the OEs for the products. And the other is that the vast majority of what we have is proprietary. It's not hard – not impossible, but it's significantly more difficult to replace a proprietary product than a non-proprietary one.

Or, in other words, when you own the IP, much of what I have seen at least in the – what I've heard and what I've seen publicly, is replacing non-proprietary stuff.

Okay. Okay. Great.

In other words, when the supplier doesn't own the IP.

Okay. Great. Thank you.

Thank you. And our next question will come from Carter Copeland at Barclays. Your line is now open.

Hey. Good morning, guys.

Hey, Carter.

Morning.

Nick, I wondered if you could help us maybe just parse the impact in biz jet and freighter. As you look through that, do you have a sense of how much of that is real declines versus destock? Is there a portion of that that you wouldn't expect to repeat next year because it is destock?

Yeah.

I know it's not easy to answer.

Yeah. Let me try that in pieces. In the helicopter business, Carter, I obvious – I don't know where the bottom of that is. As you know what's driving that, the big driver there is the oil prices are off, so all the stuff servicing that industry is sort of in a swoon. I'd like to think it's close to the bottom but, frankly, I'm just not sure. Fortunately, it's not a lot of our business. I would say in the business jet, in the OEM business, once again, I'd like to think that – well, in the OEM business, I'm sure there is some inventory drawdown there that I would hope would not repeat. But I also would have to say I think, I and the rest of the industry has been notoriously inaccurate when predicting this business jet production rate. It's been – every year, it's been going to go up since 2010 or 2011 and really hasn't gone up much. The aftermarket, I think, is more stable in the business jet. In the freighter business, I think you know what's going on there. Freight traffic is just slowing down some. I think there's been – there I'm pretty comfortable that there's been some inventory drawdown throughout the system. I can't quantify that, but I'm quite sure there's been some. I hope that would stabilize next year.

Okay, great. And then just to help me square the math on the difference between the stated organic growth numbers and then when you look at it by segment, obviously implies that the pro forma growth in some of the things you acquired had some pretty sizeable declines. Is that a Breeze-Eastern?

Yeah. Let me try that. Carter, I guess I didn't make myself clear and I'll try it once. And if it doesn't – if I tangle the accounting up – Terry can hop in and replace me or replace me, can hop in and give it some better words. If you may or may not remember, when we bought Telair last year, we had a transition agreement with AAR where they would do the accounting for a quarter while we got things switched over. The net result of that is because of the turn times, we had to be on a one-month lag in the previous year's third quarter. So, we only had two months. And this year, we have three months.

Got it.

So when we report on a GAAP basis, it makes the growth number larger. When we go back and do it on a same-store basis, it's smaller, when we assume we own the same things in both periods, if that's clear.

Perfect. Perfect. Perfectly clear.

That's the bulk of the difference. There may be a little bit here. The vast majority of 3% spread is that.

I think it's important to know, Carter, though, by next quarter there's going to be four months in Q4 2015 versus three months in Q4 of 2016.

Right. So, it's going to – and the gap is going to (35:46).

It'll go the other direction in the fourth quarter.

Wonderful. Thanks for the color, guys.

Yeah.

Thank you. And our next question will come from Noah Poponak at Goldman Sachs. Your line is now open. Gavin Parsons - Goldman Sachs & Co.: This is Gavin Parsons on for Noah. Good morning, everyone.

Good morning. Gavin Parsons - Goldman Sachs & Co.: Just looking at the defense aftermarket, on bookings, presumably you can make up the OEM orders that slipped, but you said aftermarket was a bit weak.

Yeah. Gavin Parsons - Goldman Sachs & Co.: Should we draw any conclusion from the aftermarket demand or is that more random lumpiness in the bookings?

Yeah. I would say the OEM stuff is just pure timing. We had some big orders in the third quarter of the prior year, and then we didn't get them this year, plus we had a couple of things slip out. Probably the biggest single one was the A400. They're ordering at lower rates frankly, because they probably had a little too much inventory with all the moving around in their shipments. The aftermarket was – and I don't want to overemphasize this, but the aftermarket was a little softer than we expected. I don't think that's anything more than random variation, but it can a little bit of that we anticipate to turn fast in the fourth quarter. And I'm a little concerned that it won't come in in time. That's all I was trying to – the point I was trying to make there. And that's why we hedged our defense business down a little. Gavin Parsons - Goldman Sachs & Co.: Okay. Got it. And then DDC, maybe in that context, and within the five-year military outlook for flat to modestly up, given DDC is already pretty high margin, can you give us an idea of where we can go from here in terms of DDC margin and in terms of revenue growth, maybe given a little bit of...?

I don't want to speculate on individual businesses. I will tell you that when we do the DDC math when we bought it, we look at it the same way we look at all the other businesses. Roughly half – that half equity, something like that. And over the five-year period, assuming we buy-sell, we still see a return on our equity up in the 20% range. And that still works. Gavin Parsons - Goldman Sachs & Co.: Okay. And could you comment on where aftermarket bookings were relative to revenue in the quarter?

I think I did. They ran ahead, not a lot ahead, but they ran modestly ahead. Gavin Parsons - Goldman Sachs & Co.: Great. Thank you.

This is commercial I'm talking about. Gavin Parsons - Goldman Sachs & Co.: Yeah. Thank you.

Thank you. And our next question will come from Michael Ciarmoli at KeyBanc. Your line is now open.

Hi. Good morning. It's actually Kevin on for Mike. Been seeing a lot of pressure from the EU airlines in terms of passenger traffic, airline profit, just given the economic environment there. Are you seeing behavioral changes from your customers in Europe as a result of that at this point? Or how are you guys looking out maybe longer term, from that sense?

I can't say we've seen anything different in the last quarter than we've seen in the past. As you know – we, for the last, probably, I don't know, 15 months, though it's getting a little better now, our view has been, across the world, in ordering, airlines have been ordering at a lower rate than their consumption. But I can't say it's recovering some now, but I can't say we've seen any change in the last quarter or any specific change in the European airlines.

Okay. And then...

Let me back that up a minute, just a second to be clear. We have seen some change in the last couple of quarters. We still, seems to me, like they're not quite up to their consumption rate in ordering.

Okay. Got it. That's helpful. And then, Nick, since you closed on DDC, anything incremental you've learned there in terms of the business versus what you expected? Based on the last answer you gave, it sounds like it's going fairly well.

It looks a fine business. We've only owned it for -

Kevin, what is it? Four weeks or six weeks?

Yeah, a little over a month.

Right.

Yeah. We don't know – let me tell you, it's – we look like we got what we expected. Surely, no worse and, hopefully, maybe a little better. So far, we don't – no bad news, and that's always good.

All right. Great. Thanks, guys.

Thank you. And our next question will come from Robert Spingarn at Credit Suisse. Your line is now open. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Good morning, guys.

Good morning.

Good morning. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): So, I wanted to ask you about the difference in your sales versus the difference in your cost of goods sold. Even when adjusting for the inventory step-ups, there's a pretty big spread there. And does that speak to pricing year-over-year?

Yes. So, let me give a try and then I let Terry, I always talk about EBITDA margins because, frankly, it captures everything in my view. The EBITDA margins are up and they're up with fair amount versus last year. And as I think, there's a couple of things doing that. As you know, we do okay in the pricing and that impacts it. But the other thing is we – at the beginning of this year, we took about 4% or so more out of our head count sort of to get ready for a possible downturn in the OEM business, and that hasn't happened. So, we have a little better cost structure and the revenues have hung in. Those are the two significant contributors. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Yeah. And I think if you do the adjustments you do on slide 10, it even extends that benefit or magnifies it. In other words, between the cost takeout and the pricing you're speaking to, Nick, this is really a very substantial benefit.

Yeah. I think we're doing a decent job of grinding the margins out. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Was there...

And I would say the acquisitions we have made in the last couple of years -you're talking about the numbers without the acquisition stripped out, I presume. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): No. These are the GAAP numbers, I imagine, that we're looking at.

You're right. The acquisitions – in general, our acquisition margins are better than we anticipated when we bought them also. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): And was there any timing lag to the cost takeout in fiscal Q1 and the fact that we're seeing this now in fiscal Q3?

I don't think there's any unusual. We had a lot of acquisition activity. And so, there's a lot of different mixes from the timing of when things occurred. But there's nothing usual comes to mind.

No. I mean, there may have been whenever we finished doing the customers, probably some severance that had along within it, but... Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Okay. And then just on the timing on the commercial OEs, you spoke to it before when you were talking about the wide-body weakness, et cetera, but any particular reason why this quarter saw some acceleration in the commercial OE, relative to the beginning of the year?

No. I don't think so. Rob, I think it's just normal. I don't think anything substantively changed – well, let me back up. In the commercial transport world, I don't think anything has substantially changed of what we expected in the beginning of the year. I do think the biz jet has continued to soften through the year more than we expected. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): But does that change at all your view – I think I asked you this last time, and if you spoke to this earlier, apologies – but are you still looking for 4% organic growth for the year?

We disclosed it. I'm just not looking at – what's the number we disclosed? (43:34)

We didn't disclose it, okay. We gave a number, Rob, we didn't give the organic. But as you saw, I think you saw our guidance for the year. Our revenues – I don't want to start speculating on that without all the math in front of me. But not a substantive change either way. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Even with this pressure you just spoke to, the biz jet, et cetera, you still feel pretty much --?

I mean we haven't disclosed that number, so I don't want to back into it. The guidance we gave is the guidance we gave. I'm always very nervous about stabbing at a number when I haven't seen the math of it. Robert M. Spingarn - Credit Suisse Securities (USA) LLC (Broker): Right. Okay. Well, thanks guys.

Thank you. And our next question will come from Gautam Khanna at Cowen and Company. Your line is now open.

Yes. Thanks. Good morning. I have a couple of questions. One, I was wondering, on the back of Ron's question, are you seeing the OEMs requiring that on new product development, that they own the IP, such that they get a bigger piece of the aftermarket going forward for new parts? Have you seen any of that pressure?

Could you just first – at the beginning of your question, the words got a little garbled.

I'm sorry. Hopefully this is better. I was asking, are you seeing the OEMs put any more pressure on controlling the IP on new product developments as a condition for bidding?

We have not seen that yet. But we've heard people talked about it, other people. We haven't seen it.

You haven't seen it? Okay. Two other ones, if I may. One, I was wondering, what do you think – what level of leverage could you be at to support a special dividend? I mean what level would you be uncomfortable going beyond? (45:35)

I don't think I want to speculate on that. I think our – just let me ask Terry, if the credit agreement is public data.

Yes. Public data.

So, we have a credit agreement that we recently renegotiated, allows us to pay out up to $1.5 billion by 12/31/2016. That doesn't say we're going to do that, but that's sort of the level we could go up to when you could sort of solve into the math there.

Okay, that's helpful. And last one, Nick, I just wondered what your plans are, if you thought about it, and when you may communicate it to the Street. I know, if I recall, Kevin has an agreement that allows him to leave at the end of 2017. Just wanted to get your plans on succession, if you've given any thought to it yet or willing to share (46:25)

We're not prepared for it – we're not prepared to talk about that. I have a contract that runs through 2019, and you know the contract is what it is. But we're not prepared to talk about that. And, quite frankly, I enjoy the business and still like it here.

All right. Thanks a lot, guys. Good luck.

Thank you. And our next question will come from David Strauss at UBS. Your line is now open.

Good morning.

Good morning.

Good morning. A question, I guess, along those same lines, Nick. $1.7 billion in cash on the balance sheet. You're going to generate, I guess, an additional $200 million in the fourth quarter. It's not like you to just sit around on this kind of cash balance for long. What do you think in there?

What I'm thinking? Myles (sic) [David] (47:19), what I'm thinking is, through this fourth quarter and the beginning of next year, we'll look at the lay of the land and we'll decide what to build. I mean, you're right, we're not – unless we see something substantive relatively near-term use for a whole lot of money, we'll probably pay something out. What did I say?

Myles (sic) [David] (47:43).

I'm Myles (sic) [David] (47:43). David, excuse me.

That's all right, Nick. I'll let it go.

I'm looking up at the screen here, and it has Myles' (sic) [David's] (47:49) name. But then you're up at top. Oh, I see. I'm looking at my cheat sheet, I apologize.

All right, no worries.

But we love you just the same.

Thank you. I'll call in a favor for that one. On the aftermarket, are you benefiting at this point at all from any initial sparing on the MAX?

I don't think so. At least it's nothing material and not discernible.

Okay. And then I guess, Terry, one for you. You talk about 30% tax rate on the adjusted basis this year. Is that a good number to think about going forward into 2017?

I'm not going to speculate where we'll be at 2017 once we roll our plan. But I would say, it's probably going to be in the ballpark and that's going to be the number for the rest of the year. One thing that we don't know is the mix of business, and how things play out as we move into 2017. So that rate could change on us a little bit here or there plus or minus.

All right. Thanks, guys.

Yeah.

Thank you. And our next question will come from Myles Walton at Deutsche Bank. Your line is now open.

Thanks, Nick, you can call me Dave if it makes up (49:14) First one, maybe just to clarify on that last piece of tax rate, so the adjustment -- you're excluding the changes in accounting benefit. Should we think about that, Terry, as an ongoing adjustment? Are you going to try and keep it clean and stable or is this a one year because of how big the adjustment is?

I got to ask you, Myles, is that opposed to dirty and unstable?

No, I'll leave it to Terry.

I just wanted to lay the groundwork into the playing (49:48) field.

Yeah, yeah, I know.

This new accounting change everybody is going to have to go through. As you know, we don't have any control over what timing when people exercise their stock options. So, what we'll do is continue to pull this out of the adjusted EPS. And that's why we want to give you a rate that's closer to that, say, 30%. But what this will do is drive down our cash tax rate, assuming our effective tax rate will be a lot closer to our cash tax rate, which I know you guys have asked for in the past, which gets us around that 25%.

Okay. So, I'll follow up with it. And then the other one, Nick, can you comment on the distribution buying behavior in the aftermarket? Are you seeing any changing in how the distributors are buying in terms of their patterns? Are they adding volatility to the noise in the aftermarket or are they pretty much straight pass-throughs?

Yeah. In total, I don't think so, though there's some puts and takes. In the freighter business, we've probably seen a little more volatility in distributor ordering because, frankly, they're looking at that market and doesn't look as good. But I think that's – it isn't a lot of money and it's been offset in the other direction. So, in total, I don't think it's impacting the numbers materially at this point.

Okay. And the only clarifications -- you said $1.9 billion on the balance sheet, and I think you took out $900 million excess cash. Last quarter it was $1.1 billion. Is that just rounding or did operating cash flow, free cash flow, get adjusted at all?

No. I don't think there's anything unusual there. We've had some puts and takes. We think about fees associated with the financing. You have higher interest cost. We have just M&A activity, different expenses and things of that nature that have impacted the net cash and then working capital has also an impact on the numbers, but nothing -- just a lot of puts and takes gets you down to $1.9 billion.

Okay. All right. Thanks.

Thank you. And our next question will come from Hunter Keay at Wolfe Research. Your line is now open.

Hi. Thank you. Good morning.

Good morning.

Good morning.

So, when you guys head into a quarter -- the nature of my question is about visibility on commercial aftermarket sales -- when you go into a given quarter, how much of your revenue is known? And has that changed at all over the last maybe 18 months to 24 months?

I don't think it's changed substantially over the last 18 months to 24 months. I would say the lion's share of it you know going into a quarter, but when you're looking for is it a 3% change or 5% change or 8% or whatever, within a couple of – you have a few points still to be booked and shipped.

Okay.

And so, the bulk of it, you know, but you don't know all of it.

And that's probably the toughest to predict or choppiest segment of your business, probably, you'd say, right?

It's the fastest turn part.

Right. Okay. And then...

Let me just add there.

Sure.

Over the long haul, over any length period of time, 12 months, 18 months or something like that, if you do kind of a rolling average, it's probably the easier thing to predict. But for quarters, it can bounce around.

Even easier than OE?

Yeah. It depends what – it is much less cyclical. Maybe I picked the wrong time period, maybe 12 months or 18 months is too short a period. But for any longer period of time, the aftermarket is more predictable than the OEM.

Yeah. I got you. Okay. Cool. And then...

Maybe stabler is another way of putting it.

Sure, makes sense. And on the 10% aftermarket growth in the commercial transport, can you give us any more color on what's driving that strength? However you want to talk about, whether it's a geography, aircraft type, is it like a pricing versus volume? And if there's anything that's...

I don't think is there any – we don't comment on the pricing.

All right.

But I would say pricing patterns are no different than they have been historically, at least for us. I would say the main thing that's driving it is, I think we have published this chart a number of times, it can be somewhat cyclical. And I speculate that the airlines have been undermined for the last, I don't know, 12 months, something like that, 15 months, and they're starting to catch up.

Just globally. Okay. Thank you, Nick.

Thank you. And our next question will come from Seth Seifman at JPMorgan. Your line is now open.

Great. Thanks very much and good morning. Just to follow-up on some of the questions about capital deployment to sort of qualify or clarify a little bit of what you said before. The cash that you have on the balance sheet, it seems like you're looking at an either/or thing, either there will be a sizeable acquisition or there will be a dividend, and not necessarily looking at some kind of combination of smaller acquisitions as we've seen in the past. Is that a fair way to think about it?

I don't know that it's binary like that.

Okay.

You know, either it could well be a mix. I just – we'll decide that as we get closer. And depending on what – two things, what the capital market situation looks like and what's the sort of near-term acquisition landscape looks like. But I don't think I'd say it's that binary.

Yeah. That's good to clarify. And then just on the profitability front, obviously very impressive margins this quarter. As you think about, not necessarily this point but once we integrate DDC, do you still think about the same type of generic margin expansion potential annually going forward as you have in the past? I think you've probably talked in the past about being able to generate a point or so of margin opportunity of margin in the base business, and then you add acquisitions and that pulls down the average and you move it up over time. Still fair to think about it from this new level?

Well, I would say, first I don't want to speculate about next year's margin. We'll give...

Yeah. I know but generically.

But I would say I don't – there is nothing fundamentally changing in the dynamics of this business.

Very good. Thank you.

Thank you. And at this time, I'm showing no further questions. I would like to turn the call back over to Ms. Liza Sabol for closing remarks.

Thank you, everyone, for participating in this morning's call and please look for our 10-Q that we expect to file tomorrow.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.