Kevin Stein
President, CEO & 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 George and Mike will give additional color on the quarter.
To reiterate, we believe 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. 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 unique compensation system closely aligned with shareholders. Fourth, we acquire businesses that fit the strategy 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 goals 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 another strong quarter. Our Q2 results ran ahead of our expectations, and 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 robust. Global domestic air traffic continues to lead the recovery, but international travel is also moving forward.
China's air traffic has expanded significantly since its reopening in January, especially domestic air travel. However, there is still progress to be made for the industry as our results continue to be adversely affected in comparison to pre-pandemic levels since the demand for air travel is still slightly depressed from pre-COVID levels. In our business, we saw another quarter of substantial growth in our total commercial revenues and bookings. Revenues sequentially improved in all three of our major market channels, commercial OEM, commercial aftermarket and defense. Also, bookings outpaced revenues for each of these market channels.
EBITDA As Defined margin improved to 51.3% in the quarter contributing to the strong margin is our strict focus on our operating strategy and the ongoing recovery in our commercial aftermarket revenues.
Additionally, we generated about $130 million of operating cash-flow in Q2 and ended the quarter with over $3.4 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. During the quarter, we agreed to acquire Calspan Corporation for approximately $725 million in cash. The acquisition, we are happy to report, closed yesterday, May 8th. Calspan has established positions across a diverse range of aftermarket focused Aerospace and Defense development and testing services. Calspan has a state-of-the art transonic wind tunnel that it utilizes to perform testing for both the commercial and defense aerospace. Calspan's unique service offerings exhibit the earnings stability and growth potential that are consistent with our aerospace components centered businesses. We are excited about the acquisition of Calspan, and expect the business to meet or exceed our long-term value objectives.
We expect the Calspan acquisition to contribute just over $100 million to our fiscal year '23 revenue and for the Calspan EBITDA As Defined margin in fiscal year '23 to be just less than half of the Transdigm total company margin.
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 to 18 months, we have a slightly stronger than typical pipeline of potential targets. As usual, the potential targets are mostly in the small and mid-size range. I cannot predict or comment on possible closings, but we remain confident that there is a long [Technical Issues] acquisitions that fit our portfolio.
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. The fourth option, paying down debt seems unlikely at this time, though we do still take this into consideration. We are currently 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.
Moving to our outlook for fiscal year '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 second-quarter results. The recent acquisition of Calspan and our current expectations for the remainder of the year. Please note that as the Calspan acquisition just closed on May 8th, we utilize the limited information currently available to include Calspan within our guidance.
Our preliminary expectations for Calspan will be refined as necessary over the coming months. At the midpoint, sales guidance was raised $300 million and EBITDA As Defined guidance was raised $150 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 guidance is as follows and can be found on Slide 6 in the presentation. The midpoint of our revenue guidance is now $6.455 billion or up approximately 19%. In regards to the market channel growth rate assumptions that this revenue guidance is based on for the commercial OEM market and commercial aftermarket, we are updating the full-year growth rate assumptions as our strong second-quarter results and current expectations for the remainder of the year. We now expect commercial OEM revenue growth in the range of 20% to 25%, which is an increase from our previous guidance of mid-teens percentage range, and expect commercial aftermarket revenue growth in the range of 25% to 30%, which is an increase from our previous guidance of high-teens percentage range. The commercial aftermarket has been progressing well in our fiscal '23, and we hope that continues. However, we aim to be conservative with this guidance as the aftermarket is harder to predict with many orders being book-and-ship and the advanced bookings only going out a few months or so into the future.
Defense revenue guidance is still based on the previously issued market channel growth rate assumptions. We are not updating the full-year market channel growth rate for defense at this time, as underlying market fundamentals have not meaningfully changed. We expect defense revenue growth in the low-to mid-single-digit percentage range.
The midpoint of our EBITDA As Defined guidance is now $3.26 billion, or up approximately 23% with an expected margin of around 50.5%. This guidance includes about a 50 basis-point of margin dilution from the DART Aerospace acquisition and just over 50 basis-points of margin dilution from the recent Calspan acquisition. The pro-forma margin dilution from Calspan, meaning if we had owned Calspan for all of 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 $23.75 or up approximately 39%. Mike will discuss in more detail shortly some other fiscal '23 financial assumptions and updates.
We believe we are well-positioned for the second-half of fiscal year '23. We will continue to closely watch how the aerospace and capital markets continue to develop and react accordingly.
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 committed to driving value for our stakeholders.
Now, let me hand it over to George to review our recent performance and a few other items.
