TIVP046: TransDigm (TDG): A Conglomerate of Monopolies w/ Daniel Mahncke & Shawn O’Malley

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26:00To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks. And for a limited time, you can use code STOCKS15 for a 15 % discount at checkout. Well, with Berkshire and Copart, you really had two companies whose culture is seen as a positive example of how companies should conduct business. Within the company, it kind of feels more like a family than a Wall Street firm, at least that how it seems to the outside. But when dealing with customers, those companies are known for creating win-win relationships.

26:39With TransTime, you have, and I say that now for the 10th time today, more of this PE culture. So it is successful, but I don't see them winning prices for how comfortable each employee feels or how well they treat their customers. I mean, you mentioned what Charlie Munger thought about the company before. And nevertheless, the CEO changes worked very well in terms of keeping the performance up. I mean, former CEO Kevin Stein and the new CEO Mike Lisman both spent many years at Twanstein before getting the CEO position. And I think both understand the company culture pretty well. And Twanstein also holds regular so-called culture meetings where basically the management and executives visit the subsidiaries they own to discuss what's important to the company.

27:23So I don't expect any changes in how the business and also the subsidiaries are run. Lisbon, for example, previously led the company's M &A group and served as COO, CFO, and executive vice president. So if anyone knows how the business works, it's definitely him. But having said that, the CEO change did come a bit out of the blue. I think the market didn't really understand why it happened. I mean, Stein did a good job and his resignation came at least unexpected. He hasn't been there for so many years that you could say he just goes to retire. So that said, I talked to some investors in the company and they all trust that Lisbon will do a fantastic job and that he is the right guy for the job.

28:02So sometimes there are just personal reasons for anyone stepping down. And it's not like Stein will not be with the company at all. He will still remain on the board. So I don't think this is a reason for concern. Well, we like to look at management. We like to look at compensation and incentives. We like to look at track record of returns and just general business quality. But I think the other elephant in the room here is Transdime's moat and really looking at the economics behind their products. So if they achieve margins of a thousand percent or more and do so for decades, there does have to be an incredible moat there that is preventing competition from coming in and pulling down their profit margins.

28:44And for some reason, we can't help ourselves to bring up Adobe in every second episode. That could be another part of the drinking game. But while Transdime's price gouging is on this whole other level, Adobe has gotten its fair share of price gouging acquisitions from users as well, too. And that has not really damaged the business yet, right? Despite that, churn rates do remain pretty low for them because there's just simply no equal alternative for the majority of users. So these price takes are really just them more effectively capturing a larger share of the consumer surplus that they're creating.

29:18With Transdime, you have multiple advantages that I think make it even stickier. Your customer base is mostly price agnostic. The industry is highly regulated. And barriers to entry are high. So competition is low. And FAA regulations almost guarantee a product lifecycle of multiple decades. So does that summarize things well to you? I couldn't have done it better, honestly. I mean, I agree there really has been some backlash on Adobe's pricing. And if anything, it has gotten worse over the years, but it just, it doesn't compare to TransTime's backlash. I mean, to get an idea of how controversial TransTime and its pricing techniques are, I watched back old hearings and court videos and that helped just getting a sense of how much spotlight the company already got for its practices.

30:04And trust me, it's a lot. It's not even close to comparable to what Adobe is experiencing right now. I came across an eight-year-old video of a research analyst who was pretty confident then that Transdime's time is over and their quote-unquote fraud will end. And at the time, Transdime was even compared to Valiant. And Valiant was a pharmaceutical company that acquired other companies and afterwards aggressively raised prices of its drugs. However, the company was also found guilty of multiple times of accounting fraud. So not only is the case different because the product in question is medicine and the customer is the end consumer and not another business, but also because it was not only morally, at least questionable, but it was plain and simple illegal.

30:46And as we know today, Transom did not share the same fate. Instead, since that analyst's call that the fraud will end soon, the stock is up 400 % and Transom's business model is completely untouched. And there are a couple of points for why Transom can get away with these price hikes. I mean, the first is just the nature of their products. we talked in the beginning about simpler products like the seatbelts or like cabin doors, because that's kind of more tangible than let's say some highly engineered motor parts. But most of what Transim sells are such highly engineered components that are just mission critical, but still account for a very small percentage of an aircraft's cost.

31:26So a part might cost a couple of thousand dollars, but when it is broken and the plane is not allowed to start, a grounded commercial plane, depending on its size, can cost up to$150 ,000 per day. So once a part is certified and in production, OEMs definitely optimize for reliability and on-time delivery. And price sensitivity exists, but not to a large extent. I mean, as you said, OEMs and defense departments are mostly price agnostic. Oh, I've got to just get back to that Valiant Pharmaceuticals comment, because that is such a fascinating case study for anybody who is looking to better understand the red flags of fraud.

32:03But also, I mean, you had this real battle between Bill Ackman and Carl Icahn who were on opposing sides of it. So, you know, he's kind of two titans of Wall Street, really fighting it out over this company and ended up working out in one's favor and less so for the other. But, you I won't give away any spoilers, but this kind of dynamic where it does cost$150 ,000 per day to not have your commercial plane operating, I would imagine that is why Transim leans so heavily on aftermarket exposure. Commercial aftermarket is actually an explicit pillar of the model. And together with the defense aftermarket business, these are the profit engines that really fund everything else.

32:46And on the screen right now, you'll see a graph where there's a product breakdown of TransTime. And about 90 % of the products they sell are proprietary products, meaning only TransTime has the right to manufacture and sell these products. You can also see that while the business is only active in one sector, it is at least diversified in the Sunset Defense, commercial OEMs, and the commercial aftermarket split the business relatively evenly. And as you said, when we looked at the different crises, they do behave differently. So one segment can support another in times of lower demand. The defense contracts, for example, tend to be pretty robust, even during times when commercial travel is struggling.

33:26So there's some kind of internal diversification that helps the business to keep chugging along, really no matter what's going on. It's also interesting to see that the aftermarket accounts for about a third of TransDime's revenue, but 75 % of it's EBITDA. And EBITDA is a number we don't love, but it is treated as a rough proxy for operating profits. And again, it reminds me a lot of a business like FICO where they have this kind of one golden goose that makes up a chunk of the sales, but a much, much bigger portion of the profit because of the pricing power that they have. The great thing if you compare to FICO is that Translame is really a company consisting of 100 different monopolies that share this same characteristic.

34:12So yes, the aftermarket is where Transim makes its margins. Many companies actually sell parts to OEMs at a loss and survive only on the aftermarket business. Howley once said that the biggest mistake most companies in the industry make is underpricing their products and failing to understand the true value. Even at the first sale, I think Transim rarely loses any money at all. And this is where Transim's scale also plays a part. I mean, scale doesn't matter in the way that it usually does since all of TransTime's subsidiaries run independently. So they set their own pricing, they negotiate directly with the customer, and there are no synergies between these acquisitions and all the companies.

34:50However, while each business acts locally, capital allocation, also just the strategic discipline, they all are centralized. So not only can subsidiaries use the pricing data across thousands of different products and programs, but they can also benchmark elasticity. So basically how much is, for example, the OEM willing to pay here? competitive intensity, if competitors even exist within that product range, and then also customer response across the entire product portfolio. But the most important part is that smaller suppliers, they often depend on OEMs for survival, and they just can't afford to push back on pricing.

35:25In the end, they're only Boeing and Airbus as potential buyers, so they do have a lot of leverage too on their end. And when a company is part of TrendsTime, it doesn't have the same worries about going bankrupt or at least taking a huge hit if OEMs don't immediately accept the pricing. And OEMs probably also know there just won't be another supplier who can offer a product at a lower price. And I think those are similar dynamics to what we discussed in our Berkshire episode as well, where I said especially for those cyclical manufacturing businesses, I just like the idea of being backed by Berkshire with a lot of money and with a lot of leverage in the background to negotiate prices.

36:04because ultimately these niche businesses, they are highly attractive for the first mover, but they tend to be relatively unattractive for companies that want to break into them. And Android would need to spend hundreds of thousands and depending on the product, sometimes even millions of dollars in R &D to design a competing product. And then they would need to go into production without the scale advantages that the first mover has. And then they have to try to convince customers to actually buy their product. And that might sound easier than it is, but it kind of reminds me of this dynamic that we often see in asset management.

36:36I mean, have you ever heard of a fund manager who was fired for owning Apple stock? Because I certainly have not. So even if the stock underperforms for a while, you won't get fired for holding a stock that everyone else holds as well. If you, though, hold a stock that is relatively unpopular and that stock underperforms, that's when you get into trouble. I feel like the dynamic is similar here, where no one gets fired for buying apart from Trendstorm, even if the product might be a bit too expensive. But if they decide to go with an unknown competitor and anything happens or it doesn't work out, they will definitely get into trouble.

37:09And then you also have the argument that you can barely even make a price argument. So if you are an entrant and you were to undercut Transdame's price, well then I think Transdame would simply flex its muscle and lower the prices further until the competitor basically bleeds out because they lose money every time they sell that product. it kind of reminds me of like if you are the manager of a sports team the owner of a sports team you're never really getting in trouble if you sign the big name star even if you massively overpay maybe they're not playing the position that you really need they're just not a good cultural fit the fan base is not going to rebel at you because you signed you know their favorite player even if it was not actually what is the best decision and that's kind of what i'm trying to say with like career risk with Apple, like you're probably not going to get fired for buying Apple stock.

38:01But there are these other types of investments that may actually be more appropriate or better bets. But because it's not a mainstream thought, that kind of deviance from the consensus is what actually can cause you to lose your job. And I think this is all really a part of why Transdime's M &A strategy is so focused on only buying companies that are the sole source producer of their goods. So when they enter the market, there is no alternative. There's no really way for them to even be wrong on whether they're betting on Apple or some deep value bet. And every entrant would face the exact problems that you just described, making it really almost certain that Transdarm will continue to operate in a monopoly.

38:52I guess it's fair to say that the regulations in the sector, as well as the economics of the business, are kind of like a guaranteed monopoly. I think it's important to mention, though, that it's really a mix out of the two of them. So I don't see it as a government-granted monopoly, but one that Transdarm has mostly created for itself. And one of the hearings I watched, a Department of Defensive employee explain why they can't do anything about Transdarm. And I think it's kind of interesting, so we should quickly listen to that. Understanding that procuring in the sole source environment is difficult and can lead to exploitation, have you or anyone else made efforts to instruct contracting officers to actively look for parts that could meet the requirements that are similar to those produced by sole source providers?

39:41Yes, Congressman, that's part of the market research that's undertaken across the department for commercial items. In this particular instance, we're talking about national stock items that the Defense Logistics Agency is responding to the requirements of the military departments. Most of those parts are specified, whether there is an alternate source or alternate part, that's part of the calculus. But in most cases, there is one particular part, and in many of these cases, one particular manufacturer for the part that's available. That's a function of the dynamics of the market where only one provider is making that particular item.

40:21And if that's the case, and then we're into the scenario that we're talking about today, negotiating on a sole source basis. Are there any efforts to increase competition in the spare part space? Can you think of anything we could do? Reverse engineering is a good example. I want to downplay how the extent to which we can use that across the board for every part. We really can't. Each one of those requires the engineering analysis behind it. But ultimately what we do there is we have the technical data package that we can compete the spare parts once we go through that process. I think the difference between a natural monopoly and a government granted one is quite important.

41:03Natural monopolies tend to perform very well over prolonged periods of time. And this is what Peter Thiel writes about in his book, Zero to One. While government-granted monopolies can, in some ways, become victims of their own success. And price is a good example. Being a monopoly generally comes with having pricing power. But for government-granted ones, there's really a limit to how far they can take the price until regulators say that enough is enough. and it seems like the government has tried to do that with TransTime and the fact that they couldn't, at least for now, I think does show that TransTime has a monopoly that they actually really organically earned.

41:44They have a natural monopoly just from their own superior strategy and operational excellence, despite also being a beneficiary of FAA regulations that have favored them over time. I don't think they're the winner solely because of those regulations, if that makes sense. Yeah, I believe it's simply to mix it up because TransTime has clearly used regulations in their favor, but the moat is based on being the sole producer for most of their parts. I think the market share in that is like 75%. So 75 % of their products, they are the sole producer for. And that's not because it's a closed market, but because of the economics of the business and the fact that TransTime scale advantages have simply built over time.

42:25And it's incredibly difficult to break that now. and that that has led to phenomenal margins just to give listeners an idea of trans times margins compared to other companies in the aerospace sector trans time has gross margins of 60 percent which is pretty dang good for a non-tech company and operating margins of 45 percent and so trans times customers the oems like boeing and airbus operate at margins of what like seven to ten percent while airlines you know united delta they have even more razor thin margins in the low single digits and they not only outperformed the other sectors in aerospace even when you compare trans time with other manufacturing serial acquirers not a single one no matter in what industry they operate in has really a chance of coming close to trans time which boasts these EBITDA margins at over 50%, while the closest competitors barely reach 30%.

43:24The returns on invested capital are also relatively high at over 20%. And I guess when we talk more about the M &A playbook, we can also discuss the successes of the more recent acquisitions and try to get an idea for their ROIIC, which is not returns on invested capital, but returns on incremental invested capital. And that's another piece of jargon for you, but it's meant to give us an idea of how profitable and value accretive new investments are. We understand how really returns are expected to look going forward, as opposed to just looking at, you know, maybe some of the great investments they've done in the past that are biasing their overall profitability today.

44:04And one thing I want to ask you about Transdime is the use of EBITDA. We both have criticized that metric before. Buffett and Munger hate it, yet it is really of special importance to management and the entire company's incentive structure and management structure. So how does that land for you? How do you feel about this incredible compounding that's done such a great job compounding wealth that at the same time relies on what we both see as being a very flawed metric? EBITDA is very unpopular, especially in value investing circles. And also in many cases, it's fair to refer to Charlie Munger's description of EBITDA as quote unquote bullshit earnings.

44:52But Nick Howley views it as the most important metric for TransTime. And that is really a private equity approach to business. In private equity, nothing matters more than EBITDA. And TransTime uses a specific version called EBITDA as defined, which I will just call adjusted EBITDA going forward for simplicity. And it basically starts with normal EBITDA, so earnings before interest, taxes, depreciation, and amortization. And then it adjusts for a few recurring technical items. So the main idea is basically to have a number that reflects the operating activities and is not impacted by any expenses related to M &A, financing, or really anything outside of the day-to-day operations.

45:32And it's also the metric that their lenders care a lot about, right? I mean, the company's debt covenants, management bonuses, and acquisition models really all revolve around adjusted EBITDA for better or worse. So when they are talking about leverage or when they're evaluating a new deal, they really do need to do it in terms of adjusted EBITDA. So there's just something practical to it. Yeah, it's like everything revolves around the adjusted EBITDA. I mean, if you go through their annual reports, their earnings, I don't think I've read the term adjusted EBITDA or EBITDA as defined as often as in any other company that I looked at.

46:07But the reason it is often used with PE companies is that it just makes a whole lot of sense for companies that acquire a lot of other companies because it basically helps you evaluate how efficiently each new business turns sales into profit, regardless of how the holding company is financed. So it's just a good proxy for operating cash flow that is removing the impact of financing taxes and accounting decisions. And that's what matters for a company that just wants to compare what company should I acquire, how well is it actually benefiting or is it value accretive to the overall enterprise?

46:38And having said that, it is not a good proxy for free cash flow. In fact, the goal of Transarm is to convert about 50 % of adjusted EBITDA to free cash flow in any given year. So there is quite a sizable gap between adjusted EBITDA and the free cash flow. And as you said before, usually cash flows are everything we care about because they are what ultimately finance shareholder returns in the form of buybacks and dividends. And obviously that's how you also end up paying for things like the interest on your debt. And a company like Transdarm is an expert at using debt to finance acquisitions and just shareholder returns in general.

47:15But cash flows are mostly used to fund needed expenses and the interest on that debt. And looking at the interest coverage ratio, which basically shows you how much more profit you earn relative to the interest expenses, there's no reason to believe Transdime will run into any problems soon. Currently, they earn about two or three times more money than they have to spend on interest. I'm sure we could talk about debt for a while, but you did just mention the incentive structure. So how about you tell us more about how exactly that is broken down for this company? I guess it's fair to say that TransTime's incentive system is one of the most extreme in corporate America.

47:56I mean, it's built to ensure that managers from the CEO down to individual business unit leaders, how they call it, think like owners rather than just operators. And the system is, it's really unapologetically tied to equity value creation. So the philosophy traces back to Nick Howley, of course, and his idea of incentivizing his employees. When he co-founded Trends arm, he believed that fixed salaries and short-term bonuses should be as low as possible and nearly all wealth creation should come from just long-term stock price appreciation. As he puts it in one interview, he said, you can't motivate people to behave like owners if they don't have something meaningful at stake.

48:36And meaningful is the right choice of words because for senior executives, roughly 80 to 90 % of total compensation is performance-based. So the fixed base salary makes up something like 1 million to 1.5 million per year for the top executives including former ceo kevin stein and executive chairman nick howley and this typically represents less than 10 of their total annual pay opportunity and then the cash bonus basically ranges from 75 to 125 of the base salary so that's adding another 10 to 15 to the potential entire compensation package. But what it's really about is the bonus, and that is primarily tied to the adjusted EBITDA and free cash flow generation.

49:19So revenues play no role at all, which is something that we always like to see. It's basically just about the metrics that matter for shareholders. And that's where the remaining 75 to 85 % of compensation mostly come from, those multi-year stock option grants that only vest if two conditions are met. And the first is simply the time bound, right? You have to stay a certain time at the company to get your options. But the second one is that it requires the company's stock price to increase or to compound at a specific rate. So the compound annual growth rate, which is what we often would just call CAGR.

49:55To be precise, the options only vest if the stock compounds at a minimum of 10 % and the full number of options vest if the stock compounds at 17.5%. I think it's quite funny that it's probably not a surprise that in recent years, the compound rate for the stock has actually been 17%. So pretty close to that upper bound. And I get you could just summarize it by saying you get what you incentivize for. I think that's true. I'm just in the research process for my episode that will be coming out next week. And without spoiling anything, I can already say that this incentive structure is really something that I can't wrap my head around in terms of what they do.

50:35The company performs very well, but the incentives are just, gosh, they're so awful. Stock grants are mostly based on tenure and performance payouts are based on revenue, which as you just alluded to, I mean, neither of those are great ways to incentivize management to create long-term shareholder value per share with the emphasis being per share. Obviously you want to see revenue grow, but the problem is that there's just so many ways to boost revenue that may barely add really anything to the bottom line, right? Anyone who's ever run a business knows that they can definitely grow the business, but it may not necessarily be profitable.

51:13So that's the wrong thing to incentivize for it. And again, it has worked well for this company that I'll be covering next week, but it's really refreshing to see that Transdime has just such a great incentive structure. It might be one of the best that at least I personally have yet looked at, at least if you can accept the fact that it is about EBITDA instead of cash flow. But this is just how the company works. And as I said, in the bonus structure, they also have both EBITDA and free cash flow as metrics to basically compensate the management with. And another thing that I like to see is that executives are also required to maintain a substantial personal ownership stake in the company.

51:52So the CEO, for example, must hold shares with a value equal to at least 10 times his annual base salary. And other top officers must hold between three and six times their base salary. So, of course, in practice, most executives far exceed those minimums anyway, because they all made a whole lot of money in the last 30 years holding Translams. I mean, Nick Howley, for example, who still serves as executive chairman, he owns roughly$3 to$4 billion worth of stock. And former CEO Kevin Stein has built a stake worth well over$100 million, and he has only been the CEO for less than 10 years. And many operating unit leaders have tens of millions invested equity.

52:32So there have been a few companies that have made their executives and basically all their managers as wealthy as TransTime has done. So on one of our latest calls in our Intrinsic Value community, which is a community we run as kind of tangential to this podcast for some of the most passionate listeners in our audience to connect with other really sophisticated investors and just support each other in this journey of learning and investing. And we hosted Noah Snyder from Snowball Capital as a virtual guest speaker to the group. And it was just so deeply insightful. I mean, he's an expert on serial acquirers, or as he would call it, more precisely, programmatic acquirers, where programmatic acquirers have this disciplined, repeatable process to acquire and improve other businesses instead of maybe just acquiring them and letting them run themselves the same way as they did before, which is sort of more akin to maybe the Berkshire Hathaway model.

53:29And from everything you told me, TransTime definitely is maybe the epitome of a programmatic acquirer, which is also why they fit the private equity comparison a bit better than some of these other serial acquisition companies. How about you lead us through their M &A playbook and this approach that they take for integrating those acquisitions into the broader parent company structure? We didn't focus too much or even at all on TransTime in the call, but I did see the company on one of those slides and it's obvious because they have a very detailed plan for what needs to happen at a company after they acquired it.

54:07And the whole process basically already starts before the acquisition. So we've said it 10 times today, but it still all starts when TransTime goes on the hunt for companies with proprietary sole source products with long aftermarket tails. And it's not always easy to figure out how much potential the aftermarket actually has, but that's a crucial part of the process. When they find a company, they buy it only when there's a clear path to 20 % returns for shareholders. In an interview, Howley said that they usually look for 25 % IRR at least just to have a margin of safety to reach the required return.

54:40And you mentioned the return on incremental investment before. And when we look at the past deals, Transam usually ends up with an RIC, so the incremental return on investor capital, of about 25 to 30%. And they're pretty clear about what they look for and what they do not look for. They do not care at all, for example, about things like synergies, market share, diversification, and all of the stuff that you usually see on any slide deck of M &A investment bankers and all of that stuff. They just want to see adjusted EBITDA growth. And most of the time they acquire a company and the first thing they do is cut the workforce, negotiate pricing and cut unprofitable or low margin businesses.

55:23And they start implementing the same management incentive structure that every single trendstime business has. And in their Investor Day presentation, which is I think from 2024, they showed a timeline for the acquisition and the integration process, which we currently have now on the screen for anyone watching on YouTube or Spotify. And I think it captures everything from teaching the TransDem culture to controlling working capital, evaluating the key staff and efficiency within the operations, and just reviewing and potentially almost always renegotiating contracts and basically just organizing the entire company to fit the, let's say, TransDem way, which is not a term they use, but I just made up.

56:03And I think it's an incredibly precise process for how they go about it. What is the usual acquisition size here? I mean, we're talking about deals that are for hundreds of millions, billions, or tens of billions of dollars. So usually Transom focuses on small and mid-cap acquisitions. So the biggest acquisition yet has been Esseline Technologies in 2019. And that was a price tag of about$4 billion. And Esseline was a solid performing aerospace supplier with, I think, mid-teen margins. And when Transom came in, they basically simplified the business. I think they sold about eight operating units for a total of$1.3 billion.

56:40and they renegotiated pricing on all the core products. And five years after the acquisition, EBITDA margins went from 15 % to almost 40%. And this is, by the way, not cherry picking. I mean, from the close to 100 acquisitions that Twensum has done, not a single one was a loser. And as far as I know, every single one reached the 20 % threshold for the IRR. And that's what Nick Howley says and claims on multiple interviews. So you kind of have to believe it. But looking at the stock chart and just the fundamentals, it seems like they have a pretty good hit rate with their M &A acquisitions. When I look at Translabs market cap at$75 billion, it does feel like we're starting to get to a point where the law of large numbers starts to affect things.

57:23Small acquisitions don't move the needle as much, right? So, I mean, this is a company that's really far from being a small company by any definition. And you mentioned almost 100 acquisitions. And I just wonder how much room for growth there is looking forward, which is, of course, the key consideration for us as investors who would be buying in at today's share price and haven't benefited from the wonderful, wonderful returns that they've been able to generate over the last two decades. and they do have this strict acquisition criteria and that, you know, they focus on size. And so I'm just wondering how many more companies there are in this kind of addressable universe for them that can move the needle and still be of the same quality for Transound to continue to basically just buy companies that are system critical manufacturers with monopoly-like positions that are big enough to move the needle for shareholders.

58:16I asked myself the same question and I think the market is also doing the same. I mean, one reason for the poor performance this year is that Transom hasn't been very active in the M &A market, while competitors like Heiko, for example, have closed multiple deals. So one interesting thing here that I kind of quickly want to mention, though, is to look at the distribution of returns that Transom has achieved in the past, because I think it's just pretty remarkable how equally distributed they are. I mean, Transom has achieved an IRR of 36 % for over three decades. And the first 20 years from 1993 to basically 2006, so a bit more than that, were the private era of the company.

58:55And they achieved 36.5 % returns in that timeframe. The next 20 years, so from 2006 to today, the return has been 35 % a year. So even in the last five years, Transim has achieved a 25 % keg. And I mention all of that because it just shows that despite the phenomenal growth that the company has seen, TransTime has never struggled to keep growing at an incredibly fast rate, even when the company was worth tens of billions of dollars. You don't need me to tell you. Those numbers are incredible because they are. I mean, it's just it's hard to fully grasp how extraordinary those returns are. and to maybe partially answer my own question from before throwing it back to you one clear tailwind for trans time that i can immediately think of i guess is the continued growth of the aerospace and travel industries and for anybody who's heard our episode on airbnb we do believe that travel will become per capita and total travel will continue to increase as more and more people meet middle income thresholds that enable them to travel.

59:59So the long-term chart for global air travel really has only moved up and to the right for decades. And with this growing middle class and emerging markets, like I said, it's just hard to imagine that trend reversing anytime soon. And that should be a boon for TransSams' continued business. Well, it's definitely one of the major macro tailwinds that the company has seen. I mean, last year, the COVID hit to air travel was finally overcome. And this year, we have more kilometers traveled by plane than ever before. And growth is projected to be between 6 % to 7 % per year until the end of this decade.

1:00:35And as you just alluded to, I guess it won't look much different in the decades ahead, if anything, you know, especially in the emerging markets or seeing the push from the emerging markets, the growth rate could just accelerate further. And it's similar for the installed base. So all the airplanes that are currently used, it's obviously at an all-time high as well. And it's projected to go about 3 % a year. So there are a lot of tailwinds. And mentioning them, there's one other that I think is quite interesting. Because over the last 10 years, the fleet age, so the average age of an aircraft, has risen significantly.

1:01:07And airlines have been slower to retire older planes because of supply chain bottlenecks at the OEMs like Boeing and Airbus. and they just delayed deliveries of new aircrafts and the need to maintain capacity as passenger traffic rebounds. And a higher average age means thousands of aircrafts are flying well beyond their original maintenance schedules and that means they require more frequent component replacement across exactly the kind of subsystems where trans time dominates and that should mean higher aftermarket sales for trans time. And I think I can also take a bit of fear when it comes to the question of how many more parts there even are that Transdime could get into by acquiring companies.

1:01:49I mean, the global airline operating expenses are about$850 to$900 billion a year. And from that, about 15 % are maintenance expenses. And from those maintenance expenses, Transdime is active in 47%, so pretty much half of the entire market. And that leaves Transdime with an addressable market of about$60 billion. I know that's a lot of numbers, but give me a minute more and you will see why I'm so bullish on this. Within that$60 billion pool, TransTime currently captures only around 3%. So that's what we're talking about, $1.7 billion of annual commercial after market revenue. And the market is still vastly fragmented with thousands of small specialized manufacturers that are potential targets for TransTime to acquire in the future.

1:02:35And there haven't been many acquisitions this year. Two to be exact. Transtime spent about$900 million to acquire Servitronics and Simmons precision parts from RTX. X. Heiko, on the other hand, one of Transime's competitors and a company that Clay Fink has covered a couple of months ago on our sister podcast, We Study Billionaires, they've already made five acquisitions this year. Yeah, again, I think that's one of the reasons why the stock, and I mean, Transime this time, hasn't performed that great this year. I mean, the primary reason has been a disappointing Q3 earnings report with aftermarket sales law than expected, but a lack of M &A probably didn't help either.

1:03:15I wouldn't panic though because I've spoken with a friend who owns both companies so TransTime and Heiko in his fund and he's also spoken with the management teams of the companies and when he asked Heiko what they thought of TransTime's weaker aftermarket sales performance they basically said it sometimes happens and they wouldn't expect any structural problems whatsoever and when we compare acquisitions which is kind of what you're getting to is the fact that we have to acknowledge is Transdime is by far the most selective acquirer in the industry. So Heiko acquires companies that Transdime just wouldn't acquire due to doubts, for example, about their monopoly position or the aftermarket fit and therefore also missing on their 20 % IRR targets.

1:03:59And a recent example has been the acquisition of Gabel's Engineering. I think that's a company that Heiko has acquired. And I think Transdime wouldn't have made that deal. I mean, you just don't really know if the aftermarket demand is actually there for their products. So I think when in doubt, TransTime does not make the deal and they wait for those clear home runs. And Royal Holdings is another competitor, but they are much, much smaller than TransTime. So they can just acquire companies that simply wouldn't move the needle for TransTime. So I think there's the comparison kind of lacks there.

1:04:31We've already talked about potential risks in the business model here and there. But when you summarize them for us, what would you say are the main risks that you're most worried about as a potential TransTime shareholder? And I don't think either of us own any underlying shares yet. But if we were to, what would keep you up at night? Well, I think I mentioned earlier in the call that before a recording here, we talked about, OK, what are even like the big bear cases and the big risks with like owning TransTime? And we couldn't really think of any material ones. I think what we will do at some point is hosting a call in our community because we have some experts there on both air travel, but also just people who are rocket scientists who probably still have at least somewhat of an insight into this company and ask them if they can see any like huge, maybe even terminal value concerns.

1:05:21because the one we talked about most today is pricing. As investors, there's usually nothing we want more than strong pricing power. But when you push it so far that it's basically all over the national news and you have hearings with the government officials about it, I guess that you just have taken price a bit too far. And to be fair, though, while the numbers sound dramatic, I do believe that the reality is that the items with margins of thousands of percent that you see on national news, they're just low volume parts. And with decades of certification history and just no alternative supplier, to some extent you can take those prices and they're not the average Transdime product.

1:06:00So after a brief period of what you might call political theater, Transdime voluntarily refunded, I think I mentioned it before, $26 million one time and then$16 million the other time, so about$40 million in total to the Pentagon, which is honestly for a company of the size of Transdime, barely a rounding error on its balance sheet. And the investigations ended with no structural change to their business at all. So I personally do not think that you will see anything in that direction in the next years to come, but you never know. I mean, they're still pricing the same way. So there is some uncertainty about that.

1:06:35Sometimes you and I like to use these very simple, maybe even amateurish ways to assess companies, investment opportunities, and even risk. We've joked in the past that some of my best investment ideas, I guess, I've come from just literally staring at my phone and thinking about what apps I rely on the most. And when we're thinking about risk, the kind of intuitive barometer we use is, well, would we sleep well at night owning this stock? If I put a chunk of my money or maybe my parents' money into this company, would that affect how I sleep? and now that you've learned more about the company, you're probably in a better position to answer that than me, but I can see how it might be difficult to feel comfortable owning a business that's really just constantly in the headlines for alleged price gouging when it involves taxpayer money, especially at a time when the government has been shut down and there's all this attention around government spending.

1:07:35Does that keep you up? Does that worry you? That's a good point. I actually think that is kind of why it's such a public debate anyway. I mean, OEMs are probably not happy with the price increases either, but they just know how the market works and they wouldn't spend the money if there were an alternative. But when it's about taxpayers' money spent on defense contracts, then people are rightfully mad when they hear a company earns a 4 ,000 % margin on a product that should only have a 50 % margin. So I kind of get the doubts there. Again, it's kind of a topic that I see as mostly close, but I could open up anytime.

1:08:09And I don't know if I could sleep well knowing that the company I'm invested in is all over the national news for price gouging. What about leverage? Do you consider that to be a problem? I mean, we usually love to see these super clean balance sheets and we've been spoiled with some of the big tech companies we've looked at where you have comfortably more cash to pay off debt. And part of it is because they rely so heavily on stock-based compensation to run their business that they can produce a lot of cash, but maybe it's not reflecting the true cost of the business. Yada, yada, yada. That's a whole argument we could have.

1:08:44But still, this is a company with a lot of debt. TransTime is really the opposite of some of these businesses we've really come to love. I mean, the closest business that we've covered here on the show, it was actually one of my pitches, is Berkshire Hathaway. And Berkshire has$300 billion in cash on its balance sheet. this company has about two and a half billion so obviously when i look at the debt levels they are concerning at first glance i mean you have a net debt to free cash flow ratio of around 11 12 13 times it depends on how you adjust free cash flow and the model just leaves what seems to be little room for error or just prolonged downturns in what is a cyclical industry but right now it looks like interest rates are going down rather than up in the near future but you do not want to bet on that and we have seen many things in the last decade that no one could have expected and that's actually one of the reasons why we do not like that usually because you suddenly see yourself doing some some form of micro calls that said though we talked about the past crises and the pandemic years for example and even when covid hit and really just delivered the most severe blow to air 12 that you could imagine to handsome didn't have any stress at all meeting its obligations.

1:10:00And management argues that the risk is mitigated by long-dated, mostly fixed-rate debt and also the ability to just pull back on acquisitions or dividends if necessary. So one of the funky things you told me is that they took on$5 billion in debt to then pay this special dividend, and special in the sense of that it's not a recurring dividend, it's this one-off dividend payment of$90 per share, which is really substantial. And And theoretically, I guess if that cash comes at a lower cost of capital than their retained earnings, which can be plowed back into acquisitions, then maybe you could justify the use of special dividends in this way.

1:10:39Not that the cost of debt financing is as cheap as it has been in years past. But anyways, I mean, it's atypical to say the least. And we're used to seeing companies that either don't pay a dividend because they're just pouring all of their capital into reinvestment or they're buying back shares because they believe that maybe the company is undervalued or they're trying to offset stock-based comp dilution or they pay a stable and consistent dividend that attracts certain types of investors that treat the stock as sort of a source of income or an alternative for a bond. We don't see a lot of companies, especially taking on debt to just periodically pay these massive dividends without a lot of like heads up for when that's going to happen.

1:11:25So I've got to get you to tell me more about that. It's totally true. I think it's the only company that I've seen doing this, not only pay these huge dividends with basically no warning before that you will receive them, but also just financing them totally with debt. And I think this is where it kind of gets somewhat tricky. I mean, it seems kind of arrogant to look at this move and then criticize management for it because TransTime has operated like this since its inception and it has worked off tremendously well for everyone involved. And at the same time, it does leave at least a bit of a weird feeling for me.

1:12:00I mean, after raising another$5 billion in debt, it brings the total amount of debt to almost$25 billion. And this is a company doing about$2,$2.5 billion in free cashflow. So sure, cashflow's are growing and they are very predictable, but it's not necessarily the total amount of debt that I have a problem with. Transom has always issued long-term debt, fixed rates, but we're not in the post 080 interest rate era anymore. So when older debt now matures and has to be refinanced, Transom will see its average interest rate increase quite significantly. You can actually see the impact of that in the rise of interest rate expenses as a percentage of revenue right now.

1:12:39Currently, it stands at about 17.5 % and the long-term trend is definitely going up. So the most recent$5 billion loan was issued via two different notes and a term loan, and I won't go into the details here, but the total interest cost is close to 7%. And while that's generally a good interest rate for a company with a credit rating off trend time, it's just objectively not a low interest rate loan. And that said, and this is why management makes this decision and you kind of alluded to it beforehand, when you can deploy capital at rates of 20 to 30 % and lower at 7%, each dollar kept inside the business beyond what's needed to sustain the business and do acquisitions is earning a low incremental return.

1:13:24So in that case, it just makes sense in theory to level up to a level that still feels safe and distribute that capital back to shareholders. I think at this point, anybody who's listened to this podcast a few times will know that we are big fans of buybacks and objectively, they tend to be more tax efficient, right? You usually have to pay, there's this double taxation, right? The company pays income taxes on its earnings, and then they pay out some of those profits to you where you have to pay an income tax on it. Whereas if you're doing buybacks, you're essentially pushing the stock price higher, but there isn't immediately a taxable component to it.

1:14:04And if you do ever sell, then it's at a capital gains rate. And typically capital gains rates tend to be lower than income tax rates. Point being, share buybacks are literally more shareholder friendly, typically. And so I suspect, though, that they can't really do more buybacks because the stock is trading at more than 40 times earnings. So you're just not getting good bang for your buck in terms of the intrinsic value creation from each dollar that goes toward repurchases. That's kind of the dilemma for TransTime, it seems like. It's similar to what Ferrari faced when they are just trading at 15 times earnings, at least when we did the episode.

1:14:41and their buybacks just don't move the needle. I mean, the best case would be for Transam to just find so many good acquisition targets that they can deploy all their capital buying those companies. But of course, given their pretty harsh criteria and return expectations, that's just not realistic. So I can understand their dividend policy, but still, as an investor, I would want to keep an eye on interest expenses and their development when all the debt matures over time and they have to refinance it. We talked about how Transam likes to use adjusted EBITDA as its key metric. And it also uses it to put debt into perspective.

1:15:14And they report a metric which is called net debt to adjusted EBITDA, which in my mind doesn't give you the full picture since you are excluding interest payments, which are not only a real cost that you have to pay for, as I said, it's also the main problem that I have for the amount of debt. So I think you should at least also look at net debt to adjusted free cash flow, which is, as I said before, somewhere between 11 and 13 compared to trans times reported net debt to adjusted EBITDA, which stands at 5.7 right now. And that's after the most recent debt issuance, and it's right in line with their six times target ratio.

1:15:50So again, they are pretty focused on not going above that range of like 5.5 to 6. So I like that they always keep being right in line with what they tell investors and shareholders. Another factor that usually makes debt a risk in the sector is the cyclical nature of aviation. I mean, Boeing and Airbus invest in cycles and in a downturn, delivery volumes can easily drop as much as 50%. The good news though, is that we are currently in an up cycle. So that will likely still last at least a number of years. I mean, in the past 60 years, cycles have consistently increased in duration and the last one, that's about 15 years.

1:16:28So that would indicate, if you look at the charts that we currently have on the screen, at least another decade of growing deliveries from here. And of course, TransDime's heavy exposure to the aftermarket further softens the impact of production swings, as well as, since those parts always need to be replaced, all of the deliveries they have. However they're doing it, total shareholder returns just continue to compound at incredible rates as they have over the long term. And that's just not totally surprising because extra debt does add leverage to their financial results, which can enable accretive acquisitions or these special buybacks and dividends that juice results from total return perspective for shareholders.

1:17:11And not like we like to speculate on macroeconomics, but we are recording this at a period where the Federal Reserve has just cut interest rates two months in a row. And there's a consensus that they may do so again in December. So in terms of refinancing their debt, they may actually end up being lucky in the sense that they could have the chance to refinance even at lower interest rates. So that would be good for the short to intermediate term prospects of the business. And by replacing equity financing with debt, they are shielding themselves a bit from taxes to an extent since interest is tax deductible, and therefore that reduces the after-tax cost of debt is basically reporting a lower net income number because of those interest costs.

1:17:55And so again, from a kind of capital allocation perspective, I do think that helps explain some of the decisions here and how they are trying to create value. And for the most part, we've said it a bunch today. It just strikes me as a typical private equity strategy that's being played out in public markets. It seems like they have targets for how much net leverage they'd like to carry and after completing acquisitions that can temporarily drain their cash balances. So they reload with more debt to keep themselves in a position basically to always be able to make more acquisitions while also not taking on so much debt that they don't think they can sustain those debt servicing costs, the interest payments with the underlying cash flows generated by the businesses.

1:18:38And if there aren't sufficiently attractive acquisition opportunities, rather than just letting that cash sit on the balance sheet. That's how I think you get this outcome where they kind of strategically pay out special dividends before then deciding to lever up again. And they'd rather do that opportunistically than commit to some recurring dividend payment. It just makes them less financially nimble, right? You're bound to the structure of shareholders are expecting X, Y, Z amount of cash from us every year. And that's just not the model that they operate under. It's such a different mindset from the compounders we usually look at.

1:19:12But I mean, I see why it works. And I think it's really interesting to study and learn about. And so bring it all together. Maybe this is folks' favorite part of the show or least favorite part of the show, but let's try to think about the valuation model and really what that says about the investment opportunity for us as we consider whether we'd like to add it into our very limited intrinsic value portfolio. We only have a handful of companies that we've actually covered on the show that we've then decided to invest in? Well, Translum is, it's obviously a company that's still trading at a premium valuation, but that has been the case since its IPO.

1:19:48And the company simply is significantly better than the average company in the S &P 500. I don't think we have looked at any other company yet that has such a consistent outperformance and premium valuation as well. And in my model, revenue growth at about 10 to 11 % a year with defense sales outpacing commercial sales and that's slightly below top line growth in the past five and ten years but it's mostly in line with the current outlook in the aerospace market and also analyst expectations and in terms of adjusted EBITDA and the adjusted EBITDA margin expansion and also the conversion of adjusted EBITDA to free cash flow which is still something we want to look at I keep it with the company's goals and also the historic averages so an adjusted EBITDA margin expansion of one percent per year and a 50 percent conversion to free cash flow both have been consistently achieved in the past.

1:20:36And the conversion tends to be even slightly higher than the targeted 50%. And what makes Transdime so difficult to model are the significant but inconsistent dividend payouts that we just talked about. I mean, in my model, I used what I would say is a very simplified approach, looking only at the historical ratio of dividends to adjusted EBITDA. So when a dividend of$1 billion was paid, how did that compare to the adjusted EBITDA in that year? It's not perfect, especially because these dividend payments, as we alluded to, are paid through debt anyway, but it is a proxy that works. And if you want to, you can model it much more complexly by using target-leveled ratios, the net debt-to-EBITDA metrics, and certain triggers that are activated when the net debt-to-EBITDA ratio goes below a certain threshold.

1:21:21Ultimately, though, it is still a guessing game. We could see three more special dividends till 2030 or none if they actually find enough acquisition targets. And honestly, I think that's what I would prefer for TransTime and as a shareholder. And I think my main takeaway from the modeling exercise is that TransTime is about fairly valued. Maybe you could argue that it's slightly overvalued if they can hit my growth assumptions, which are slightly below what they have achieved in the recent past. So I think it kind of balances out. And special dividends will basically be what determines whether shareholders can expect a high single digit to low double digit return or return in the lower mid-teens.

1:21:56And when I think about investing in trans time, I think it would make it less about the modeling exercise and more about whether I'm okay with the couple of concerns that we have raised in this episode and that have been raised generally with the company this year and to some extent also earlier. Are you, for example, just okay with owning a company that makes highly aggressive and also unpopular pricing decisions and takes on a lot of debt? And I would say most other factors in mind are rather short-term than long-term concerns. So these are the ones that I would focus on because I do believe that TrendsTime will not run out of potential acquisition targets anytime soon.

1:22:33And I don't think that the recently lower sales in the aftermarket segment are part of a longer-lasting problem. And yet, I mean, you talked about the easy test of asking myself whether I could sleep well at night when I own two-hand time. And honestly, the answer is probably I don't know. At the current valuation, there are so many things that are still kind of lingering over the company that could cause it to go a bit lower. I would say it's a good thing for me now that we do not have to make this decision on our own. So I can ask you, what's your take? I mean, could you get comfortable with it?

1:23:06What do you think about the debt and all of those factors? It's funny because before we had this call, I think Daniel was expecting me to just like totally veto TransDime. And I guess I surprised him a little bit because I guess I could be willing to get excited about it. If we can justify Berkshire Hathaway as an addition to the portfolio, I mean, I can just as easily see why we might want to add TransDime. both are these best in breed acquirers really well-proven playbooks for success and just really some of the best management teams you could possibly imagine that are finding these you know these kind of really niche businesses or at least this is more of what Berkshire used to do and just buying them because they're almost never going to go away you know you don't know if the next hot software company is going to be here in a decade but you're pretty sure that the industry leader and seat belts on commercial airline planes are is still going to be there.

1:24:05They're not going anywhere. And so TransTime's uses of capital do strike me for the business model they have as actually being very practical and as really being focused on lowering their weighted average cost of capital over time, which is sort of a theoretical concept that you might learn in a finance class, but it is real. I mean, this is another way of generating shareholder value. I mean, you can grow earnings and profits, but also if you can reduce your cost of financing, that is another way to create value. And so I'm not looking at their debt levels here and saying, okay, this is a company that is just recklessly raising debt because they can't self-sustain their operations.

1:24:45I think they're doing it very strategically to fund their acquisitions and returning capital to shareholders when it makes sense to, all with this aim of truly generating more and more earnings per share or free cash flow per share. And so, again, this is a stock that has almost literally never gone down. And I think you were joking before that it almost reminds you of the Bernie Madoff Ponzi scheme documentary on Netflix, where they say something along the lines of the fact that the returns never went down was an indication that there was something fraudulent going on because it really does feel too good to be true, which is to say that not literally that the stock has never gone down, but you have decades of showing that it just is such an incredible compounder.

1:25:31And so would I make this a five or 10 % position in our portfolio without really digging into their capital allocation strategy more or understand the competitors and regulatory risks they may be incurring by being so aggressive with taking pricing is working as a defense contractor. The short answer is no. But would I be willing to add this is what they call a tracking position. So essentially we get exposure to this great business while also using that as a reason to continue to learn and better understand them as we go. So to me, I'm not looking at this saying, oh, it'd be terribly risky to add it at 2%.

1:26:08I'm saying we should probably have some exposure in it. So we have some skin in the game that motivates us to study the company more deeply because this could be a really, really good investment. And if it ends up not being a good one, there doesn't seem to be much of a risk that the stock is going to dramatically go against us. And basically, we're just buying some more time to really better understand the investment. And a 1 % to 2 % position really is just kind of the gateway to that. But yeah, if we're not sleeping well at night because we buy this thing, we should sell it and maybe, I don't know, buy more Google.

1:26:40I think there's actually truth to the saying that you must own a stock to fully understand it and to kind of keep learning about it. And I must admit, I am surprised to hear that you would actually be willing to open a position here. On the other hand, if one of us gets scared by our multiples, it's probably me. So looking at it, seeing an EDP of 40, it does scare me a little bit. But then again, you look at the chart, you see where it traded in the past, and then you just, you have to admit that they've done a phenomenal job for 30 years in a row. And there's not much that could seem like, first of all, a terminal value risk and also just a reason for this not to go on.

1:27:17And yeah, I think a startup position is very reasonable considering the quality of the company and also the downward trend that we have seen this year. And if we can get a better price in the next couple of months, we can double down. And otherwise, we just keep learning more through owning the business. and we might get more comfortable with the company, even at these prices or at higher prices, to then double down and, you know, leverage it up to, let's say, a 5 % position. So it does sound to me like you agree on making this, let's say, a startup position at, let's say, 2 % for now. Yeah, let's do it.

1:27:51I don't have any issue with it. I'd be excited, genuinely, to have, you know, this company in the portfolio and to have a reason to learn more about it. And, you know, we mentioned this a little bit already, But this is the epitome of why we love having the intrinsic value community that we host and why we invite everybody who listens to this podcast or reads the newsletter to consider applying to join. It is a selective group. We can't bring everybody into it. But really, the point is to have this kind of mastermind where we can, in real time, give feedback on ideas, have people point out our blind spots and support each other in the investment research process.

1:28:25And so, yeah, I think we're going to set up a call on TransTime and speak to, you know, 10, 20, 30 of our really trusted friends who we've met through the podcast who are thoughtful, sophisticated investors who can give us their perspective and help us better understand maybe what we don't even know, what we don't know we don't know about TransTime. So, yeah, I'm excited. I think this is going to be fun. This is kind of a new area for us to dig into and obviously a great business. So it would be really hard for me to protest it, even at a premium valuation. If there's ever a time to pay a 30 % premium to the S &P 500, by gosh, it might just be trans time.

1:29:04Okay, well, I mean, then for now, let's say welcome to the new position holding in our intrinsic value portfolio, which is trans time, even though it's a startup position yet. And as you said, I think I look very much forward to the call we will have on this talk, because especially when it's about industries that neither of us are really looking at every single week. we have people who are working there you just get so much more value from talking to those people and getting basically insights into the industry so yeah I'm looking forward to the call and also to our next episode which is next week and will be by you so I'm curious to hear what are your hints for the next company that we will pitch here on the show on to the next yeah we cover a different company every week we go pretty deep on them it is a challenge but it's also a ton of fun So my hints this time will really be for those who have tracked our intrinsic value portfolio the most, either from listening to the show or from actually reading our free newsletter that gives recaps of basically the podcast and shows our portfolio in real time and how it fluctuates from week to week.

1:30:12And of course, if you're interested in that, you can go to theinvestorspodcast.com. Sorry for all the promotions, but it is true. I think a lot of people who listen to this don't know that and would really enjoy reading the newsletter. So yeah, my pitch for next week is a company that is effectively the biggest and most direct competitor for one of the largest portfolio holdings in our portfolio. It may be the largest depending on how prices fluctuate from week to week, but definitely tied for really being first place. And they also pulled off maybe the greatest acquisition ever 20 years or so ago that led to the whole company being repranded.

1:30:49And as a last hint, if you're an American, you probably are more familiar with their subsidiary brands. You've probably used them, whereas Europeans will know the actual kind of parent company itself and have probably used its products and services before. I don't know how to say anything else without giving too much away. So that's where I'll leave it. I think it's fine. I think, you know, dedicated listeners of our show will have an idea of what company you could be talking about. All right. As always, let me close it with a quote today. And I know I already quoted Nick Howley today once or twice, but I think his special take on running a business is worth at least another quote.

1:31:32So I'll go for it. Howley said, quote, the decentralization was almost a religious belief. If you want people to act like owners, you have to treat them like owners and pay them like owners and give them a fair amount of autonomy. And I think Transim got what it incentivized for, as I said before, and it made a lot of investors a whole lot of money. And I think and hope it will keep doing that because we're invested now. And I will soon look at a company that is on a similar trajectory, but it's at very early stages. So pretty sure that one will be interesting as well. And for now, have a great day and we will see you next week.

1:32:12Thank you.