Good day, ladies and gentlemen, and welcome to the TransDigm Group Incorporated Second Quarter 2018 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 like to introduce your host for today, Ms. Liza Sabol, Director of Investor Relations. Ma'am, please go ahead.

Thank you, and welcome to TransDigm's fiscal 2018 second quarter earnings conference call. With me on the line this morning are TransDigm's Executive Chairman, Nick Howley; President and Chief Executive Officer, Kevin Stein; and Chief Financial Officer, Jim Skulina. A replay of today's broadcast will be available for the next two weeks. Replay information is contained in this morning's press release and on our website at transdigm.com. Please note that we should file our Form 10-Q no later than Monday, May 7, and also will be found on our website. Before we begin, we'd like to remind you that the 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, which will be 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 for 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 to those measures. With that, I will now turn the call over to Nick.

Good morning, and thanks everyone for calling in. Today, I'll start off with a brief overview of our recent organizational announcement and comments on our consistent strategy, a quick summary of second quarter fiscal year 2018, and a quick overview of the new acquisitions. Kevin will then review the company performance for the quarter and the year, and Jim will run through the financials. As you may have seen, we recently announced an organization change. Kevin Stein has been elected by the Board of Directors to be our new CEO with responsibilities for all operational and financial matters. All our operating execs as well as the CFO will report to Kevin. I have become Executive Chairman and I will continue my duties with respect to overall corporate strategy, capital allocation, M&A, investor interaction, board management and similar matters. As part of this transition, I extended my employment contract by five years or through 2024. Kevin's contract was also amended and now runs through 2024. We have been working on this transition for almost four years now. Kevin has done an excellent job learning our culture and processes. He has also contributed substantially to the significant value created over that time. He clearly understands and embraces our long-term value generating strategy. He is a good choice and I'm confident he will do a fine job. Now to reiterate, 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 why we believe this? About 90% of our sales are generated by proprietary products and over three quarters of our sales come from products for which we believe we are the sole source provider. Over half our revenues and a much higher percent…

Thanks, Nick. As you've seen, we had a strong second quarter and an encouraging first half of fiscal year 2018. Now, let's review our revenues by market category. For the remainder of the call, I will provide colored commentary on a pro forma basis compared to the prior year period and 2017, that is assuming we own the same mix of businesses in both periods. In the commercial market, which makes up close to 70% of our revenue, we will split our discussion into OEM and aftermarket. In our commercial OEM market, Q2 fiscal year 2018 revenues decreased approximately 2% when compared with Q2 of fiscal year 2017. Commercial transport OEM revenues, which make up the majority of our commercial OEM business, were down slightly in Q2 when compared to the prior year period. The vast majority of this softness is attributed to weakness in wide-body build rates at both Airbus and Boeing, and the impact these reductions or delays have on the extended supply chain. As was the case in previous quarters, commercial transport OEM sales can fluctuate from time to time, but at its core, our shipset content remains robust, so any softness is simply timing related. Business jet and helicopter OEM revenues make up about 15% of our commercial OEM revenues. In total, year-to-date revenues in this market are up mid-single-digits compared to the first half of fiscal 2017, driven by stronger growth in the business jet market offset by weaker performance in the helicopter market. Bookings versus shipments year-to-date were up even more. A welcome change from past quarters and similar to what our peer group is seeing in this market segment. Our total commercial OEM market year-to-date has grown slightly slower than we originally forecast due to our aforementioned wide-body softness. We're now lowering our…

Thank you, Kevin. Good second quarter. Now, I'll review the second quarter financial results. Second quarter net sales were $933 million, up $64 million or approximately 7% greater than the prior year. Organic sales made up the majority of the increase and were up 6.6%. This does not include any Kirkhill activity. TransDigm purchased Kirkhill in Q2 and the acquisition closed on March 15th. We've only owned Kirkhill for two weeks and did not include any sales or profit in our Q2 results. Our first quarter gross profit was $534 million, an increase of 9%. Our reported gross profit margin of 57.2% was about one margin point higher than the prior year, primarily due to the strength of our proprietary products and the favorable product mix. Our selling and administrative expenses were 11.5% of sales for the current quarter, compared to 11.6% in the prior year. Interest expense increased by approximately $13 million, up 9% versus the prior year quarter. This is a result of an increase in the weighted average total debt of $11.8 billion in the current quarter versus $11.2 billion in the prior year as well as increasing LIBOR rates. During the quarter, we successfully repriced approximately $1.8 billion of our term loans to take advantage of better rates, by decreasing from LIBOR plus 3.0% to LIBOR plus 2.5%. The expected annualized interest expense savings before fees is approximately $9 million related to this repricing. We are now assuming an average LIBOR of about 1.8% for the full year with LIBOR rates approaching 2.4% by the end of our fiscal year. As a reminder, once rates hit 2%, our credit swaps start to kick in. We still expect our full year interest expense to be approximately $650 million, assuming no change in our current debt structure. The…

Before we open the lines, I would just like to ask each of you to only ask two questions and then please re-insert yourselves into the queue in order to give everyone the opportunity to ask a question. Operator, we are now ready to open the lines.

Thank you. Our first question comes from the line of Noah Poponak with Goldman Sachs. Your line is open. Please go ahead. Noah Poponak - Goldman Sachs & Co. LLC: Hey. Good morning, everyone.

Good morning.

Good morning.

Good morning. Noah Poponak - Goldman Sachs & Co. LLC: Nick and Kevin, congrats on the position changes.

Thanks.

Thank you. Noah Poponak - Goldman Sachs & Co. LLC: Nick, I wondered if you can actually just elaborate on it, I mean, you – the press release states what you'll continuing to do. You listed those items in your prepared remarks but, I guess it's somewhat unusual to see a Chairman remain as involved as those items sound. So am I reading that correctly and can you just elaborate on why that's the transition strategy and exactly what we'll see you doing?

Noah, I don't know that I can say a lot more than we said in the press release. We also have a – I am asking – Halle, is the contract online yet?

Yes. It is.

Yes. We also have a contract. My contract and Kevin's contract which is – you can get on the SEC website now which maybe gives a little more color, but by and large, Noah, what you see is what you get. I mean those are the issues that I intend to stay pretty involved in. Noah Poponak - Goldman Sachs & Co. LLC: So in four years time we will see you discussing M&A decisions and we will see you speaking to investors.

I don't know how long I'll speak to investors. I am only kidding there. If you look at the contract, what it anticipates is, Halle correct me if I'm wrong on this exact number, either roughly about three and a half years anticipates that I would change to a Chairman rather than Executive Chairman with somewhat reduced duties. But I think the involvement in capital allocation and M&A decisions type of thing, I would think I would be involved for a while, for a considerable time. Noah Poponak - Goldman Sachs & Co. LLC: Got it. Got it. And then in the aerospace aftermarket, in the air transport piece, I guess, if freight is part of that and I guess it sounds like freight is the main reason that that's so far above trend, is that right? And, I guess, what are you seeing just in the pure passenger air transport ex-freight piece of the aftermarket business?

Noah, I tried to give a little color on that in my prepared remarks. The largest piece of commercial transports for the aftermarket is the passenger side. We've said that's about 60% of our revenue, freight is 15%. So it's a smaller piece. The passenger segment is performing slightly better than our original guidance. The freight is performing well above and the interior side is above what we expected. So that kind of gives you the color. The commercial transport passenger piece is performing very well in line with our three year average and slightly better than our original guidance. Noah Poponak - Goldman Sachs & Co. LLC: Is there anything that's...?

So maybe just to clarify on that, Noah, just for – I'll give you the – the three, when he says the three, you mean the last three that we published.

Yes.

That was about 10%. Noah Poponak - Goldman Sachs & Co. LLC: Yes.

I think what we mean is it's a little better. Noah Poponak - Goldman Sachs & Co. LLC: Okay. So that piece is relatively in line with air traffic growth plus price right now. It's not way off of that trend line.

I believe that's true. Noah Poponak - Goldman Sachs & Co. LLC: Okay. Okay, thanks a lot.

Sure.

Thank you. And our next question comes from the line of Carter Copeland with Melius Research. Your line is open. Please go ahead

Hey, good morning, guys.

Good morning.

Good morning.

Nick, I wondered if you could just expand a little bit on Extant and the thought process around that model? Is there anything else in the TransDigm portfolio that resembles how that business seems to work and how should we think about the difference between price and what I guess is a – I don't know how you would refer to it, a decay rate or something of that nature, I mean, presumably you get a certain number of those platforms that fall off. I mean, you said it's pretty military heavy, so I don't imagine that's a big rate. But, how should we think about how to translate that business model into the TransDigm that we know?

Yes. We don't want to get too specific on individual operating units, but you're right, there is some rate of underlying decay. It's actually quite low. And you can guess why, it's a question of the platforms and there's a lot of military. We think it's a good solid proprietary aftermarket business with a very good margin potential. I would say when you look at this business, you're buying two things essentially, you're buying a portfolio of product and licenses and you're buying a platform and that's the way you have to look at the value. And I would say if the portfolio of existing products and licenses would generate an okay return, but it wouldn't – we're paying somewhat for a platform that we think can continue to buy these small product lines and licenses.

Does your scale and customer reach help with that value proposition relative to where the business was before I would assume so.

I would hope so, but we didn't value any of that.

Okay. All right. Thanks for the color.

I would look that as maybe upside. But there is no value in there for that. As you know, Carter, we pretty well value what we see not what other things we might imagine.

Not what you can imagine? Okay. Great, thanks for the color guys.

Thank you. And our next question comes from the line of Ron Epstein with Bank of America. Your line is open. Please go ahead

Good morning, guys. This is Kristine Liwag calling in for Ron.

Good morning.

Good morning.

So, Kirkhill seems to be a different type of acquisition than what you've typically done. It's a fixer upper and has been a problem for Esterline. What makes you confident that you can turn this business around? And also should we expect to see you acquire more fixer upper businesses in the future?

Let me answer them in inverse order as to whether we acquire more fixer upper, as you know, if something meets our criteria, we look at it as deal at a time. If it's got proprietary aerospace with decent aftermarket, then the question is does the price justify the return, we think we can get there. So I don't know how to answer that other than we surely will evaluate them. We're not unhappy with low performing businesses that meet our criteria if we can get them at the right price. As far as are we confident in it? Yes, we're quite comfortable that we get our PE-like return on it. As you saw, we bought a $90 million in revenue for about $50 million. That's a significantly lower price than you generally pay, but we're quite comfortable we get our PE-like returns out of this and I would think we could exceed that.

Great, thanks.

Thank you. And our next question comes from the line of Ken Herbert with Canaccord. Your line is open. Please go ahead.

Hi, good morning. And, congratulations, Nick and Kevin.

Thanks.

Good morning.

I just wanted to first ask, on the commercial aftermarkets, there has been some discussion from some of your peers about a sense that airlines are maybe looking to or airlines are building inventory levels again on spare parts and not necessarily restocking aggressively, but they've highlighted a change in sentiment amongst airlines as how they view inventory and some of their purchasing patterns. And I'm just curious if you are sensing this, obviously the results you put up sort of double-digit for the passenger side are encouraging, but have you sensed a change in airline purchasing behavior that may be contributing to this?

Not that we've seen so far. It doesn't mean that it's not contained in the numbers, but I don't have any additional color on airlines and their purchasing habits and how it's changed or not and any inventory stocking. We don't track that necessarily. We only look at the distribution side and of course our total commercial aftermarket.

Okay, that's helpful. And just as a follow-up, obviously, with the announcement this morning on KLX and Boeing, I don't imagine that impacts your business too much directly, but if there's any impact there if you could comment? But then more importantly, it seems like you're reassessing some of your distribution strategy and if you could just talk a little bit about that and moving forward if there's any – does that represents any shift in how you think about distribution for the commercial aftermarket relative to direct sales?

Yes. So with the KLX acquisition, KLX is not a significant partner of ours across the ranch. We do have some limited distribution business with them, but not a significant portion. As you know, they're more of a fastener and commodity supplier or distributor. So, it doesn't necessarily overlap with us. What was your secondary question on that?

Yes. I was just curious if you're changing your strategy around distribution at all or how you look to partners with distributors to maybe just get a little better value in the marketplace?

The way our model operates is we give autonomy to our individual business locations. So they are the ones who drive the relationship with distribution partners and they are free to reevaluate and look at options in the marketplace. We look at distributing a highly engineered sole source product is unique and brings special criteria along with it. So, we certainly look for opportunities and advantages in the marketplace. We have no ongoing strategy to evaluate and move from one distributor to another, but we let our individual sites make that decision based on what they think is best for their business.

Great. Well, thank you very much and really nice quarter. Thank you.

Thanks.

Thank you. And our next question comes from the line of Robert Spingarn with Credit Suisse. Your line is open. Please go ahead. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Good morning.

Good morning.

Good morning. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: And congrats as well from me.

Thank you. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: So, two things. One on M&A. But, before I get to that, if we look at slide 6 and your slight changes to the expected growth rates for the three main end markets, so commercial OEM, aftermarket, defense, two of those are going up. Is that on volume or is any of that the effect of pricing from the recently acquired sales?

No. It's not because of the recently acquired sales; it's because of true volume. We commented on the defense bookings being up quite a bit and that that we believe would help us in the second half on the defense side and the commercial aftermarket with a year-to-date up 13% as we've stated, it's hard to – we moved it up slightly because of that. But it's not because of acquisitions; it's because of what we're observing in the business, base business. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: I guess I should also ask is...

Let me just add, on the acquisitions Rob, that's not to say that there may not be opportunities there. It's just that, by the time you get them implemented and work through the backlog, you're not going to see much of a dip this year. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay. But it's mostly volume driven whether it's acquisition or not?

Yes. I would say the change, in other words, there is no change in pricing philosophy or targets. So, I guess, you would say that's mostly volume driven.

Yes. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Well, right. But I also know that in your compare when you do the pro formas, you put in last year's sales at the old pricing schematic under the prior ownership as though you had owned it and then this year...

What I am saying – for M&A – the impact of the M&A there, whatever we might do, by the time you work through the backlog it likely doesn't impact this year much. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay, fair enough. That makes sense.

We didn't take them over until – you're into April already, so by the time you get around to doing something and you're past that... Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Year end of fiscal 2019.

Yes. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay, okay. And then the other question is just with regard to what's going on, the changes to the supply chain being imposed by the OEMs. Does that in any way, shape or form – it's a little bit like a question that was asked earlier, change the M&A opportunity set? In other words, are there more Kirkhills out there because those businesses won't be able – those management teams won't be able to comply with what Boeing is asking them to do and so maybe they are better in your hands or the opposite? I'm just wondering how much of this changes your M&A opportunity what's going on in the industry right now.

I don't have an answer to that Rob. I doubt it makes much difference, but we'll have to see what unwinds and how it evolves. It would surprise me if it makes a lot of difference, but we'll see. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Would you say there are more properties becoming available?

I surely haven't seen that yet and that's hard to predict. Robert M. Spingarn - Credit Suisse Securities (USA) LLC: Okay. All right. Well, thank you.

Thank you. And our next question comes from the line of Robert Stallard with Vertical Research. Your line is open. Please go ahead.

Yes. Thanks so much. Good morning.

Good morning.

Good morning.

First of all, on the wide bodies, it seemed like it came in a little bit below your expectations for the quarter. Is this just timing or is there anything unusual there with regard to destocking perhaps from Airbus and Boeing?

I believe it's timing related. We haven't seen any appreciable changes in our shipset content. So I think it's just timing of the changes that have finally rippled through the supply chain to us. I would say that what I've seen on the bookings as well as on the sales side, we see the same weakness in bookings on the wide-body side as we have in the sales. So this is – it's a wide-body phenomenon tied to production rates and timing of programs. This is not a long-term problem for our shipset content.

Okay. And then, secondly on the aftermarket, you mentioned you are being conservative. It's not got the best visibility, the aftermarket in the second half of the year. But is there any sort of, again, sort of unusual one off things that you might want to call out with regard to what the growth rate could be in the second half?

There is nothing specific that comes to mind. This is business that's largely book and ship within the quarter so it depends on the need in the market. I will say that as we look at customer or our distribution pass-through sales what we call POS or point-of-sale information, that is up about low double-digits just like our aftermarket is year-to-date. So it seems to go hand-in-hand that the demand exists for our product in the aftermarket and we're servicing it. So this is book and ship business. Largely within the quarter you don't get a lot of visibility out many quarters on the aftermarket side, but it is encouraging. Now that POS information I just gave was, that is for about 30% of our aftermarket business, about 25% to 30% of our commercial aftermarket goes through distribution, the rest of it is direct. So it's a nice leading indicator of what's happening in the market.

Okay, that's great. Thank you.

Thanks.

Thank you. And our next question comes from the line of Gautam Khanna with Cowen and Company. Your line is open. Please go ahead.

Yes, thanks. Good morning and congrats to both of you, Nick and Kevin.

Thanks.

I was hoping you could elaborate on what you're seeing on the defense side. I thought I heard you say that bookings were exceeding sales year-to-date by over 20%, maybe I misheard that. But if you could elaborate on what you're seeing, is it broad-based, is it kind of confined to one or two major product categories? I remember, in the past you've had like these episodic parachute sales or what have you that...

Yes. We've seen some episodic parachute sales in the past. We've seen specific strength out of a few large programs. So I anticipated this question and went and looked, and we have some large bookings for the future for some businesses. But I would tell you there is strength across the board. I think this is coming not from one or two businesses due to strength in parachutes or a specific program, it's general defense market strength both on the OEM and aftermarket side.

Okay. And is it about equally – is it about equal across OEM and aftermarket in terms of the rate of bookings growth versus sales or is it more keyed to the aftermarket? (00:45:21)

They're both in the same range of north of 20%.

Okay, wow. And then just as a follow up on the discretionary interiors market, that's been lagging for a while. Do you have any better sense as to what is driving that and what is going to drive a turn in that? Like what's going on...?

I have some thoughts on that. I think, we look – number one, we look at the peers in this sector, and the peers that we follow are seeing something similar. I think there was a lot of rebranding and consolidation in the industry that drove some interior – discretionary interior spend. It was very strong a few years ago for a three-year period, and then we saw weakness as we discussed last year. We are seeing something around guidance which we gave was flat – more or less flat, up a little. That's the guidance we gave and that's what we're seeing. So I don't have any additional color on that. It is also being hit by some wide-body business here as well. But in general, the interiors market, we're performing much like our peers in the industry.

Okay.

I might just add, if you remember we went through it last year and we posted this. It was running red hot for about three years...

Yeah.

...at an unsustainable rate of growth.

That's a fair point. Maybe just one last one. I'm curious if you guys have seen any evidence of kind of increased second sourcing across your portfolio, where – whether it's an OEM or... (00:47:14)?

I have not seen an increase in second sourcing with our products. We hear about this in the industry as a whole, but I've not seen any change to the dynamics for our specific industry, highly-engineered sole source products. We're not seeing a change – noticeable change to that.

Thanks, guys. Best of luck.

Thanks.

Thanks.

Thank you. And our next question comes from the line of David Strauss with Barclays. Your line is open. Please go ahead.

Good morning. Thanks.

Good morning.

Good morning.

Good morning. Wanted to ask about the adjusted EBITDA margin. So in the quarter they were up around 100 basis points. I would have thought actually, given the mix, the strength in the aftermarket, you would actually see more of an increase. And then it looks like you – if you take the midpoint of your adjusted EBITDA guidance, it looks like you've actually lowered the margin outlook for the year. Is that just layering in Kirkhill?

Yeah. The margin decrease in the guidance is a reflection of the Kirkhill and Extant. Those margins are substantially lower than the TransDigm, and they have brought it down a little less than about a point (00:48:34)

As far as the mix...

Yeah, go ahead.

As far as the mix, with our margins, it's kind of hard to move the needle. So, it takes a substantial mix shift up to change our margin numbers.

So they were in line with what we thought they would be.

Okay. I guess another one for you, Jim. Tax rate, I know you commented on this year. Any thoughts on what your go-forward rate in 2019. When you have a full year of tax reform, what that could look like, given the interest rate deductibility cap?

Yeah. We think that's going to get basically closer to where we've been historically, not this year but previous years, all right; maybe slightly better, but pretty close to where we've been historically. But we get a nice bump this year with the tax reform, but once the tax law changes take effect next year, I think we're going to get back to where we've been historically.

So around 30% you're implying?

No, no, no. Closer to – no, closer in the 25% give or take.

A couple of points.

Okay. All right. Thank you.

Thank you. And our next question comes from the line of Matt McConnell with RBC Capital Markets. Your line is open. Please go ahead.

Thank you. Good morning and congratulations, Nick and Kevin.

Thanks.

Thanks.

Jim, just a follow up on that comment you made. Did you say, Extant's margins were substantially below the TransDigm average...

I'm looking at both combined.

Yeah.

And the Kirkhill one is what's giving the dilution there.

Okay. That's what I thought just wanted to clarify. Then just a follow up on the OEM wide-body slowdown. I guess, it's been a couple of quarters of this kind of timing in inventory issue. So, are you assuming that concludes and what else gets better? I think you're implying OEM growth in the back half of the year. So I guess, what changes worth what you've seen recently.

I'm not positive what changes except that the slowdown will – we will start to lap it year-over-year. So, you will start to see some changes in the comparables. As we look at the OEM order book, we still see some softness due to wide-body. But believe that, the industry as a whole will start to recover in the second half and that we should see some subtle movement there .So, that's all we're looking for. I don't have any better guidance than to say, I – that's what the market would seem to indicate to us.

Okay. Thank you.

Thank you. And our next question comes from the line of Drew Lipke from Stephens, Inc. Your line is open. Please go ahead.

Yeah. Good morning. Thank you for taking the question.

Sure. Good morning.

I was curious as we see greater use of flight hour agreements with airframe OEMs and component OEMs at a fixed cost to the airlines. How do you guys think about the impact of TransDigm over time from this kind of evolution that we're seeing?

I'm not sure what the question is.

Can you repeat the question; we were having a hard time hearing the beginning.

Yeah.

Yes. So, as you see greater use of flight hour agreements with both airframe OEMs and component OEMs, where we're seeing fixed cost to the airlines under these fly hour arrangements, what do you expect the impact to be on your business? Are you seeing greater sales directly either to a tier 1 on an airframe OEM on new generation aircraft because of these agreements, and how do we think of that evolution?

We're not seeing any changes to the market dynamics or anything dramatic in the channels that we would sell through to reach the airlines and the end customers. So, no changes that we've seen and I don't know how to speculate on how that will impact us. I just fall back on highly-engineered sole source products that have significant aftermarket, parts need to be repaired, they wear out. I don't see any changes to that fundamentally yet in anything that we're observing.

Okay. And as we look at vertical integration, Boeing is looking to take or make laboratories on their own for the 737. And as we see moves in-house like that, how does that impact operations such as Adams Rite and your water faucets and systems business? And how do you guys think about that threat of vertical integration?

I'm not sure I see a threat to us necessarily in that. There is always going to be opportunities in the aftermarket and on this vertical integration. I'm not sure I see – we will respond to it as we see it .Right now, I'm not seeing any changes. Again, sole source highly-engineered products they have to get them from someplace. We'll be ready to supply as the market needs dictate and will respond to it as we see it. I don't know how – without wildly speculating on things that I don't really understand or know how they will change, I don't know what to say beyond that.

Got it. Thanks, guys.

Thank you. And our next question comes from the line of Peter Arment with Baird. Your line is open. Please go ahead. Peter J. Arment - Robert W. Baird & Co., Inc.: Yeah. Thanks. Good morning, everyone.

Good morning. Peter J. Arment - Robert W. Baird & Co., Inc.: Nick, just a quick one; and congrats to both of you also. Nick, any changes in kind of your discussions with Boeing on their partnering for success, or any update there you could give us.

It continues. The discussion continues. We're moving along in sort of a typical kind of negotiation. I think whatever concludes, it's unlikely that we'll say anything about it as we did before. These typically conclude with the confidentiality agreement.

And I suspect this will be the same. Peter J. Arment - Robert W. Baird & Co., Inc.: Okay. That's helpful. And then just a quick one, just we've heard some other suppliers talking about the impact of higher commodity prices. Could you just remind us how that – how the price cost mix? I assume a lot of it's pass-through for you, but (00:55:32)

A lot of it is pass-through, and we've seen some commodities moving price and others go in the opposite direction. I think we're not observing across the board a runaway on commodity prices. Again, we are in a highly value-add environments with our highly-engineered products. So, we tend to see commodity changes and then – of course, that is an opportunity to value price as well, as you go forward. But we're not seeing runaway prices on the commodity side driving any change in behavior internally for us or with our customers.

I think just mathematically, given the diversity of our products, I don't think there's any one commodity that can materially impact that – can (00:56:32) make a material impact on it (00:56:33)

I agree. Peter J. Arment - Robert W. Baird & Co., Inc.: Okay. Great. Thanks. Nice quarter, guys.

Thanks.

Thank you. And our next question comes from the line of Seth Seifman with JPMorgan. Your line is open. Please go ahead.

Thanks very much, and good morning.

Good morning.

Look, when you guys talk about a tax rate in the 25% range, does that include the foreign direct intangible credit?

I don't know the answer to that question.

Yeah. Last quarter we said that our tax rate is going to be with the impact of tax reform, somewhere a little bit higher than the statutory rate of 21%. We didn't give an exact range. But depending on – we're intending to do a new (00:57:28) financing and we'll see what that impact is. But it will definitely be lower than what our historical rate had been, but just slightly above the 21% range.

So closer to the 21% and 25%.

In somewhere within that range, 21% to 25%.

Plus state. You got to add a little bit more for the state tax. That's just a final (00:57:52)

Excellent. Great. Thanks. And then, just one follow up, something I've been curious or probably should have known already. Kevin, in the operating model when you guys operate and integrate decentralized way, do you guys spend much time focusing on trying to leverage the information about customers that you have in one part of the business to use another parts of the business, to go out and find opportunities for sales?

Leverage is maybe not the right word. We share information as is necessary to help develop products and respond to the needs of our customers. Leverage isn't the right word there; necessarily, it has other connotations. But yeah, we work together, we share information, we have quarterly meetings where people address what they're seeing in the marketplace and request from specific customers that might be of interest. That's what we do. We definitely share information. We're not trying to reinvent the wheel as you go site-by-site.

Great. Thank you very much.

Thank you. And our next question is a follow-up question from the line of Noah Poponak with Goldman Sachs. Your line is open. Please go ahead. Noah Poponak - Goldman Sachs & Co. LLC: Yeah. Just was curious about a few other things. Going back to Kirkhill, the seller there specified kind of in detail that the reason it was loss making was, there was a decent amount of competition, there was a decent amount of bill to print work, and there wasn't very much aftermarket. And so, are your comments that are pretty counter to that, that you can change those things or are you actually just disputing that assessment of the business?

We just have a different view of that, Noah.

I guess, I just leave it at that. Noah Poponak - Goldman Sachs & Co. LLC: Of the business as it is today.

Yes. Noah Poponak - Goldman Sachs & Co. LLC: Got it. On the interest expense guidance reiteration, is that margin to market for LIBOR today, and the reiteration is just the changes you've made to structure and rate?

Yes. Yes, that reflects the current LIBOR rate.

Didn't you step it up some? I remember... (01:00:13)

We stepped it up. Yeah, yeah.

It steps up through the year.

Yeah. We are averaging 1.8% LIBOR is what we have in our guidance. (01:00:22)

Last quarter we said 1.7%, it's going to step up to 2.4%

That's where you figure it will be by the end of the year?

By the end of the year. Noah Poponak - Goldman Sachs & Co. LLC: Okay. Interesting.

And Noah, as Jim mentioned, the hedges kicking in too. Noah Poponak - Goldman Sachs & Co. LLC: Right. Okay. Great. And just one other, if I could. In the defense business, the bookings strength that you've noted, what kind of conversion time do you expect from that booking strength?

We allow our businesses to book out a year and a half to two years. So it takes a little while. It's all program-specific shipments and orders, so it could take a little while to see all that convert. Noah Poponak - Goldman Sachs & Co. LLC: Okay. That's kind of interesting because you've raised to mid-single-digit growth for the year, so you'd have to be kind of through – kind of above 5% in the back half of 2018 to be at, call it, 5% for 2018. So you're sort of guiding to an acceleration in the growth rate back half of 2018 versus second quarter, but it sounds like that's despite this booking strength really being more of a 2019 event. Am I calculating that right?

I think some of the bookings could be in 2018. Certainly, most of them will be in 2019. That's the booking profile that you have on the defense side. It tends to go out a little further. We will believe in raising our guidance to the mid-single-digit range. We anticipate some strength in the second half, that's right. Noah Poponak - Goldman Sachs & Co. LLC: Okay.

It's just math. Noah Poponak - Goldman Sachs & Co. LLC: Yeah. Great. Thanks so much.

Sure.

Thank you, and I'm showing no further questions at this time, and I'd like to turn the conference back over to Liza Sabol for any further remarks.

I'd like to thank you all for calling in this morning again. We would like to remind you to look for our 10-Q sometime no later than Monday, May 7. Thanks, again.

Ladies and gentlemen thank you for participating in today's conference call. This does conclude the program and you may all disconnect. Everyone have a great day.