Good day! And thank you for standing by. Welcome to the TransDigm Group Incorporated Q3 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jaimie. Please go ahead.

Thank you, and welcome to TransDigm's Fiscal 2023 third quarter earnings conference call. Presenting on the call this morning are TransDigm's President and Chief Executive Officer, Kevin Stein; Co-Chief Operating Officer, Joel Reiss; and Chief Financial Officer, Sarah Wynne. Also present for our call today is our Co-Chief Operating Officer, Mike Lisman. Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filings with the SEC available through the Investors section of our website or at sec.gov. The company would also like to advise you that during the course of the call we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliations. I will now turn the call over to Kevin.

Good morning. Thanks for calling in today. First I'll start off with the usual quick overview of our strategy, a few comments about the quarter and discuss our fiscal ‘23 outlook. Then Jorge and Sarah will give additional color on quarter. As we previously announced on May 26, we made three significant organizational changes this quarter. Jorge Valladares will retire at the end of TransDigm's 2023 fiscal year. Jorge has served as TransDigm COO for the past four years. His prior roles include co-COO, Executive Vice President, and President of three TransDigm operating units. Jorge will aid in the transition of his role to the new co-COO's Mike Lisman and Joel Reiss until his retirement date. Jorge also joined TransDigm Board of Directors as of May of May 26. Jorge has been with the company more than 25 years and has been an integral part of the long-term value creation of TransDigm and a key player in the cultural preservation of the company. Jorge has done a truly outstanding job and we sincerely thank him for his dedication. We are happy to have Jorge continue contributing to the growth of TransDigm as a member of the company's board. Mike Lisman and Joel Reiss have assumed the roles of co-COO's. Mike served as TransDigm CFO for the past five years prior to becoming CFO. He worked at our Aerofluid Products Operating Unit and on the M&A team at TransDigm. Joel is a long-time employee of TransDigm having joined the company in 2000. He was an executive vice president for the last eight years. Prior to that Joel served as president at two different TransDigm operating units, Hartwell and Skirka Aerospace. Before becoming a president Joel was the director of operations at our Adams Wright Operating Unit. Sarah Wynne has assumed the…

Thanks Kevin and good morning everyone. I'll start with our typical review of results by key market category for the balance of the call. I'll provide commentary on a pro forma basis compared to the prior year period in 2022. That is assuming we own the same mix of businesses in both periods. The May 2023 acquisition of CalSpan Corporation is excluded from this market discussion. In the commercial market which typically makes up close to 65% of our revenue. We will split our discussion into OEM and aftermarket. Our total commercial OEM revenue increased approximately 25% in Q3 compared with the prior year period. Sequentially total commercial OEM revenues grew by about 4% compared to Q2. Bookings in the quarter were robust compared to the same prior year period and significantly outpay sales. We are encouraged by the increasing commercial OEM production rates and airline demand for new aircraft. OEM supply chain and labor challenges still persist but appear to be making steady progress. While risks remain towards achieving the ramp up across the broader aerospace sector. We are cautiously optimistic that our operating units are well positioned to support the higher production targets. Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 32% in Q3 when compared with the prior year period. Growth in commercial aftermarket revenue was primarily driven by the continued strength in our passenger sub market which is our largest sub market, although all of our commercial aftermarket sub markets were up significantly compared to prior year Q3. Sequentially total commercial aftermarket revenues increased by approximately 2%. Commercial aftermarket bookings for this quarter were strong compared to the same prior year period. Turning to broader market dynamics. Global revenue passenger miles still remain lower than pre-pandemic levels but…

Thanks Joel and good morning everyone. I'm going to provide an overview on a few financial matters for the quarter and expectations for the full fiscal year. First on organic growth and liquidity. In the third quarter our organic growth rate was 20.7% driven by the continued rebound in our commercial OEM and aftermarket end markets. On cash and liquidity free cash flow which we traditionally define as EBITDA less cash interest payments, CapEx and cash taxes was roughly $540 million for the quarter. For the full fiscal year we continue to expect to generate free cash flow in excess of the $1.4 billion target previously provided. Below that free cash flow line we saw networking capital consume approximately $180 million of cash during the quarter. As we continue to build both accounts receivable and inventory to support the ongoing and continuing sales ramp up on both the OEM and aftermarket sides of the business. The OEM does tend to be slightly more intensive from a networking capital standpoint. We ended the quarter with approximately $3.1 billion of cash on the balance sheet and our net debt to EBITDA ratio was 5.3 times down from the 5.6 times at the end of last quarter. On a net debt to EBITDA basis this puts us below the 5 year pre-COVID average level of 6 times. Additionally a cash interest covered ratio such as EBITDA to interest expenses at 3 times which is right in line with where we've historically operated pre-COVID and been comfortable operating the business. As always we continue to watch the higher interest rate environment and the current state of the debt markets closely. As a reminder we did a fair bit of refinancing in the first half of the year pushing out over the last quarter. In…

Thank you. We will now conduct the question and answer session. [Operator Instructions] Our first question comes from a line of David Strauss of Barclays. Go ahead.

Thanks. Good morning.

Good morning.

Kevin, I don't know if it was for everyone or just me, but your comments around the M&A pipeline cut out at least for me. So would you mind repeating kind of where you are from a pipeline standpoint? I think you had some interest in the Raytheon property and maybe what happened there.

Well, we can't comment as you know the process. We can't comment on deals due to NDAs that you put in place. So whether we were interested or not, we don't comment. The M&A pipeline though is, I said I'll reread my words. We continue to actually look for M&A opportunities that fit our model. As we look out over the next 12 months to 18 months, we continue to have slightly stronger than typical pipeline of potential targets. As usual, we can't comment yada yada. It's similar to what I said last quarter. We are seeing a pretty interesting time right now. A lot of properties that we have been closely following for a long time are becoming available and difficult to predict which, if any of them will close, again, we are extremely disciplined in our M&A approach.

Okay. Thanks. A quick follow-up. So in prior quarters, your comment on the slide around bookings was that bookings were outpacing shipments. In this quarter, you just went to, things are strong. Do we read anything to that and be relative to kind of the bookings rate maybe on a sequential basis both for the aftermarket and the new equipment side?

Well, I think across the business, we built backlog. So book-to-bill for the company was still positive. It is true that some things can be lumpy. We saw strengths in OEM and defense. Aftermarket was a little bit, the rate of change of expansion of the order book slowed a little bit, but still have a positive book to build there for the year.

All right. Thanks very much.

Thank you. Our next question comes from the line of Kristine Liwag from Morgan Stanley. Go ahead, Kristine.

Hey, good morning, guys. How are you doing?

Good morning.

So with a strong growth in aftermarket, we're hearing that MRO facilities are fully booked this year and slots are even difficult to come by next year or even the year after that. Can you provide any color in terms of how much of your aftermarket parts are linked to heavy maintenance versus the normal wear and tear? And does the limited MRO shop availability essentially limit the volume of parts you could sell to the aftermarket? How should we think about that dynamic?

Yes, I don't think we have the specific data around the MRO and what the implications are. I think we continue to see the commercial aftermarket growth in all of our submarkets, and I think we continue to see the positive momentum as revenue passenger miles continue to move up year-to-date. We're now down to just 10 percent below pre-pandemic levels and continue to see the expectancy trends continue as long as the people continue to fly.

Great. Thanks. And one, if I could do another follow-up. What we're hearing from the supply chain is that in commercial OE terms, there have been improving pricing for new airplane parts and OE side. So does that mean that when OE volume starts coming back for you guys, could you also get some of that pricing benefit and could that alleviate some of the mixed headwind you could experience should the ramp materialize sooner than expected?

I think we don't usually comment on margins and increases across the board. It is fair to say that as we always state, our aftermarket is more profitable. Our goal in pricing is to pass along inflation. So we have seen a very inflationary environment. That's probably all we can comment on that. We definitely make more money in the aftermarket.

Great. Thanks, guys.

Thank you. Our next question comes from the line of Myles Walton from Wolfe Research. Go ahead Myles.

Thank you so much. Kevin, the margins in the quarter were particularly strong, given what I would think would have been a little bit more adverse mix with CalSpan folding in. Aftermarket as a percent of sales is actually lower sequentially. Can you comment on the dynamics that would help do that in the quarter sequentially, and then also, I guess, why they're going to go down a 100 basis points sequentially into 4Q?

Well, I hope we forecast conservatively as we look at the future. That's a conservative look at what might happen, given that aftermarket is such a significant driver for the business and that some of it isn't booked yet for the quarter, it makes it prudent for us to be a little more conservative as we forecast the quarter. We'll see how it plays out. I'll tell you on the margins line, it's a pleasant outcome that we continue to see the progress and cost reductions across the business. Even selective new business programs have been successful for us. There were not any significant one-time accounting adjustments or anything in these numbers, so this was real performance of the business.

Kevin, thanks, and just a quick follow-up. As you go into next year, given EBITDA's higher net interest expenses coming lower, the tax rate, I know kicked up because of the EBITDA rule of interest availability, is the tax rate now going to kick back down a couple hundred basis points? Thanks.

I think we'll give guidance. That's really a question for Sarah, but we'll give guidance on '24 next quarter when we get into it, and we'll have a detailed look at the interest and tax rates and all the pieces. If you can hold your question until then. Is that fair, Sarah?

Yes, that's right. I haven't gone through the planning process yet.

Okay. Thanks again.

Thank you. Our next question comes from the line of Ken Herbert from RBC Capital Markets. Please go ahead.

Hey, good morning. Kevin.

Good morning.

Maybe just to stick on the aftermarket. I think you've raised guidance for aftermarket growth each quarter this year. You're going to likely end the year at sort of 2X, the initial guidance in terms of the growth. I'm just wondering if there's anything in particular you could call out as you've gone through fiscal '23 that's been a particular source of upside that was maybe unexpected or where you think that's significant sort of outperformance relative to the initial expectations, where it's really come from?

I think China was the big player. We initially had our look at the business. That was the unclear point that we didn't see in our planning. So I think a lot of what we're seeing today for upside and the revisions favorably have been due to that expanding market and really a better recovery than I think any of us anticipated when we initially planned the year.

Is there any concern that you've seen some of the elevated activity? Any of the sales in the aftermarket pulled into '23 that could be a potential headwind in '24? Just how do you think about sort of the booking strength and the initial outlook into '24 relative to the '23 strength?

Joel?

Well, obviously we're not going to provide any guidance towards 2024. But look, our order book continues to evolve. Flight activity continues to increase. You said the traffic in Asia Pacific has increased significantly. But even there is still about 20% below 2019 levels. Global air traffic still below the pre-pandemic level. So I think we're all realistic that the rate of change has to slow at some point as you get closer and closer back to the pre-pandemic levels. But I don't think we see anything else beyond that changing.

Great. Thank you.

Thank you. Our next question comes from a line of Robert Stallard from Vertical Research Group. Please go ahead.

Thanks so much. Good morning.

Good morning.

Good morning.

Kevin, first of all, on the M&A pipeline, as you said, your comments sound pretty similar to what you said three months ago, that things are looking quite interesting out there. But I'm worried that everyone else is saying the same thing. And this is starting to bid some of these asset prices up too high.

In fullness of time, I don't think you can overpay for good assets that meet our criteria. So I'm not worried about more competition. If businesses meet our criteria, we will rise to meet the challenge.

Okay. And then secondly, on the aftermarket price, I thought it was quite interesting that they had to have pulled forward their pre-increase by another two months this year. Is this something that some of your businesses are doing, or are you still on a fairly standard price? So 12 months, how do you increase?

Could you repeat your question? You broke up a bit, and I couldn't hear some of the details.

Yes. Sorry, Kevin. I was hoping that CFM had pulled forward their price increase by another two months. And I was wondering if there's something that TransDigm's businesses are doing, or are you sticking to your usual 12-month catalog price increases?

I think we do regular catalog price increases, but in a high inflationary environment, dynamic pricing becomes more of the norm. So I don't think our businesses necessarily are augured into, only once a year. It really depends on the inflationary inputs that they're seeing.

Okay. That's great. Thank you.

Thank you. Our next question comes from a line of Robert Spingarn from Melius Research. Please go ahead.

Hey, good morning.

Good morning.

Good morning.

Kevin, on margins, just as OEMix increases, assuming that OE growth overtakes aftermarket growth at some point here, can you mitigate the headwind to margins from that, just from productivity and pricing, perhaps on the other side, in aftermarket?

I think there will be challenges to doing that, but that would certainly be one of our aspirational goals as we go forward to continue to drive cost improvements and improvements in general to our business to drive that. It will be difficult as we have very strong aftermarket growth, but we're seeing the OEM growth somewhat muted as they are slower to ramp up, meaning there's more pressure in the aftermarket. I think that we continue to enjoy this for a while into the future, maybe not the wild recovery we've seen over the last two years, but still I think that the market conditions, really in all of our market segments, set up very favorably for us, even in the aftermarket in the future.

Thanks so much.

Thank you. One second for the next question. Our next question comes from Peter Arment from Baird. Please go ahead.

Yes, thanks. Good morning, everyone. Kevin, maybe if you could just give a broader comment on the wide-body side of things. We're really starting to see kind of an uptick really across the board, and I know last quarter you made some comments that your interior's business has been recovering nicely. Just any further color there would be helpful. Thanks.

Yes, I'd say on the interior, this Joel, I'd say on the interior side, I think we're seeing a similar trend as we are in the overall commercial aftermarket, a good increase year over year, and continuing the positive trend we've seen for several quarters now. To-date, it's primarily being driven by the repair side, but we're seeing a nice recovery. Obviously, as they continue to utilize the existing fleet, it'll be beneficial for us in the future for modifications and refurbishments.

I appreciate that, Joel. And then just as a follow-up quickly, Kevin, I know last quarter there was a comment that made about aftermarket volumes still being 10% to 15% light. Is that still how you see kind of the year shaking out, or is that starting to improve? Thanks.

Well, I think it improves every quarter, but I still see 10% plus percent opportunity. RPMs are still 12% below takeoff and landings in certain regions still below where they were pre-pandemic. I still see opportunity and suppressed demand, which I have every belief will return.

Appreciate it. Thanks Kevin.

Yes.

Thank you. Next question comes from a line of Jason Gursky of Citibank. Please go ahead.

Hey, good morning, everybody.

Morning.

I can't believe I'm going to be the first to congratulate everybody on their respective promotions and retirements, but probably congrats to all of them.

Thank you for doing that. It's always good to hear. Sometimes we're just the machine that keeps moving and people forget that.

No, I appreciate all the hard work for sure that goes into achieving that level of success. Just a quick question for you related to the situation at Pratt with the GTF. They're talking about bringing in, I don't know, 130, 140 engines here in the near term and then 1200 over the next year or so. I'm kind of curious what you're hearing from some of your customers about how they're going to deal with that. Do you think there's an opportunity for more planes to kind of come out of the desert here? Do you think there will be more expansive work that gets done when some of these engines and perhaps aircraft get grounded that might accelerate some work for you all that would maybe come later if the engines had come in under normal course? I'm just trying to get a sense of how this GTF engine issue might impact TransDigm.

Yes, I think I'll kick that one to Joel for comment. He's very close to the customers and businesses.

Yes, I don't think we think it has any significant change. Engines coming in sooner means one set of components get replaced earlier because they're going to do maintenance on the engine, but then there's another set of components that you really want to have them flying and the starts and stops or what, their takeoffs and landings, what makes the big difference. I think we're not hearing anything that makes a significant change of what we're seeing today.

Okay, great. I'll leave it with one. Thanks, guys.

Thanks.

Thanks. Our next question comes from a line of Noah Poponak of Goldman Sachs. Go ahead, Noah.

Hey, good morning, everyone.

Morning.

Was the book to bill greater than 1.0 in all three markets?

For the quarter or year-to-date? I guess we don't really give that kind of granularity usually. It was up across the company for aftermarket. It was slightly off, but year to date still positive.

Okay.

Does that clear it up for him?

Yes, that clears it up. Yes. And then on the defense side, I mean, can you spend another minute on what happened there? You referenced how outlays are trailing authorization and that has started to catch up. What are you seeing and hearing from your customer there? You'll have easy compares and that outlay gap is pretty wide and these higher growth rates sustained for a period of time?

Well, I think we're seeing steady improvement in the outlays. The outlays are still a little bit slow in terms of solicitations converting into orders compared to historical levels, but as Kevin just mentioned, bookings were stronger than shipment, so I think we continue to anticipate some runway there.

Yes, I think in really in all three of our market segments, including commercial aftermarket, although maybe bookings slowed ever so slightly this quarter. Remember, bookings can be lumpy quarter to quarter and, all three of our commercial OEM, commercial aftermarket and defense all look favorable into the future. I can't stress that enough.

Okay. Thanks, guys. Appreciate it.

Yes.

Thank you. Our next question comes from a line of Ron Epstein from Bank of America. Please go ahead. Please go ahead, Ron.

Ron's on mute.

Oh, sorry about that. I was on mute. Yes. Just trying to...

Here we go.

Yes. Just a quick one, long stuff, good stuff has been asked but Kevin, what's your mood for a fixer upper? I mean, as you look at stuff out there, is kind of M&A you want to do fixer upper style or stuff that just kind of fits right in with the, the TransDigm?

I guess it's where do we see the likelihood of, upper quartile private equity-like returns? We've always talked about the 20% IR threshold for M&A activities. I'm not against fixer uppers. Generally speaking, though, we acquire good businesses. We heavily invest in them, and we make them much better. A fixer upper might fit that as you're listing, but, we usually don't look for those per se, and everything must stand on its own and generate the return.

Got it. Got it. Got it. Got it. Got it. I mean, what -- I'm just trying to just get a sense. I think a lot of people are what are you not interested in? I mean, do you think you need to open the --

aperture?

The GAAP –yes look.

Yes. I mean, do you think you got to look at -- No, I don't think we need to -- Sorry. I don't think we need to open the aperture per se. I think there's still plenty of activity in the aerospace world for a creative M&A. It's just important for us to stay disciplined. Historically, we do one, two deals a year. Some years, you get a bunch more, but it's important for us to stay very disciplined in our approach. We're still seeing a lot of activity in core M&A that fits our model. What we look for is that 20% IRR. We're still seeing those opportunities, quite a few of them right now. But I think what's critical for us is to be disciplined in this process. If we continue to be disciplined, then we'll continue to find the great businesses that we look for. And there's certainly a lot of interesting properties available as we look over the next 12 months to 18 months, as I alluded to in my comments. Does that help you better understand what we're seeing?

Yes. Yes, I think it does. And if I may, just one last quick one. Gross margins in the quarter were really quite good at 59%. Should we expect that to continue?

Our goal is to always drive margins up. So our track record, I think, in that speaks for itself.

Got it. All right. Thank you very much.

Thank you. Our next question comes from the line of Seth Seifman of JP Morgan. Please go ahead.

Thanks very much and good morning.

Good morning.

Good morning. Just going back to the question of capital deployment, I think you said the majority of M&A opportunities kind of naturally are in the small and midsize category. And so given the capacity that you'll have by year end, unless something really significant shakes loose, should investors be thinking about if there is something in that small and midsize category that there is plenty of opportunity for capital return as well?

Yes. I mean, capital allocation and priorities remain unchanged. So we'll continue to evaluate our options over the course of the calendar year. We'll see how the market conditions look. But ultimately, we operate at disciplined approaches. We'll continue to do so.

All right. Okay. Okay. Thank you. And then just as a quick follow-up, I know maybe not the most, the part of the business that gets focused on most, but the Bizjet and helicopter aftermarket, it's been up kind of 20% the past couple of quarters. And we generally think about aftermarket revenues kind of tracking flight hours plus some price. And business jet flight hours in the U.S. at least have been pretty flat year-to-date. And so is there something you point to that accounts for the continued strong growth there, given that it seems like, the underlying end market just isn't really growing that much right now?

Well, I think some of it's the timing of bookings and shipments. So the Bizjet market expanded pretty significantly during the pandemic and has really only slowly reduced each quarter. It's something we'll continue to monitor, as I said, in my opening remarks.

Great. Thanks very much.

Thank you. Our next question comes from the line of Michael Ciarmoli from Truist.

Hey, good morning, guys. Thanks for taking the questions and congrats. Kevin, just maybe back to margins. And obviously, I think Rob brought up the OEM ramping in the mix. But, you guys are always trying to execute and drive margins higher. But have you, at that margin, peaked? And then, I guess, as we think about OEM ramping, does your commentary around dynamic pricing apply to some of your OEM commercial OEM sales?

Yes, it doesn't. Commercial OEM tends to be longer, more like year or two to, address any inflationary pressures. But, yes, generally speaking, a little different on the OEM side. But still, you can find a way to pass along inflation. And that's, again, what we strive to do. What was the first part of your question?

Just, EBITDA margins. I mean, record level in the quarter --

Have they peaked? That's right. No, they haven't peaked. There's still room to grow and expand. And that's how we look at it. We're still looking for those opportunities. And I don't see any reason why there isn't room to continue to improve. That's our goal is steady, consistent, disciplined, improvement to M&A, capital allocation to continue to allow the machine to operate.

Got it. Helpful. I'll leave it at that. Thanks, guys.

Thank you. Our next question comes from a line of Gautam Khanna of TD Cowen. Please go ahead.

Hey, good morning, guys. And congrats to everyone.

Good morning.

Let's change roles. Good morning. Hey, I wanted to ask just quickly on whether you've seen any discernible difference in demand patterns through your distribution channels versus direct. And just how shortening lead times, if they have, have impacted ordering patterns by customers? Is there less of a queuing effect because they don't have to place an order as far in advance? Is that something that might be impacting the bookings as well? Thanks.

Yes, so when we look at the point of sale information from our distribution partners, it matches pretty well with what we're seeing as we go direct to customers. So I don't think we're seeing anything significant there. It comes to lead times, every operating unit sets their own unique set of lead times for products and customers. They're often not the same. Given that the recovery we've seen in the aftermarket, we've invested in the inventory to be able to support the customer base. I think that's helped out a little bit. But no real significant change, at least from what I'm seeing from the, either the distribution point of sale or what we're seeing direct, and no significant change due to lead time.

Thanks, and then just a quick follow up on Calspan, because it's a little bit of a different profile, more service oriented. I'm just curious, have you, any surprises, anything that we should think about that'll be different with respect to its integration or its margin potential over time relative to the hardware businesses?

I don't think so. I think as Jorge said last quarter, our view of value creation is a three pronged approach. We focus on value based pricing of our products, managing our cost structure and providing innovative solutions. We've only recently closed on it, but we're looking to leverage all three. We think it's a great business, that's been well run, and our goal is to optimize it, similar to what we've done in past acquisitions. We've got a, as I mentioned on my opening remarks, we've got a seasoned executive and Paula Wheeler leading the integration, and I think we think it'll fit well into the TransDigm formula.

And just last one, sorry, with respect to service oriented businesses, is that something that you're also kind of seen more of in your M&A pipeline? Is that stuff you're more interested in?

No, I think we've always seen a few of them, just nothing as compelling as Calspan was to us. I mean, at the end of the day, we're looking for businesses that we can identify that upper quartile private equity, like return 20% plus, that's what we're looking for. And we believe today that Calspan will absolutely deliver that for us.

Thanks a lot, guys, appreciate it.

Thank you. Our next question comes from the line of Sheila Kahyaoglu from Jeffries. Go ahead, Sheila.

Thank you. Good morning, guys. Thank you for the time. Good quarter and congrats to all the promotions. When you put up 34% aftermarket growth and 50% margins are going to get to negatively bias questions. So bear with me here. Are you seeing any negative signs in the aftermarket, whether it's inflation, cooling, cargo, weakness, or low cost carriers seeing yield softness?

I think cargo and maybe some business jets softening in the aftermarket. Joel, do you have anything to add to that?

I think on the cargo side, the yields are down for them significantly. They've obviously increased the significant amount of belly capacity in the last several months as international travel has kicked up. And we have to see how that all shakes out, but we think it has had some impact this quarter. We'll see how it shakes out going forward.

Thank you for that. And then just on EBITDA margins, 52%, I think the all ton high, they expanded 125th sequentially despite Calspan being, I think, 70 basis points diluted given 25% margin. So are we just wrong on Calspan margins or what drove the margin expansion in the quarter?

I think it was strong performance in Q3. The results, the market mix, and we didn't own Calspan for all of the quarter. I think that will impact us a little bit more as we go forward, but it was just a strong all around quarter, good performance in the aftermarket and the OEM side of the house.

Great, thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Jaimie Stemen for closing remarks.

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