Kevin Stein
President, Chief Executive Officer, and Director at TransDigm Group
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 2003 outlook then Joel and Sarah will give additional color on the quarter.
As we previously announced on May 26th, we made three significant organizational changes this quarter. George Valladares will retire at the end of Transdigm 2023 fiscal year. George has served as Transdigm's COO for the past four years. His prior roles include Co-COO, Executive Vice-President and President of three Transdigm operating units. George will aid in the transition of his role to the new Co-COO's Mike Lisman and Joel Reese until his retirement date. George also joined Transdigm Board of Directors as of May 26th. George has been with the company more than 25 years and has been an integral part of the long-term value accretion to Transdigm and a key player in the cultural preservation of the company, George has done a truly outstanding job and we sincerely thank him for his dedication. We are happy to have George continue contributing to the growth of Transdigm as a member of the Company's Board.
Mike Lisman and Joel Reese have assumed the roles of Co-COOs. Mike served as Transdigm CFO for the past five years, prior to becoming CFO, he worked at our Aero Fluid Products operating unit, and on the M&A team at Transdigm. Joel is a long-term 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, served as President at two different Transdigm operating units Hartwell and Skurka Aerospace before becoming a President, Joel was the Director of operations at our Adams Rite operating unit. Sarah has assumed the role of CFO after having served as Transdigm's Chief Accounting Officer for the past five years. Sarah has been with the company for 20 years and before becoming Transdigm's Chief Accounting Officer she was a Group Controller, overseeing the financial reporting of several operating units. Prior to that, Sarah was the Controller at our Aero Fluid Products operating unit and held various accounting positions in the Transdigm corporate office.
Mike, Joel, and Sarah bring a unique mix of experience and a broad range of aerospace businesses to their new rules. They are all experienced Transdigm executives with proven track records. We are very excited to promote internally-developed long-tenured employees to each of these roles to perpetuate Transdigm's unique culture. I'm confident that they will continue to create the kind of value that has been the long-term hallmark of TransDigm.
Now moving on to the business of today. To reiterate, we believe we are unique in the industry in both the consistency of our strategy in good times and bad times 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. First, we own and operate proprietary aerospace businesses with significant aftermarket content. Second, we utilize a simple well-proven, value-based operating methodology. Third, we have a decentralized organizational structure and a unique compensation system, closely aligned with shareholders. Fourth, we acquire businesses that fit the 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 shareholder's 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 solid quarter. Our Q3 total revenue was strong and we had a robust EBITDA As Defined margin for the quarter. Additionally, we once again raised our guidance for the year. We continue to see recovery in the commercial aerospace market and trends are still favorable as demand for travel remains high.
Global domestic air traffic continues to lead the recovery and has surpassed pre-pandemic levels. International travel is also making progress in catching up to domestic traffic. However, total air travel demand remains slightly below pre-COVID levels, there is still progress to be made for the industry and our results continue to be adversely affected in comparison to pre-pandemic levels. In our business during the quarter, we saw a healthy growth in our revenues and bookings for all three of our major market channels commercial OEM, commercial aftermarket, and defense. Revenues also sequentially improved in all three of these market channels. EBITDA As Defined margin improved to 52.5% in the quarter. Contributing to this strong margin is the continued recovery in our commercial aftermarket revenues along with diligent focus on our operating strategy. Additionally, we had good operating cash flow generation in Q3 of over $400 million and ended the quarter with close to $3.1 billion of cash. We expect to continue generating additional cash in our final quarter of fiscal 2023.
Next, an update on our capital allocation activities and priorities. Regarding the current M&A pipeline, we continue to actively look for M&A opportunities that fit our model. As we look out over the next 12 months to 18 months -- as usual, the potential targets are mostly in the small and mid-sized and on possible closings but we remain confident that there is a long runway for acquisitions that fit our portfolio.
The capital allocation priorities at Transdigm are unchanged. Our first priority is to reinvest in our business, second, do accretive disciplined M&A, and third, return capital to our shareholders via share buybacks or dividends. The 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 but both M&A and capital markets are always difficult to predict. We continue to maintain significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Sarah will provide further commentary on our capital allocation during her prepared remarks.
Moving to our outlook for fiscal '23. As noted in our earnings release, we are increasing our full-fiscal year '23 sales and EBITDA As Defined guidance to reflect our strong third quarter results and our current expectations for the remainder of the year. At the midpoint, sales guidance was raised $100 million, and EBITDA As Defined guidance was raised $105 million. The guidance assumes the continued recovery in our primary commercial end-markets throughout the remainder of fiscal '23 and no additional acquisitions or divestitures. Our current year's guidance is as follows and can also be found on Slide 6 in the presentation. The midpoint of our revenue guidance is now $6.55 billion or up approximately 21% versus fiscal '22.
In regards to the market channel growth rate assumptions that this revenue guidance is based on for the commercial aftermarket and defense market, we are updating the full-year growth rate assumptions as a result of our strong third quarter results and current expectations for the remainder of the fiscal year. We now expect commercial aftermarket revenue growth for fiscal '23 to be in the low 30% range, which is an increase from our previous guidance range of 25% to 30%. The commercial aftermarket has been progressing well in our fiscal '23 and we plan for that to continue through Q4 and beyond. However, we aim to be conservative with this guidance as the commercial aftermarket is harder to predict with many orders being booked and shipped and the advanced bookings only going out a few months or so into the future.
For defense, we now expect revenue growth in the mid-to-high single-digit percentage range. This is an increase from our previous guidance of low to mid-single-digit percentage range. Commercial OEM revenue guidance is still based on our previously issued market channel growth rate assumptions, we are not updating the full-year market channel growth rate for commercial OEM as underlying market fundamentals have not meaningfully changed. We continue to expect commercial OEM revenue growth in the 20% to 25% range.
The midpoint of our EBITDA As Defined guidance is now $3.365 billion or up approximately 20% -- 27% with an expected margin of around 51.3%. This guidance includes about 50 basis points of margin dilution from the DART Aerospace acquisition and about 50 basis points of margin dilution from the recent Calspan acquisition. The pro-forma margin dilution from Calspan's meaning if we had owned Calspan for all of our fiscal year '23 is just over 100 basis points. The midpoint of our adjusted EPS is increasing primarily due to the higher EBITDA As Defined guidance and is now anticipated to be $25.15 or up approximately 47%. Sarah will discuss in more detail shortly some other fiscal '23 financial assumptions and updates. We believe we are well-positioned for the last quarter of our fiscal 23, we will continue to closely watch how the aerospace and capital markets continued to develop and react accordingly.
Let me conclude by stating that I'm very pleased with the company's performance this quarter and throughout this recovery of the commercial aerospace industry. We remain focused on our value drivers, cost structure, and operational excellence.
Now, let me hand it over to Joel to review our recent performance and a few other items.
