Good day, ladies and gentlemen, and welcome to the Q4 2017 TransDigm Group Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a Q&A answer session instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Liza Sabol, Investor Relations. Ma'am, the podium is yours.

Thank you and welcome to TransDigm's fiscal 2017 fourth quarter earnings conference call. With me on the call this morning are TransDigm's Chairman and Chief Executive Officer, Nick Howley; President and Chief Operating Officer, Kevin Stein; and Chief Financial Officer, Terry Paradie. A replay of today's broadcast will be available for the next two weeks. In addition, please note, we expect to file our 10-K on Monday due to the observance of Veterans Day by the SEC tomorrow. 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. We 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 or a presentation of the most directly comparable GAAP measures and a reconciliation of EBITDA, EBITDA As Defined, adjusted net income and adjusted earnings per share. I will now turn the call over to Nick.

Good morning. Today, I'll start off as always with some comments about our consistent strategy. I'll then give a quick summary of 2017, a quick review of the guidance for 2018. Kevin will then review the key operational and market details for both years and Terry will run through the financials for both years. We have a fair amount to cover here today. Again to restate, we believe our business model is unique in the industry, both in its consistency and its ability to create intrinsic shareholder value through all phases of the cycle. To summarize some of the reasons why we believe this, about 90% of our net sales are generated by proprietary products and over three quarters of our net sales come from products for which we believe we are the sole source provider. Over half of our revenues and a much higher percent of our EBITDA comes from aftermarket sales. Aftermarket sales have historically produced the higher gross margin and have provided relative stability in the downturns. Our longstanding goal is to give our shareholders private equity like returns with the liquidity of a public market. To do this, we have to stay focused on both the details of value creation, as well as the careful management of our balance sheet. We follow a consistent long-term strategy. We own and operate proprietary aerospace businesses with significant aftermarket content. Two, we have a simple, well-proven, value-based operating methodology based on our three value driver-concepts. Third, we maintain a decentralized organization structure and a unique compensation issue or a system that closely aligns the management with the shareholders. Fourthly, we acquire businesses that fit with our focused strategy and where we see a clear path, the PE like returns and lastly we view our capital structure and capital allocation…

Thanks, Nick. As you've seen, Q4 fiscal year 2017 was a strong quarter operationally and for that matter, all of 2017, which had some significant challenges shaped into another good year. Now, let's review our revenues by market category. For the remainder of the call, I'll provide color commentary on a pro forma basis versus prior year of 2016. In the commercial market, which makes up about 70% of our revenue, we will split our discussion into OEM and aftermarket. In our commercial OEM market, revenues were about flat, when compared with Q4 of fiscal year 2016 and is similarly about flat year-over-year. Commercial transport OEM revenues which make up most of our commercial OEM revenues were up about 1% versus prior year Q4 and by a similar amount for the year. As we explained last quarter, inventory management by our OEM customers, much of which appears due to rate reductions on wide-body platforms or simply slower ramp ups on new wide-body platforms have created headwinds in the commercial OEM market. So, 2017 was an up and down year for commercial transport OEM bookings, but at the core no significant changes in ship set content have occurred. So any softness is simply timing related. Speaking of ship set content and in reference to a program that has been in the press recently, the Bombardier CSeries is an interesting program for the future as our ship set content is significantly greater on this platform than current narrow-body platforms. For business jet and helicopter OEM revenues, which make up about 15% of our commercial OEM revenues, revenues in this market were down mid single-digits in Q4 and by a similar percent for the year as overall global business jet market demand has not consistently improved. Q4 bookings were up modestly and brought…

Thank you, Kevin. Before I review the quarterly results, I wanted to give a little color on the financial statement impacts of the SCHROTH divestiture. The income statement activity has been excluded from all line items and condensed to a new line item in the income statement labeled loss from discontinued operations net of tax. This loss of $32 million is primarily the result of the estimated selling price of SCHROTH being at a lower price than when we acquired the business, partially offset by modest operating income after purchase accounting adjustments during the seven months we owned the business. Nick already summarized the key events that occurred in fiscal year 2017, so I will now review the consolidated financial results for our fourth quarter, give a brief fiscal yearend summary and review certain assumptions for fiscal 2018. Fourth quarter net sales excluding $10.1 million from discontinued operations were $924 million, up $49 million, or approximately 6% greater than prior year. The collective impact of the acquisitions of Tactair, Young & Franklin and the three product lines contributed $26 million of additional sales for the period. Organic sales were up just under 3% for the quarter. Our fourth quarter gross profit was $531 million, an increase of 10%. Our reported gross profit margin of 57.5% was over two margin points higher than the prior year primarily due to the strength of our proprietary products and continually improving our cost structure and lowering non-operating acquisition-related costs. Our selling and administrative expenses were 11.4% of sales for the current quarter, compared to 12.7% in the prior year. Excluding all acquisition-related expenses and non-cash stock compensation, SG&A was 10.3% of sales in both current year and prior year quarter. We had an increase in interest expense of approximately $17 million, up 12% versus…

Thank you. Operator, we're now ready to open the lines.

Ladies and gentlemen, Our first question comes from the line of Carter Copeland from Melius Research. Sir, your line is now open.

Hey guys, good morning.

Hey. Welcome to the new firm.

Hey, thanks. Thanks, Nick. Two questions for you. One, with SCHROTH, what changed in the evaluation there. I mean, obviously, when you bought it, you have the AmSafe business which has a pretty high market share in seat belts. I just wondered, what was it that you learned or in response to the DoJ that changed that evaluation there. Because coming in you definitely already had a pretty – you must have had a firm view to begin with? And then the second question just relates to the 2018 guidance, the freight portion of that guide. I mean, clearly it looks like you were up north of 20% in the fourth quarter. So, was there something one-time in that, because I would assume that would carry through into next year's guidance which was significantly below that. So just trying to square those two together? Thanks.

Yeah, Carter. Let me talk about the SCHROTH thing, and then Kevin, why don't you talk about the freight after we get this done here. As I'm thinking though, this didn't require an HSR review. Essentially we went through the analysis before we bought it. We thought it was okay. The DoJ probably from someone contacted them started to question it, they took a different view of the way we defined the market segments. I don't know that we agree with that view, but at the end of the day given the size of the deal and sort of the uniqueness of the situation as I said in the restraint world, we just decided it wasn't worth dragging this out, and we thought it was just more prudent to sell it and move on.

Okay.

That's how it came about.

Okay.

Kevin, on the freight.

On freight, we forecast for fiscal year 2018 mid to high single-digits on the commercial transport freight. You're right, we had a very strong Q4. I suspect some of that might have been catch up, but I think we're being conservative and the concern remains that to what extent will the non-proprietary piece participate in that. But clearly freight is an important sector for us in 2018 and looks pretty good as we forecast mid to high.

Kevin, how much of that business is that non-proprietary piece?

It's a reasonable chunk of the business.

Okay.

So, it's a reasonable size. We don't disclose the individual pieces, but it's a reasonable chunk of that 15% of the commercial aftermarket.

But, I think to say it's not half just to be clear.

Yeah, it's not half.

It's not half, but, yeah.

Great. Thanks, guys.

Our next question comes from the line of Myles Walton from Deutsche Bank. Sir, your line is now open.

Thanks. Good morning.

Good morning.

First one is really a clarification. I think you said that the cash tax rate you didn't anticipate would change under the new bill. Is that a net basis after including the various pieces and puts and takes inclusive of a corporate tax rate drop from 35% to 20%, you still wouldn't get a net cash tax benefit?

Yeah, Myles. That's right. What I think I said on the – what I meant to say just to clarify is that we think our cash tax position will be very similar to where we're at today as we looked at 2017 and recast on the new fees or maybe slightly lower. So what's happening is, obviously, the impact of the interest deductibility limitations has an impact to us, but the lower rate on the rest of the taxable income is beneficial to us. So we think we're going to be right about where we're at today from a rate standpoint.

Okay. And then the other one, just a clarification, the $900 million you said in cash from operations, that's for fiscal 2018. It's almost a one-for-one match on incremental EBITDA. So what is benefiting you as you move into 2018 from a either working capital or a cash tax basis?

I think it's from a – cash from operations we're looking at $900 million. I think that's from a cash tax standpoint, the rate is going to be consistent. We're in the range that we took before. We'll see some of our interest costs go up. And then the CapEx is around 2% of sales, so our free cash flow number should be in the low-$800s million to mid-$800s million for the year. So I'm not seeing anything unusual other than the growth in our EBITDA to be honest with you.

Yeah. But I mean it's a one-for-one growth usually, but obviously you've got higher interest and usually your conversion of EBITDA to operating cash flow is about 50%. So I'm just curious, I mean obviously it's a better working capital performance.

Well, I think the interest expense is going to be – it'll take that 50% down a little bit this year on the conversion, but that will drive it. And then we are going to see a little bit benefit of working capital from where we were this year.

Okay. And then just a last one on SCHROTH. Nick, what's the ability for look backs for deals in your past? I mean is there a statute of limitations, timeline, is there anything like that? And then how comfortable are you that this is kind of a one-off situation? Or do you have to put a scrubber to the deals in the pipeline a little bit harder going forward?

Yeah. I don't – I'd – so I have no idea what the look back rule is. But I would just – Myles, this is a pretty unique situation. If you look at the – if you look at sort of our position in the seatbelt restraint market, it's pretty unique compared to our other products. We rarely see significant overlap when we buy anything. I think this is a one-off kind of thing.

Okay.

I don't know of any exposure in the back. Surely I haven't heard of any, no one's said anything about it.

Yeah. Okay. All right. Thank you.

Okay.

Our next question comes from the line of Ken Herbert from Canaccord. Sir, your line is now open.

Hi, good morning. Nick, I just wanted to follow-up on that comment. So is it fair to assume that SCHROTH hasn't had any sort of impact on your screening or as you look at potential M&A activity or opportunities?

It has not so far, and I don't – I would say it's probably unlikely we'd try and buy a seatbelt business. Fortunately or unfortunately, there are hardly any out there. So it doesn't much matter. But it's business as usual. As I said, this is a very unusual situation. There's a set of facts here in sort of the substantive market position we have here.

Okay, okay. No, I can appreciate that. I just wanted to follow-up. You started the call off with sort of commenting on sort of the broad picture in terms of the environment that enabled some of the M&A activity a few years ago. I guess my question would be, as you look moving forward, you still comment on a fairly robust pipeline. But are you looking, in particular have you placed any different priorities on markets you're perhaps looking at when you look at defense versus commercial, either OE or aftermarket? And then as a second part of that, are you seeing anything that might have changed just in availability of assets that might explain part of the lower recent activity? Or is it just normal lumpiness that we should expect on the M&A front?

I think it's normal lumpiness. I can say most people I talk to tell me, there wasn't a whole lot in 2017 in sort of the size we did. Of course, there was one big mega-buy. Our criteria hasn't changed. Proprietary aerospace, significant aftermarket. I would say we see more defense stuff now than we used to see. Just as you probably know, defense valuations are higher than they were. And people that had been holding defense stuff that want to sell it are more inclined to try and sell it now. So if you look at the list of things we see, it's probably more heavily weighted towards defense than it maybe was two years, three years ago. But I have no way of predicting whether that's how they'll close or whether they'll make sense to us. I will say the activity, just the number of things we've looked at, and sort of the list is reasonably robust.

Okay, great. And just finally, your preference for assets by market hasn't changed, whether it be defense or commercial?

I don't think so. I don't think so. You know our requirement, proprietary, significant aftermarket, PE kind of return, which you know how we define that. I mean, those are the big, big screens.

Great. All right. Well, thank you very much.

Our next question comes from the line of Matt McConnell from RBC Capital Markets. Your line is now open.

Thank you. Good morning.

Morning.

Morning.

Just a real quick follow-up on that M&A question. Are you seeing any properties that you were interested in just go to other buyers, whether you're missing out on price or something else? Or is it just you're not seeing the ones that meet your criteria?

Yeah, I don't – look I hate to say never, but I can't think of anything, Matt, that we wanted that we didn't get, that we wanted to go after, which basically says in the last – through 2017, we just didn't see good things of any magnitude that we wanted to buy.

Okay.

I think that answers your question. I wouldn't say – it's not that we wanted to buy company A and we got outbid. That's not what it is.

Right.

We're not seeing that.

Okay, okay. Got it. And then, Kevin, you had a pretty optimistic assessment of your defense markets right now. And could you square that with the guidance for low-to-mid single-digit growth next year? Just what's visibility in that market? It seems like there's a lot of activity there, and I don't know if you're being conservative on the outlook. Or what's your visibility on the defense side?

I think we always try to be appropriately conservative. But, yeah, there is good activity. There is a lot of requests for quote. There is a lot of quoting activity around the ranch, but it's always difficult to predict. And there's external factors with budgets and the like that impact defense. So versus our historical guidance, the up low-to-mid single digits is higher than usual. And that's where we stand with it, with the visibility that we have. Again, things can be lumpy in the defense business and hard to predict.

Okay. Thank you.

Our next question comes from the line of Noah Poponak from Goldman Sachs. Your line is now open.

Hello. Noah Poponak - Goldman Sachs & Co. LLC: Hi. Hi, good morning, everyone.

Morning. Noah Poponak - Goldman Sachs & Co. LLC: Sorry, classic mute-button mistake. Nick, so the revenue guidance looks to imply 3% to 5% organic. It's a little light of kind of your long-run normalized pace of growth. I'd really kind of have to be at the very low-end of how you define each end market to be at 3% for the total company. I guess, I'm just sort of wondering, if you decided to put extra contingency in the revenue guidance this year, given some of the choppiness and some things you experienced last year.

I guess another way of asking that is do you think we're conservative in our guidance, right, in the revenue. Noah Poponak - Goldman Sachs & Co. LLC: Well, I know you always are, so I guess the question is actually whether you're incrementally so compared to normal.

Well, I don't know how to answer that because we give guidance that we want to give, but I would say we surely don't think we're extra aggressive here. Noah Poponak - Goldman Sachs & Co. LLC: Okay.

Maybe I'll just leave it that. Otherwise no, I'm going to end up giving another guidance number. Noah Poponak - Goldman Sachs & Co. LLC: Yeah. I know, I...

Hopefully we don't believe we're aggressive here in these ranges. Noah Poponak - Goldman Sachs & Co. LLC: Okay. That's fair enough. I guess the question was more sort of if you just took any different approach after what happened last year with some of the unexpected things in the aftermarket and the like, but I appreciate the nature of the rest (49:55).

The organic growth, I think the organic last year was about 2.5%. Noah Poponak - Goldman Sachs & Co. LLC: Yes.

This is essentially all organic now... Noah Poponak - Goldman Sachs & Co. LLC: Yeah.

So there's almost no acquisition impact year-over-year. Noah Poponak - Goldman Sachs & Co. LLC: Right, right. Okay. Can you tell us how orders in both the commercial aerospace aftermarket and the defense aftermarket compared to revenue in the quarter and the year for 2017?

Kevin, you talked about the year, didn't you? I just don't see them in the quarter (50:33).

Yeah. So your question was on defense aftermarket or total defense business versus... Noah Poponak - Goldman Sachs & Co. LLC: Yeah.

Looking at back... Noah Poponak - Goldman Sachs & Co. LLC: Basically trying to get bookings compared to revenues through a book-to-bill...

You mean like a book – no, you're asking like a book-to-bill... Noah Poponak - Goldman Sachs & Co. LLC: Book-to-bill ratio, yeah, which I think you've given in the past a few times and I'm specifically curious for defense aftermarket and commercial aftermarket, if you had it for defense OE as well that would be helpful, too?

Let me check. If you took a book-to-bill in the defense I would say it's up pretty modestly. I would say in the commercial aftermarket the book-to-bill is above 1 but it's not 1.1. It's kind of in the middle. Noah Poponak - Goldman Sachs & Co. LLC: Okay.

And the commercial OEM is probably about flat if you take... Noah Poponak - Goldman Sachs & Co. LLC: Okay. And those are full-year 2017 numbers?

Yeah. That's book-to-bill. And I wouldn't – you might get slightly different numbers in the fourth quarter, but I wouldn't draw much from a quarter worth of bookings. They bounce all around. Noah Poponak - Goldman Sachs & Co. LLC: Yeah. I know, I agree. But it's sometimes helpful to know how you're exiting the year compared to the year, but that's helpful for the year. And then just last one for me just to make sure I've button it up for myself on this SCHROTH situation. Am I hearing you correctly that you're not currently actively looking at divesting anything else? You wouldn't expect to be divesting anything else anytime soon? Is that correct?

Well, we surely, as of right now, we're not looking to divest anything else. That's not to say we couldn't decide some business we didn't like, at some point in the future we could divest. Noah Poponak - Goldman Sachs & Co. LLC: Right, for a different reason.

Nothing to do with SCHROTH that would make us divest anything else. It would purely be our decision to do it of which presently we don't have any in the queue to do that. Noah Poponak - Goldman Sachs & Co. LLC: Got it.

But there is nothing... Noah Poponak - Goldman Sachs & Co. LLC: Okay.

...there is no bleed across or additional DoJ activity or anything like that that we know of. Of course, you never know what you don't know. Noah Poponak - Goldman Sachs & Co. LLC: Right. Just wanted to make sure of that. Okay, thank you.

Yeah. No, no, I think we've given you the whole story there. Noah Poponak - Goldman Sachs & Co. LLC: Got it.

Our next question comes from the line of Michael Ciarmoli from SunTrust. Your line is now open.

Hey. Good morning, guys. Thanks for taking my questions.

Good morning.

Morning.

Nick, maybe just last one on SCHROTH, would you be willing to give us what the sort of revenue run rate was tracking for at SCHROTH? Just trying to kind of calibrate...

I think we gave you what came out of it. I think we gave you what came out of it...

Yeah.

...right. Then you can figure how many months we had it.

Fair, fair. Okay.

I'm not sure it's exactly linear, but you'll get in the ballpark.

Okay. Just on the interiors market, I mean I think last quarter you guys – it was still down mid-teens. If it finished down around that range you weren't really seeing bottom. And it sounds like we've hit bottom here. I mean you talked about some new opportunities. Do you think any of the weakness – certainly there were some wide-body challenges, was any of the weakness this year may be tied to just the two big interior guys kind of being acquired or just anything else you can elaborate. I mean it seems like you're going to have some fairly easy comps. We're certainly seeing I think a pickup in some of the retrofit activity that's out there. But any other color you could add?

A lot of the work we had seen was around rebranding campaigns that had gone on over the last couple of years. And it would appear that we had gone through a lull in that activity. Certainly some of the interior guys were a lot more than others, but I don't really trace it back to specific slowness with them being acquired. I think we all go through peaks and valleys in this largely discretionary market. It is a step-up to go from down to flat to up a small amount, but that's what our teams are forecasting to us. The question was asked earlier, did we change anything in our process as we collected the 2018 numbers, and we followed the same process. We trust our teams. It is true that they didn't see a lot of the interior slowness coming. But they do see indications as we've guided on a flat-to-low uptick in the interiors business. So that's the color that I can give you. We have scrubbed and looked at were there any changes in market share, did someone cleanup at our expense, and there is no real indication that anything like that happened. It's just the particular customers that we worked with, that we generally work with, didn't have as many of these general marketing campaign changes to their fleets.

Got it. That's helpful. And then just on the overall aftermarket view, we're seeing a lot of your peers talk about elevated levels of provisioning for some of the new narrow-bodies, even the A350. Do you guys have that level of granularity to see provisioning be a little bit of a tailwind as we move into next year?

No. We're not figuring on any provisioning.

Right.

If you see some, that'll be a tailwind.

Okay, okay. Fair. And then just the last one for me here. EBITDA margin I guess for the year pushing up close to 50%. I mean that would be an all-time high. I mean you obviously aren't going to have any acquisition-related dilution there. It would seem like the value creation story is not changing at all for any of the acquired companies. I mean, what are you sort of thinking long-term for that EBITDA margin? Is there a little bit more runway there?

Well, I think the reason it's pushing up 50%, it's been there very close to that before is because we didn't buy much in 2017. And it'll grind up there, it'll pick-up, or I don't know, if the mix stays the same, there is no mix shift or something like that, you'll pickup a point or so a year. It's unusual that we don't buy something and it sort of averages it down.

Right, right.

But I still think there is plenty of juice in our value drivers as we go forward. We're not approaching the end of that by any stretch.

Right.

Got it. All right. Great. Thanks, guys.

Our next question comes from the line of Seth Seifman from JPMorgan. Your line is now open.

Thanks very much and good morning. Just to ask that margin question in a slightly different way. Are there any of the businesses that you've bought over the course of 2016 and 2017 that are – where you're still driving towards the target margin or would you say that the whole company is about at the target margin now and we're just at the place where you go sort of at that 1 point a year pace?

Well, 2017 there isn't enough to move the needle at all. So we bought a couple of – three relatively small product lines. They're all go along fine, but they're going to be irrelevant to the overall margin. The 2016 businesses are all marching along nicely against their acquisition plan. But I don't quite know how to answer the question. I would say if you take those businesses out, which is primarily Breeze and DDC, they're still marching along very nicely against their plan. And we see no reason to think they won't get to where we planned them. I think DDC, as we said when we bought it as a company that's margins look like TransDigm margins as it stabilizes out, Breeze may not get quite that far up, and all the rest of the businesses, if you run the businesses with the value drivers and the way we do in total, they move about a 1 point a year.

Right. Okay. Great. And then just to follow-up question on an old theme, Boeing obviously increasingly less shy about intentions in the aftermarket, and I think, a lot of us have heard probably about efforts that they have been making to seed more IP in the supply base, are you coming up against that at all. And if so sort of how are you dealing with it?

We have not come across any. We've not had any attempts to take our IP or anything like that. We would be extremely resistant to that. In the aftermarket, we so far – we haven't seen much. We read the same things you read. We haven't seen a lot. Now, we – for Boeing's aftermarket, we're a fairly significant customer to them for their Aviall distribution business. So, we – they get some contribution that way from us.

Right. Okay. But just in your conversations with them, when your sales engineers are looking to sell new products...

Yes, I mean, supplier. At least, we hire them to provide us with distribution service, right.

Maybe that's the best way to put it.

I got it backwards.

Right. And then are your sales engineers sort of seeing a greater effort on their part when you're trying to sell new products to them to insert more of their IP?

Not that we've seen.

Not that we've seen, no.

Okay. Great. Thank you very much.

Our next question comes from the line of Sheila Kahyaoglu from Jefferies. Your line is open.

Hi.

How did he do on that last name, Sheila?

Well, I'm used to it by now. So, another question on EBITDA growth for you guys. I think, the 7% at your midpoint that you're guiding to growth is sort – is in line with what you've done historically because this is a core clean year. Just wanted to ask about the productivity, you obviously have a very high EBITDA margin. What sort of opportunities are you finding for additional take out of the existing business?

For productivity, yeah, we still – and I commented, I think, briefly that for going forward we will see some opportunities around some limited plant consolidations. We don't love to do a lot of those things, but as we – some of the product line acquisitions that we did in 2017 moving those into the various facilities. There'll be a number of those opportunities, as well as some rationalization of our manufacturing footprint. We're always looking for those opportunities for routine maintenance, and they do provide nice improvements in productivity. So, yeah, there are a number of those along with our capital spending to drive productivity projects around the ranch. I would say that the productivity deck is as vibrant as ever for opportunities and we continue to find those even in businesses that have been in the fold for a long time.

Great. Thanks for that color, Kevin. And then just one more, another supplier last night noted some changes in just the market dynamics. They said they're seeing an increase in RFPs for content on existing platforms. I just wanted to know if you're seeing any of that, is that an opportunity for TransDigm?

Say that again, I'm not sure I followed the question?

They noted that they're seeing a pickup in content because of higher RFP opportunities on existing commercial platforms. So, some takeaways as Boeing and Airbus decided to outsource – in-source. So, I was just wondering if you're seeing any of that, is that a benefit for you, kind of, the...

No, we haven't.

No.

(1:03:47)

We've not seen that, for sure.

Okay. Thank you.

Our next question comes from the line of Robert Stallard from Vertical Research. Your line is now open.

Thanks so much. Good morning.

Hey. Hi, Rob.

Hi, Nick. You highlighted in your sort of review of the year that you made some share buybacks in the year due to volatility in the stock price. How do you feel that buybacks going forward. Is it suddenly that you're feeling more comfortable pulling than maybe you would have done in the past?

Well, I think, we just look at buybacks. We look at them just like an acquisition opportunity. I mean, if it's -- if it's somewhat close call against an acquisition, we'd probably make the acquisition. But when they become a shreakingly good buy what they did earlier this year, I think, we bought $400 million-ish, sorry,$400 million-ish.

Yeah.

Rob, if we were in the blackout period and we were stuck with our 10b5filing,we'd probably have bought twice that much, if we could have. It's a capital allocation investment decision for us.

Okay.

We don't have any rule like hold the shares even or something like that.

Yeah. And referring back to the drama earlier in the year and – yeah, all that fun. The commentary about the defense customer, has there been any feedback from the DOD about these issues that were raised?

Well, as you know, we started down a – or not we – the IG audit. There is an IG audit of the buying agencies, which is pretty common in the industry. If you – it's on the website, almost everybody in the industry gets one of these every few years. That's just moving down the track. They take a long time to complete, and it's just sort of slowly moving along.

Okay. And then just a final one. On the DOJ acquisition front, have you ever seen this happen before? Is it the first time this has impacted TransDigm?

No, we have a – well, I guess, it's the first time we have read something that needed to be in a Hart-Scott-Rodino filing and back into question. We had one stop on a buy from Goodrich about three years or four years ago.

But it wasn't...

Yeah. But we don't – it was stopped by the DOJ, but that we don't – frankly we don't quite know why, but it was. This was probably five years ago.

All right. Thanks.

Our next question comes from the line of Hunter Keay from Wolfe Research. Your line is now open.

Hi. Thanks for getting me on the call. How – Nick, how do you define a shriekingly good buy? And what metric do you use to evaluate, to value your stock and how much...

He knows it when he sees it.

Yeah. I mean, is there a metric you actually use, that's like – that's triggered to I mean...

Yeah. I mean, we have our own view of when we should be buying. You see something like, you see the kind of things we saw early in the year. And we bought a bunch of stock at $220 or $225. I mean, it was – we looked at that and said, unless we're miles off, this is a 25%, 30% IRR here.

Okay.

Obviously, we're heavy buyers in there, I mean, that's the way we look at it.

With IRR, okay.

Well, when it gets closer to – we look at – we're looking for returns on our acquisitions up over 20% on the equity we put in them. When it's getting up there, it's looking pretty good to us. When it's more in the mid-teens return, that's good, but it's not shrieking alternative to making buys, acquisitions.

Okay.

Whereas I'll say again, at $225 we thought we're not going to see any acquisition that returns to us the way this does.

Right. So you know it when you see it basically. Okay. That's helpful. And then you brought up CSeries in the prepared remarks, significant content. Can you talk about how much content you have on that program or maybe with Bombardier in general? And do you have long-term pricing agreements in place with them to protect yourself in the event that they make a sort of renewed push down the supply chain for some cost savings?

We do have long-term agreements in place. It's different business by business, but I would say we do have long-term agreements in place. Our content is significantly higher. We don't want to get into the differences in one program to another, but versus current narrow bodies, it's a significant difference. It's a great program for all of TransDigm and many of our groups participate.

Thank you.

Our next question comes from the line of Gautam Khanna from Cowen & Company. Your line is now open. Bill Ledley - Cowen & Co. LLC: Hey, good morning. This is Bill on for Gautam. Wanted to follow-up on a couple of the questions around Boeing. I think, a couple calls ago you said PF – your renegotiation of PFS is starting this year. So just wondering where you are with that? And if there's anything we should be watchful for throughout the year?

I mean, it's moving slowly, slowly forward, sort of in fits and starts. I can't say that there's any particular acceleration. I mean the contract runs out at the end of, I want to say calendar year 2018.

Yes.

Is that right, Kevin?

Yes.

Calendar year 2018. Usually these go right up to the end. Bill Ledley - Cowen & Co. LLC: Okay. And are you seeing any different behavior out of Boeing in these rounds? Or is it still too early to tell?

We're seeing no difference in behavior this round versus the original one from several years ago. We're working through the details. The teams are meeting on a regular basis, but it's difficult to predict when this will be all put to bed. Bill Ledley - Cowen & Co. LLC: Okay. And then just a question going back to the M&A deals in 2016. Have you seen any pushback on post M&A price hikes? Or is your ability to generate value with these acquisitions been sort of in line with what you thought?

We haven't seen any material change in the dynamics in the industry. We've been – we're right in line or in total, I'm not going to comment price versus cost versus – but I would say the price dynamics are right, are fine. No change. And in total, the acquisitions are – at least the two most recent ones in substance are running nicely ahead of our expectations. Bill Ledley - Cowen & Co. LLC: Okay. Thank you. And then just one last one on SCHROTH. You mentioned you had a buyer lined up. Is this a strategic buyer or a financial buyer?

Well, I don't want to identify the buyer until we're closing it. Bill Ledley - Cowen & Co. LLC: Okay. Thank you very much.

Our next question comes from the line of Drew Lipke from Stephens. Your line is now open.

Hey. Thanks for fitting me in here. Just piggybacking on a question from earlier. If we look at the interiors business and think about the consolidation there that was mentioned and thinking about the sales channel there and Airbus standing up their dedicated interior services division, has that been at all impactful for the trends that we've seen just in terms of the channel with interiors?

I'm not seeing any real changes there. I could be wrong, but the guidance I have from the teams are that there really isn't any change. It's just the timing. And it's not OEM dependent. It's how the teams want to refurbish on what is a very much so a discretionary decision.

Okay. And then if we think about business jet and you mentioned in the past that it's hard to determine what's OEM and what's aftermarket, just given the channel that it flows through. And we have seen business jet utilization up 3% in the U.S. and 8% in Europe over the last 12 months. And a lot of the OEMs are posting pretty strong aftermarket growth. And so I'm curious has that – have you seen a change in the sales channel within bizjet, given more flowing through the OEM? And that's maybe part of what's impacting your bizjet aftermarket?

I don't think so. The aftermarket for business jet always flows through the OEM. So we have varying degrees of visibility as to what's happening. I would love to see it up more, but we forecast a flat market there for business jet and helicopter into 2018. I think, I alluded to maybe business jet would be a little bit better, but it would be offset by not a great helicopter market, I believe. So, that is what we see. I would love to be wrong about that. We've discussed that amongst ourselves that eventually you hit the bottom and you start to come out of it, but so far we're not seeing a lot of that.

Okay. So fair to say, you don't think the channel has been impactful like as we think about, and you mentioned Aviall, lot of your sales with Boeing go through Aviall, and I think, you had some instances where they've required a pound of flesh in terms of distributing more with like Whippany through Aviall, that hasn't been impactful on business jet or interiors?

No, not at all. We don't distribute that way in those markets anyway, so we don't go through Aviall for or Satair, you know, the big distributors for business jet, that largely goes through the OEMs.

Okay.

And interiors largely go direct.

Go direct.

Yeah.

Direct to the airline.

Yeah.

Okay. All right, thanks. And just last one, I know, your ability to comment here is more limited, but just regarding the Inspector General Audit, your comments previously alluded to the audit being focused only on contracting procedures for certain TransDigm awards. And if you look at the DOD memorandum, it states a much broader objective. I'm curious could you reconcile that for us just in terms of the potential scope of the audit?

I don't know what I'm reconciling. It's hard for me to answer that. These -- we've had these before and it seems to be following the same path and the same kind of path, I see when I read the other ones on the IG website.

Okay. Fair enough. Thanks.

And I'm currently showing no further questions and I would now like to turn the call back to Liza Sabol for any further remarks.

Thank you for participating in this morning's call and again as a reminder look for our 10-K on Monday. Thank you.