KLXI
#Good morning, <UNK>.
It's not possible to give you an exact answer, but we estimate that our aftermarket growth rate organically in the fourth quarter was between 3.5% and 4%.
It was about the same in the third and fourth quarters.
I don't know what the answer is to the question as to how it's tracking in the first six weeks of this year.
We report that after the first quarter.
It looks like there is a nice increase in aircraft maintenance activity, which is positively impacting our aftermarket business, and we've had two quarters in a row now of decent growth ---+ organic growth in the aftermarket.
We've not seen any change in trends, <UNK>.
It's <UNK>.
It's <UNK> again.
It's not a drag per se.
It's just there's very modestly lower revenue, so there's an absorption factor there that's pretty minor, and then we had some end-of-year cleanup things that we did.
It was very one-off.
There's nothing unique in the numbers, to your point.
The fourth quarter, seasonally, is always a little worse in the third quarter.
We had plant shut down to deal with and all that stuff.
But we did guide to approximately flat Q4 versus Q3.
That's about we've got.
I think the most important thing for next year is the completion of the integration of Herndon.
It not only eliminates costs that we're occurring ---+ we've got another $4 million or $5 million or whatever it is to complete that integration, and also to get rid of the drag and to get the synergies, which is ---+ excuse me, about $10 million overall, a portion of which we've achieved.
In terms of getting to a substantially higher EBIT margin, we need the aftermarket to continue to kick in and to represent a higher portion of overall revenues as a percentage of the total.
So some improvement in the operating margin, particularly in the second half of the year.
Good morning, <UNK>.
We did say that we expected Q4 to be about the same as Q3.
And I think the operating earnings number is $1 million different, so I don't think there is much talk about.
It was essentially flat with Q3, and in fact, our cash burn rate went down.
So it's not about pricing.
It's just about a little bit less activity because of extreme weather in certain parts of the country.
Well, we did say that we expect to get to EBITDA neutrality by the third or fourth quarter of the coming year, so we expect the combination of volume and price to improve profitability as we go through the year, and hopefully, we'll get to EBITDA breakeven by the back half of the year.
It's three weeks now, and I'm having a tough time getting rid of it, <UNK>, but I got a little help from <UNK> this morning.
We did win an important new contract in the fourth quarter that was in the Corpus Christi Army Depot.
That was very happy occasion for us, so we see some growth there.
We did get renewals from two other major military aftermarket contracts, the biggest ones that we've had, so that was important.
Our expectation is that the business will grow in 2017 because of basically new business ---+ military aftermarket new business.
With respect to the Trump Administration, there, I think it might take a little longer than 2017, but our expectation is that manufacturing of F-18s and F-16s and other programs that have been dramatically declining in the past and have contributed to a reduction in our military manufacturing support business, I think in 2018, I think the outlook there, assuming the Trump Administration carries through, is for higher revenues to support military manufacturing, higher revenues in the military aftermarket, and higher BizJet revenues with a number of new aircraft being introduced.
So as we think about the next couple of years, we have pretty high level of confidence that our quarterly comparisons for the next couple of years are going to be pretty darn good.
Sure.
A really important consideration is $500 million of new business that we booked last year.
It basically is all market share gain.
So we are expecting a really hefty growth rate in the second half of the year ---+ organic growth rate in the second half of the year from these new programs.
So it is true that we don't have whole lot of visibility in the aftermarket portion of our business, that is the non-military or commercial aftermarket portion of our business.
We don't have a lot of visibility ---+ excuse me.
But we've had a couple of nice quarters now of organic growth driven by increased aftermarket activity at the airlines and MROs.
We don't see any reason to believe that should not continue given that so many of the new 11,000 airplanes delivered over the last seven or eight years are now getting to the point where they require heavy maintenance.
We think that's what's driving aftermarket demand.
That was true in the third and fourth quarters of this year.
We don't see a reason not to expect that to continue in 2017.
Good morning, <UNK>.
Yes.
Primarily in the second half of the year.
The reason that we are confident about 2018 as well, which you just mentioned, is that the growth rate in the second half ---+ organic growth rate from all the new programs is very healthy, and that continues right into 2018.
I would be happy to, <UNK>.
Thank you for asking.
I think we are actually quite encouraged by the M&A landscape in the sense that there are a number of transactions that we understand we may get a chance to look at in the coming months, and we'll be as discrete about them as we were in sorting through all the opportunities that led us to Herndon.
I think you can tell from how we've integrated Herndon, we're exceptionally pleased with how that acquisition has worked out so far.
It's still early days.
But to Rich's earlier question, we see the ramp-up opportunity there continuing to be quite compelling, and we would hope that we find another acquisition that would provide the same incremental growth platform, but we will be extremely disciplined about putting money to work at multiples and with returns that meet the thresholds that become accretive for us on a pro forma basis.
We're very focused on that.
And in the meantime, again, as you noted, we did increase or accelerate our share repurchase program in the fourth quarter.
We had a $100 million original authorization that we've called out.
We've used roughly half of that at this point.
We have significant cash flow capacity, and I think it will just be a question of sorting through what we think are a number of great opportunities.
We believe very much in our stock price and the value that the stock currently represents, and we want to make these acquisitions if they pan out, so we'll definitely be going down a parallel path on that.
One of the great things I think we did to support the ESG business was aggressively buy those assets that we called out in 2015 at very low prices relative to replacement value.
We believe at this point in time that with very few exceptions, we've got an inventory of equipment that is the envy of much of our competitors.
And we keep it in exceptionally good shape right now.
We don't have to put a lot of capital in it because we know how to store it and maintain it.
And we think it's ready to go out in the field as the business opportunities present themselves.
So we are not budgeting a material ramp-up in CapEx to meet what we see as being a substantial incremental business opportunity as 2017 plays out.
As to 2018 and beyond, again, that would be a high-quality problem.
If we reach the point where we have to spend more money on ESG because the growth is that good by the end of 2017, we'll be happy to update you on that, and it will be a very good conversation.
Good morning, <UNK>.
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I'd rather not do that yet.
We want to see just how the new programs do come online.
But we have enough confidence to say that we will have a very strong organic growth rate, particularly in the back half of 2017.
Yes, they are still retiring those older aircraft at a very high rate, and we expect a couple of the big airlines, like American and Delta, to continue that program.
That contributes to a lower growth rate in our aftermarket business.
Fortunately, so many of the 11,000 aircraft that have been delivered over the last seven years or so have begun to require mandated heavy maintenance.
That has given us a positive boost overall in spite of the retirements in the third and fourth quarters, and we expect that to continue in 2017.
Good morning, <UNK>.
It's changed quarter by quarter, so I will break it out for the fourth quarter for you, but that will give you a good indication of what we expect in 2017.
In the fourth quarter, the aftermarket was 40% of our revenue.
Approximately 40%.
Yes, I think <UNK> ---+ <UNK>, this is <UNK> <UNK>.
I think <UNK> noted earlier that we saw that at roughly at a 3.5% to 4% level on an organic aftermarket basis.
Correct.
That's correct.
If you remember, last year, we had negative organic growth in the first half of the year compared to the record first and second quarters that we had in the prior year.
Then in the second half of the year, we basically made up for that.
So we had some contribution from our OEM customers, nice contribution on the OE side.
Even BizJet was not down compared to the second half of the prior year.
So we had little bit of contribution form all parts of our business in the second half of the year, which made up for the negative growth in the first half of the year.
Thank you.
Yes.
Let's take the question in two parts.
Take the ASG piece first.
We haven't had a year like this in a very long time (Technical Difficulty) program, all of which represent market share gain.
I think it is becoming evident to the industry overall that our superior service is truly differentiated from the competition.
We are seeing a lot of opportunity.
We expect more orders and share gains during 2017, knocking on wood here as I'm saying that.
We do have a lot of confidence that we are going books more gains (Technical Difficulty).
The ---+ respect to the second part of the question, I'm going to ask <UNK> to jump in because I'm starting to cough.
<UNK>.
Rich, on the ESG side, I think that we believe that coming out of this downturn, because of the opportunity we had to really piece by piece integrate the seven businesses, we have been very assiduous about capital control, trying to reduce losses, what have you.
But we come from a strong base from a capitalization perspective, so we been able to invest in the business from an operational perspective while a lot of competitors were scrambling, frankly, just to keep their lips above the water.
So we do believe we have created a differential organization that is fully integrated, that moves equipment where the demand is best served, that allows each of our geo managers to serve their customers at an absolutely optimal level with best equipment and best people.
And that's really important because if you consider the implications for health, safety, and environmental on this industry, executing at this level is crucial to get new business.
In addition, we have, as I think we've called out in the past ---+ and we're very proud of the amount of R&D that we have currently developed in terms of new tools.
We have really focused on bringing in best-in-class engineers that can work directly with our field personnel to develop innovative new tools that separate our service from other competitors.
Again, other people didn't have the capital to do this.
They didn't have the initiative to do this because they were scrambling.
I think it allowed us a real opportunity to differentially position the ESG business, and I think you'll see that starting to pay off as industry activity ramps up.
Thanks, <UNK>.
