Ken Herbert: Appreciate that. And if I could then, Kevin, maybe one other way to think about it is how much of your defense aftermarket in particular would you classify as short cycle versus sort of backlog driven?
Kevin Stein: I think defense aftermarket tends to be different than commercial aftermarket. It can be longer cycle, but there’s still drop-ins that happen everywhere.
Operator: One moment for the next question. Next question comes from David Strauss with Barclays. Your line is open.
Josh Corn: Hi, good morning. This is Josh Corn on for David. I wanted to ask in the guidance, why would EBITDA margins in the second half drop from Q2 on what appears like it would be a similar mix to the second quarter? Thanks.
Kevin Stein: I think we’re comfortable. We don’t want to get into giving quarterly guidance on these things. We’re comfortable for the year at where we sit. Yes, business can be lumpy. We were pleasantly surprised by the EBITDA this quarter. We’re not positive how the future quarters will unfold, but again, our goal is to be conservative. So that is our forecast for now that we’re sticking with.
Josh Corn: Okay. Thanks. And then I just wanted to follow-up on the first question about sequential aftermarket in the second half. Are you baking in any sequential improvement or is it just easier comps in Q3 and Q4?
Mike Lisman: I think we don’t tend to give quarterly guidance by end market, but I think as you guys know, if you look at how we did in the first half in commercial aftermarket, what’s implied for the second half, you’d expect probably Q4 to be the highest. And some ramp up as we proceed through the balance of the year on the commercial aftermarket.
Operator: One moment for the next question. The next question comes from Scott Deuschle with Deutsche Bank. Your line is open.
Scott Deuschle: Kevin, just on M&A, is your optimism on the pipeline more about the next 12 months to 18 months, or are you still optimistic about the pipeline for the second half of this year specifically?
Kevin Stein: I’m optimistic about the future. It’s difficult for me to unpack it into quarterly buckets. I remain optimistic about what the future holds for M&A. Our M&A tracker that I follow constantly, it has the most names, it’s the busiest we’ve probably ever been in M&A, again, it doesn’t tell you what’s going to close. We remain very picky in the businesses that we choose, and we will continue to do that. We have a lot of activity in the small and medium size. We announced two in our 10-Q today that are smaller sized businesses, but nicely accretive, as I said in my opening comments. Yes, there’s a lot going on out there. We’re very busy.
Scott Deuschle: Great. Thank you. Then, Mike, you’re seeing really good leverage on gross margins, but SG&A has been growing, it looks like a bit faster than sales, at least over the last few quarters. So I’m curious if you could talk a bit about what’s driving that SG&A expense growth to outstrip sales, and then when we should expect to see better operating leverage on that line specifically. Thanks.
Sarah Wynne: Yes, I can speak to that one. A large portion of what you see, some of that increase on the non-cash.com that plays into it when you look at actually just the raw sales, which you’ll see in the quarterly when it’s published later today, you’ll see that spend going down.
Operator: Please standby for the next question. The next question comes from Gautam Khanna with TD Cowen. Your line is open.
Gautam Khanna: I was wondering if you could expand upon your comments in the prepared remarks about differences in the distribution channel versus what you’re seeing direct. So maybe if you just tell us a little more where you’re seeing better sell-through and if that’s applying to the greater market or not yet, et cetera.
Kevin Stein: The two don’t always perfectly correlate in terms of what we see through our POS with our distributors and then what we do directly. What goes through distribution now it bounces around a little bit, but it’s about 20% to 25% or so of our TAM sales and it’s a decent leading indicator usually of future orders that will come obviously because the distributors sellout their inventory that they hold on our behalf so that we can get product quickly to customers then we got to replenish it. So the sales come eventually to replenish the sales they see, but they on a quarterly basis don’t always move exactly in the right direction. But over time, POS tends to be a pretty decent leading indicator of where the whole commercial aftermarkets heading. And that’s what gives us, as we said in the remarks, some confidence today as we look out where commercial aftermarkets likely to go for the balance of the year.
Gautam Khanna: And can you comment on biz jet, helo, and freighter specifically? Do you think we’re in the early innings of that business declining or what’s your expectation for when that might actually turn positive again in the aftermarket?
Kevin Stein: It’s hard to say — I think it’s hard to say. It depends where the freighter market goes. But generally with the belly capacity having come back you’d expect 2024 to be the year where we take it most of the decline on the full freighter business. We saw a great run up during COVID on the freighters and now the market’s just sort of correcting back to the 2019 levels in terms of what goes via full freighter and what goes via belly. So 2024 is going to be probably the biggest year where that correction occurs.
Operator: One moment for the next question. The next question comes from Peter Arment with Baird. Your line is open.
Peter Arment: Yes. Good morning, everyone. Nice results. Hey, I wanted to circle back on Joel, you gave some comments about just some of the — how some of the passenger travel markets were doing. You talked about China. Could you maybe talk about maybe just if you could call out what you’re seeing from an aftermarket perspective on a regional basis or any color that international versus domestic if you’re seeing any big differences?
Joel Reiss: We don’t get great split outs by region when it comes to our commercial aftermarket sales. A lot of the IATA data we referenced basically supports the highest growth rates being in China and Asia. A lot of that would go via our distributors. We don’t get great visibility into it. We’re of course, benefiting from it. I think see that the bookings strength we have, but we don’t get great data by region.
Peter Arment: Okay. That’s helpful. Just was curious and then just could you give us an update just on what you’re seeing in the supply chain, obviously, it’s been something that has slowly improved, but it’s always whack a mole, I assume. And just any color on what you’re seeing in the latest in the supply chain.
