TransDigm Group, Inc. (NYSE:TDG) Q1 2023 Earnings Conference Call February 7, 2023 11:00 AM ET
Company Participants
Jaimie Stemen – Manager, Financial Reporting
Kevin Stein – President, CEO & Director
Jorge Valladares – COO
Michael Lisman – EVP & CFO
Conference Call Participants
Noah Poponak – Goldman Sachs Group
Robert Stallard – Vertical Research Partners
Scott Deuschle – Crédit Suisse
Matthew Akers – Wells Fargo Securities
Andre Madrid – Bank of America Merrill Lynch
Peter Arment – Robert W. Baird & Co.
Gautam Khanna – Cowen and Company
Peter Osterland – Truist Securities
Operator
Thank you for standing by, and welcome to the TransDigm Group’s 2023 First Quarter Results Call. [Operator Instructions]. I would now like to hand the call over to Jaimie Stemen, Director of Investor Relations. Please go ahead.
Jaimie Stemen
Thank you, and welcome to TransDigm’s Fiscal 2023 First Quarter Earnings Conference Call. Presenting on the call this morning are TransDigm’s President and Chief Executive Officer, Kevin Stein; Chief Operating Officer, Jorge Valladares; and Chief Financial 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 call for a presentation of the most directly comparable GAAP measures and applicable reconciliations. I will now turn the call over to Kevin.
Kevin Stein
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 Mike will give additional color on the quarter. To reiterate, we are unique in the industry in both the consistency of our strategy in good times and bad as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle.
To summarize, here are some of the reasons why we believe this. About 90% of our net sales are generated by unique proprietary products. Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns. We follow a consistent long-term strategy specifically. We own and operate proprietary aerospace businesses with significant aftermarket content. We utilize a simple, well-proven, value-based operating methodology. We have a decentralized organizational structure and a unique compensation system closely aligned with shareholders. We acquire businesses that fit this strategy and where we see a clear path to PE-like returns.
And lastly, our capital structure and allocations are a key part of our value creation methodology. Our long-standing goal is to give our shareholders private equity-like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we had a good start to fiscal ’23 and increased our guidance for the year. We continue to see recovery in the commercial aerospace market. Our Q1 results show positive growth in comparison to the same prior year period. We are encouraged by the progression of the commercial aerospace market recovery to date, and trends in the commercial aerospace market remain favorable as demand for travel remains robust.
International air traffic is closing in on the domestic travel recovery and China reopened its air travel in January with the lifting of its pandemic restrictions. However, there is still progress to be made for the industry as our results to continue to be adversely affected in comparison to pre-pandemic levels since the demand for air travel is still depressed. In our business, we saw another quarter of very healthy growth in our total commercial revenues and bookings. Bookings also outpaced revenues in all 3 of our major market channels, commercial OEM, commercial aftermarket and defense. We also attained an EBITDA as defined margin of 50% in the quarter. Contributing to the strong margin is the continued recovery in our commercial aftermarket revenues, along with diligent focus on our operating strategy.
Additionally, we had strong operating cash flow generation in Q1 of almost $380 million and ended the quarter with close to $3.3 billion of cash. We expect to steadily generate significant additional cash throughout the remainder of 2023. Next, an update on our capital allocation activities and priorities. The capital allocation priorities at TransDigm are unchanged. Our first priority is to reinvest in our businesses; second, to do accretive M&A; and third, return capital to our shareholders via share buybacks or dividends. A fourth option paying down debt seems unlikely at this time, though we do still take this into consideration.
We are continually evaluating all of our capital allocation options. As mentioned earlier, we ended the quarter with a sizable cash balance of close to $3.3 billion, which leaves us with significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future.
Regarding the current M&A pipeline, we are actively looking for M&A opportunities that fit our model. Acquisition opportunity activity continues and we have a decent pipeline of possibilities as usual, mostly in the small and midsize range. I cannot predict or comment on possible closings, but we remain confident that there is a long runway for acquisitions that fit our portfolio. Both the M&A and capital markets are always difficult to predict, but especially so in these times.
Now moving to our outlook for fiscal 2023. As noted in our earnings release, we are increasing our full fiscal year ’23 sales and EBITDA as defined guidance, both by $65 million to reflect our strong first quarter results and current expectations for the remainder of the year. The guidance assumes the continued recovery in our primary commercial end markets through fiscal ’23 and no additional acquisitions or divestitures. Our current year guidance is as follows and can also be found on Slide 6 in the presentation. The midpoint of our revenue guidance is now $6.155 billion or up approximately 13%.
In regards to the market channel growth rate assumptions that this revenue guidance is based on, for the commercial aftermarket, we are updating the full year growth rate assumptions as a result of our strong first quarter results and current expectations for the remainder of the year. We now expect commercial aftermarket revenue growth in the high teens percentage range, which is an increase from our previous guidance of mid-teens percentage range. At this time, we are not updating the full year market channel growth rate assumptions for commercial OEM and defense as underlying market fundamentals have not meaningfully changed.
Commercial OEM and defense revenue guidance is still based on our previously issued market channel growth rate assumptions where we expect commercial OEM revenue growth in the mid-teens percentage range and defense revenue growth in the low to mid-single-digit percentage range. The midpoint of our EBITDA as defined guidance is now $3.11 billion or up approximately 18% with an expected margin of around 50.5%.
This guidance includes about 50 basis points of margin dilution from our recent DART Aerospace acquisition. We anticipate EBITDA margins will continue to move up throughout the remainder of the year. The midpoint of our adjusted EPS is increasing primarily due to the higher EBITDA as defined guidance and is now anticipated to be $22.17 or up approximately 29%.
Mike will discuss in more detail shortly some other fiscal ’23 financial assumptions and updates. As our fiscal ’23 progresses, should the favorable trends in the commercial aerospace market recovery continue, including the expansion of flight activity in China, we could see further upward revisions to our guidance. We believe we are well positioned for the remainder of fiscal 2023. We’ll continue to closely watch how the aerospace and capital markets continue to develop and react accordingly.
On the organization side, I wanted to announce the retirement of Halle Martin, our General Counsel, Chief Compliance Officer and Secretary. Halle has been an integral part of our team since 2012 and long before as outside counsel. Jes Warren has been promoted from her position as Associate General Counsel to fill this critical role as part of our robust succession planning process. Thank you, Halle, for all of your great counsel and dedication to TransDigm.
Let me conclude by stating that I’m very pleased with the company’s performance this quarter and throughout the recovery of the commercial aerospace industry. We remain focused on our value drivers, cost structure and operational excellence. Let me hand it over to Jorge to review our current — our recent performance and a few other items.
Jorge Valladares
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 market discussion includes the May 2022 acquisition of DART Aerospace in both periods. DART has been included in this market analysis discussion since the third quarter of fiscal ’22. In the commercial market, which typically makes up close to 65% of our revenue, we’ll split our discussion into OEM and aftermarket.
Our total commercial OEM revenue increased approximately 20% in Q1 compared with the prior year period. Bookings in the quarter were strong compared to the same prior year period and solidly outpaced sales. Sequentially, the bookings improved almost 15% compared to Q4. We continue to be encouraged by build rates steadily progressing at the commercial OEMs and the strong demand for new aircraft. However, ongoing labor instability and supply chain challenges across the broader aerospace sector present risks to achieving OEM production rates.
Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 31% in Q1 when compared with the prior year period. Growth in commercial aftermarket revenue was primarily driven by continued strength in our passenger submarket, which is our largest submarket, although all of our commercial aftermarket submarkets were up significantly compared to prior year Q1.
Sequentially, total commercial aftermarket revenues grew by approximately 7% and bookings grew more than 25%. Commercial aftermarket bookings were robust this quarter compared to the same prior year period and Q1 bookings significantly outpaced sales. Turning to broader market dynamics. Global revenue passenger miles remained lower than pre-pandemic levels, but have continued to steadily trend upwards over the past few months. Airline passenger demand remained strong throughout the fall and holiday season. IATA currently forecast calendar year ’23 air traffic will be within about 15% of pre-pandemic. The recovery in domestic travel continues to be stronger than international travel, although international traffic is catching up.
In the most recently reported IATA traffic data for December, global domestic air traffic was only down 20% compared to pre-pandemic. For the U.S., domestic travel in December was within 10% of pre-pandemic levels. Domestic travel in China continued to lag other major air traffic regions and was down about 55% compared to pre-pandemic. However, the lifting of COVID restrictions and the reopening of China to international travelers bodes well for air traffic growth. Roughly a year ago, international travel globally was depressed about 60%, but in the most recently reported IATA traffic data for December, international travel was only down about 25% compared to pre-pandemic levels.
International traffic in North America and Europe were within 5% and 15% of pre-pandemic, respectively. Asia Pacific International travel was still down about 50%, but should improve subsequent to the January reopening of China. Global air cargo demand has continued to pull back over the past few months. As of IATA’s most recent data, December was another month in which air cargo volumes showed year-over-year decline and were below pre-pandemic levels. The recent easing of pandemic-related restrictions in China could be favorable for air cargo in ’23, but it’s too early to determine.
Business jet utilization has come down from pandemic highs and has continued to temper over the past handful of months. However, activity is still above pre-pandemic levels and business jet OEMs and operators forecast strong demand in the near term. Time will tell how this plays out as there is softening optimism for the business jet market due to the uncertainty within the current macro and financial environment.
Shifting to our defense market, which traditionally is at or below 35% of our total revenue, the defense market revenue, which includes both OEM and aftermarket revenues, grew by approximately 3% in Q1 when compared with the prior year period. Defense bookings are up significantly this quarter compared to the same prior year period and Q1 bookings strongly outpaced sales, which bodes well for future defense order activity. Impacting our defense market revenues are the ongoing delays in the U.S. government defense spend outlays. While these delays appear to be slowly improving, they do remain longer than historical average levels. Our teams are steadily making progress with the supply chain, but continue to face challenges. The lack of electronic component availability continues to be the primary focus for our teams.
As Kevin mentioned earlier, we continue to expect low to mid-single-digit percent range growth this year for our defense market revenues. Lastly, I’d like to wrap up by stating how pleased I am by our operational performance in this first quarter of fiscal ’23. We remain focused on our value drivers in meeting increased customer demand for our products. With that, I’d like to turn it over to our Chief Financial Officer, Mike Lisman.
Michael Lisman
Good morning, everyone. I’m going to quickly hit on a few additional financial matters for the quarter and then expectations for the full fiscal year. First, on organic growth and liquidity. In the first quarter, our organic growth rate was 15%, 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 $400 million for the quarter. We ended the quarter with approximately $3.3 billion of cash on the balance sheet, and our net debt-to-EBITDA ratio was exactly 6x, down from 6.4x at the end of last quarter.
On a net debt-to-EBITDA basis, this puts us right at the 5-year pre-COVID average level. Additionally, our cash interest coverage ratios, such as EBITDA to interest expense are currently in line with where we’ve historically operated the business. We feel comfortable here given the benefit of our interest rate hedges and fixed rate debt instruments that were entered into in a lower interest rate environment. As always, we continue to watch the rising interest rate environment in the current state of the debt markets very closely.
During the first quarter, we completed an extension of our nearest maturity term loan pushing the maturity date from mid-2024 out into 2027. Pro forma for this refinancing, our nearest term maturity is now 2025. As a result of this refi, our interest expense estimate for FY ’23 ticked up very slightly, as you can see in today’s updated interest expense guidance. Over 75% of our total $20 billion gross debt balance is at a fixed rate through a combination of fixed rate notes and interest rate caps and swaps through 2025. This provides us adequate cushion against any rise in rates at least in the immediate term.
Going forward, we expect to continue both proactively and prudently managing our debt maturity stacks. Practically for us, this means pushing out any near-term maturities well in advance of the final maturity date and then also utilizing hedging instruments where we can in order to lock in the cash interest costs. As we sit here today from an overall cash liquidity and balance sheet standpoint, we think we remain in good position with adequate flexibility to pursue M&A or return cash to our shareholders via share buybacks or dividends during fiscal ’23. With that, I’ll turn it back to the operator to kick off the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from the line of Noah Poponak of Goldman Sachs.
Noah Poponak
How are you anticipating the commercial aerospace aftermarket revenue to progress sequentially through the year compared to the first quarter?
Kevin Stein
I would expect much like flight activity that it should keep trending upwards. That’s our expectation. We’ll see if that plays out.
Noah Poponak
Okay. And you mentioned bookings ahead of shipments across the board. Do you have any quantification of that?
Michael Lisman
We’ve historically not given book-to-bills across the end markets, Noah, but I think it’s pretty healthy growth that supports the revised guidance on revenue for today. So we feel good about hitting that healthy growth and healthy outperformance and really positive book-to-bill ratios across the end markets.
Noah Poponak
Okay. And just last one. The EBITDA guidance revision is the same as revenue at the midpoint. So it implies a 100% incremental on the additional revenue. I know it’s not that simple. But can you just walk me through how the EBITDA is able to be the same as the revenue in the guidance revision?
Michael Lisman
Yes. I think, Noah, what you’re seeing there is just the upsides mainly in the commercial aftermarket space, which is our most profitable end market of the 3. And then separately, some better cost performance, right? You’re not typically getting 100% drop to your point, but we are doing slightly better on the cost than we expected, but that’s what you’re seeing there.
Operator
Thank you. Our next question comes from the line of Robert Stallard of Vertical Partners.
Robert Stallard
Kevin, you mentioned that the M&A pipeline is still looking pretty active. I was wondering if you’re seeing any sign of these higher interest rates starting to impact the appetite of financial buyers?
Kevin Stein
Yes. I think we’ve seen some impact over the last 6 months or so. I think you see that in a general lack of activity, although we’ve been busy evaluating different targets. I think we see that changing, though, as there seems to be some important properties coming to market in the next 6 months or so, I think this should change. So we remain relatively optimistic as always. But I think that gives you some indication of what we’re looking at in the future.
Robert Stallard
And one for Mike in related topic actually. You mentioned there’s some debt due in 2025. If you were to refinance that today, what sort of interest rate would you expect to pay on that?
Michael Lisman
It’s hard to say, something like what we got on the December refi, we just did a month or 2 ago. The interest rate ticked up by about 1.0% from LIBOR plus 225 to SOFR plus 325, and debt markets are a little bit better given what’s come out on inflation and the Fed rate move since that December rate. So maybe you do a little bit better than that, but it’s hard to say that’s just a guess.
Operator
Our next question comes from the line of Scott Deuschle of Credit Suisse.
Scott Deuschle
Kevin, I wanted to get your thoughts on M&A outside of A&D. Is that something you’d ever do? And if you were to do something outside of A&D, should we expect you to start small? Or could we see you start with something bigger?
Kevin Stein
Well, we don’t like to speculate on that. We have studied what it would look like to acquire something outside of M&A — of A&D, but we think it’s best to stay focused on aerospace. There are still so many great opportunities and a number of them coming up. Like I said, in the next 6 months that keep us very focused on the pure-play aerospace and defense. For intellectual reasons and also because we may have to do one day in the distant future, we do look at other areas, but none of them have appeared interesting enough to overshadow our desire to keep growing in aerospace and defense.
Scott Deuschle
Great. That’s really helpful. And then for Mike, you showed some really good leverage on SG&A this quarter. I think your sales were up 17%, but SG&A was actually down. So curious if you could outline a bit what the cost mitigation efforts are that you’re running there and then how SG&A might trend as we move throughout the year?
Michael Lisman
Yes. We really look at the EBITDA line historically. We’ve not gone back and looked and commented specifically on gross profit versus SG&A trends just because of the accounting puts and takes there. And as we think about forecasting for the year, we really look at EBITDA as defined ratio and feel good about hitting the 50.5% or maybe slightly better than we gave the guidance for today. And it’s hard to comment specifically where SG&A could go for the balance of the year on a quarterly basis.
Jorge Valladares
Yes. I would just add, I think, in general, as we’ve had and we’ve performed in past downturns in the uptick. We did a lot of heavy lifting with restructuring as a result of the COVID pandemic and the teams have done a nice job managing to the lower cost structure and supporting the additional demand. And I think we’ll continue to do so throughout the year.
Operator
Our next question comes from the line of David Strauss of Barclays.
Unidentified Analyst
This is Josh Corn on for David. Working capital was fairly neutral in Q1. Do you still see the $150 million drag for the year?
Michael Lisman
We do. I mean, as we come back to pre-COVID levels, that’s going to go in over the course of the year. It’s kind of lumpy in how it happens and the progression and forecasting is tough, but we do expect that amount to go back in.
Unidentified Analyst
And it looks like overall aftermarket revenues were back pretty much to pre-pandemic levels. Can you give us a sense of where volumes are?
Kevin Stein
I think we’re still 20% to maybe 30% off in volumes. There is still a lot of regions, as Jorge reviewed, that have not fully come back.
Operator
Our next question comes from the line of Peter Arment of Baird.
Peter Arment
Nice results, and I’m sorry if you missed your opening remarks, but just on China, just kind of assumptions around what you expect there just as we get the reopening traffic picking up pretty materially, hopefully, wide-body activity comes back. Just remind us kind of the mix that we should be thinking about with China and just how you kind of incorporated that in your forecast?
Jorge Valladares
Sure. I’ll take that one. From our perspective, we’re still in the early innings of China opening up, obviously, this past month. Our teams, as they always do, do a bottoms-up analysis and planning process as we enter any fiscal year. And there was some recovery expected baked into our forecast and our plan. We’ll see how it plays out. Generally, we don’t have and we don’t track specific regions. We think we’re fleet weighted. And obviously, it’s a big market. So hopefully, that will be helpful as we progress throughout the year.
Peter Arment
I guess just a follow-up quickly. On just the wide-body activity, could you make a comment, Jorge, just on what you’re seeing regarding some of the airlines behavior on the wide-body?
Jorge Valladares
Yes. I don’t think we’ve seen much shift. Again, the opening for China international travel is pretty new. You would logically expect the wide-body usage to improve given those types of routes. But we’re still, again, in the early innings of this.
Operator
Our next question comes from the line of Gautam Khanna of Cowen.
Gautam Khanna
In the past, you’ve sometimes given color on discretionary versus nondiscretionary aftermarket demand. Any color there or by channel distribution versus direct?
Kevin Stein
Yes. I think most of our revenues are on direct sales. In general, we’re seeing good strength and good recovery across all of the individual submarkets.
Michael Lisman
And on the discretionary versus nondiscretionary point, we think consistent with what we’ve said in the past, we’re mostly nondiscretionary when it comes to the commercial aftermarket bucket.
Gautam Khanna
And that’s where you’re seeing kind of the incremental strength is in the nondiscretionary. I’m just curious like…
Michael Lisman
It’s like hard to break it out…
Jorge Valladares
I think we’re seeing strength across the board in all of the submarkets.
Gautam Khanna
Okay. And just curious what you’re seeing in terms of inflation this year from your suppliers? What if — do you have a dollar value you could give to us and how — what you’re doing to offset it with pricing?
Michael Lisman
Yes. I don’t have a specific dollar value to give you. In general, we really focus on productivity. We are seeing inflationary pressures from the supply chains. We’ve got all of our teams have individual decentralized procurement organizations that are doing a nice job working with the supply chain, trying to minimize the level of inflation, and we continue to work the productivity to offset that, and you’re seeing that flow through in terms of the lower cost structures.
Operator
Our next question comes from the line of Matt Akers of Wells Fargo.
Matthew Akers
I wonder if you could elaborate the comment, you could see a further upward revision in the guidance as we go through the year. How much of that kind of uncertainty, is China versus kind of OE build rates or sort of — I don’t know if you can kind of quantify what the biggest buckets of that uncertainty could be?
Kevin Stein
I think it’s probably a big piece from China. But clearly, OEM is not performing where it was prior to the COVID outbreak. So there is room really in all of the market segments for improvement.
Matthew Akers
Okay. Got it. And then I guess on your cash balance, it’s kind of come down from where it was during COVID, but still higher than what we saw a few years ago. How much higher should we expect you to kind of leave that just so you have kind of the optionality in case a deal comes through or something like that?
Michael Lisman
Yes. We’re — obviously, we’re sitting on more than we’ve had historically to your point. We feel good about the M&A pipeline, as Kevin said, and what’s coming, we do have far more than we need to operationally run the business, but it’s something we think about quite a bit just in terms of the capital allocation priorities that Kevin provided and want to make sure we have enough firepower for potential M&A in the current environment.
Operator
Our next question comes from the line of Seth Seifman of JPMorgan.
Unidentified Analyst
This is Rocco Barbara on for Seth. Now that leverage is in the 6x range that has been stated in the past to be the general ballpark range for the company, how do you think about new acquisitions and/or capital deployment moving forward? Also where would you consider returning cash again?
Michael Lisman
Yes. It’s hard to say exactly. Like I just mentioned, we’re always looking at the capital deployment options, right? We’re doing that today. We do it quite a bit, obviously, monthly, and we want to be strategic with our capital and make sure we have enough at all times for M&A if it comes. And then also, it’s the shareholders’ capital. So we want to be efficient with it. And if we don’t find a use for it, give it back.
With regard to the leverage ratio, we are at about 6x which is historically where we were in a lower interest rate environment. I think we’re — as I mentioned, we feel comfortable where we are today at the 6x level and given the benefit of the hedges. It’s hard to say if we tick up from here if we went and found a good acquisition candidate and use a little bit of debt, you could always do that, though you’d then be adding EBITDA. So I think it’s safe to say going forward, given that we have the hedges and also that our interest rate hasn’t moved much because of those, it’s probably likely that we stay sort of at the 6x ballpark with some movement this way or that way, consistent with the last 5 years of history or so. But no real material change with the approach to leverage is expected.
Unidentified Analyst
Great. Then as a quick follow-up. You had mentioned earlier that you expect EBITDA as defined margin to kind of expand as we go through this year. Should we be expecting that expansion to continue in the out years? Or are we approaching a range where the margin will begin to plateau?
Kevin Stein
We are still navigating 2023. We’ll give guidance on ’24 and beyond when it’s appropriate. But obviously, our model is to keep, keep expanding, keep improving our business.
Operator
Our next question comes from the line of Andre Madrid of Bank of America.
Andre Madrid
I kind of wanted to take a look back at the supply chain. Obviously, there’s a lot of financial stress in the lower tiers. Do you guys see that as a room for opportunity when it comes to M&A? Just kind of wanted to gauge your outlook on that.
Kevin Stein
Not really. We don’t look to vertically integrate. We look to acquire phenomenal aerospace and defense businesses that we can further improve. Buying parts of the supply chain vertically integrating usually doesn’t meet our criteria for highly engineered, unique aerospace components with aftermarket content, and we like to stay very disciplined in that approach. That’s been the secret to our success, I think, in our M&A culture.
Operator
[Operator Instructions]. Our next question comes from the line of Pete Osterland of Truist.
Peter Osterland
Just wanted to ask, how are you managing through the current labor market environment? Has attrition been manageable? Do you need additional hires to meet the growth you’re anticipating this year? Or have there been any challenges related to productivity?
Jorge Valladares
Yes, I’ll take that. I think generally, the teams have done a really nice job. We continue to focus on CapEx and productivity. Over the last couple of years, we’ve been able to invest in the business, and find different automation opportunities to take labor out of the process here and there. I think in general, the labor market conditions have been improving over the last couple of months. Most teams have plans in place to support potential OE production rate increases as we’re all hoping will occur. So I don’t see any significant issues. And I’d say, in general terms, it’s probably improved a little bit the last couple of months.
Operator
Thank you. At this time, I’d like to turn the call back over to Jaimie Stemen for closing remarks. Madam?
Jaimie Stemen
Thank you all for joining us today. This concludes today’s call. We appreciate your time and have a good rest of your day.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect.
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