01—Abstract
Summary
Summary of the 10-K filed November 13, 2015. Cited figures are marked; the original filing is the authoritative source.
TransDigm Group (TDG) reported fiscal 2015 (year ended September 30, 2015) net sales of $2,707.1 milliona, up 14.1% from $2,372.9 million, with organic growth of 3.3% and the balance from acquisitions, primarily Telair Cargo Group, PneuDraulics, Pexco Aerospace and Adams Rite Aerospace GmbH.
Gross margin expanded slightly to 53.6%, income from operations rose 15.8% to $1,074.0 millionb, and net income increased 45.7% to $447.2 million, or $7.84 per share. Non-GAAP EBITDA As Defined reached $1,233.7 million, and the company's sales mix was roughly 54% aftermarket, with about 80% of sales from sole-source products. The central investor issue is leverage.
Total indebtedness was approximately $8,427 millionc, or about 114% of book capitalization, which reflects a stockholders' deficit of $(1,038) million. The debt-to-EBITDA ratio stood at roughly 6.8x at year end. Fiscal 2015 interest expense rose to $418.8 million, and the company spent about $1.62 billion on acquisitions, funded largely by $1.0 billion of new Tranche E term loans, a $450 million 6.50% 2025 senior subordinated note issue, and cash on hand.
No regular dividend is planned, and no special dividend was declared in fiscal 2015, after $25.00d per share in June 2014. The company holds $714 million of cash and $534 million of revolver availability. Risk concentration is also significant.
Boeing and Airbus accounted for about 12% and 11% of sales, the top ten customers for about 46%, and goodwill plus intangibles together represent roughly 74% of total assets. Backlog grew to $1,428 million from $1,195 million, mostly from acquisitions. Investors should weigh strong margins and cash generation against a highly levered balance sheet, a continued acquisition-driven growth model, and exposure to commercial aerospace cycles and U.S. defense budgets.
02—Key points
Key Highlights
- Net sales rose 14.1% to $2,707.1 million, of which 3.3% was organic growth and 10.8% came from acquisitions.
- Net income increased 45.7% to $447.2 million, and diluted EPS reached $7.84 versus $3.16 in fiscal 2014.
- Gross margin improved modestly to 53.6%, and income from operations increased 15.8% to $1,074.0 million.
- Total debt was about $8.4 billion, or roughly 6.8x EBITDA As Defined, and the stockholders' deficit was $(1,038) million.
- Acquisitions totaling about $1.62 billion, including Telair Cargo Group and Pexco Aerospace, were funded with new term loans, senior subordinated notes and cash.
- Approximately 54% of net sales came from aftermarket, which has historically carried higher margins, and about 80% came from sole-source products.
- Backlog increased to $1,428 million from $1,195 million, primarily due to acquisitions, and no regular dividend is planned.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, TransDigm Group kept $0.17.
- Revenue$2.71B100.0%
- Cost of revenue−$1.26B46.4%
- Gross profit$1.45B53.6%
- Operating costs−$375.8M13.9%
- Operating income$1.07B39.7%
- Interest, other & tax−$626.8M23.2%
- Net income$447.2M16.5%
Where FY2015 revenue went
$2.71B- Cost of revenue: $1.26B, 46% of revenue
- Interest, other & tax: $626.8M, 23% of revenue
- Net income: $447.2M, 17% of revenue
- R&D: $48.3M, 1.8% of revenue
- SG&A: $321.6M, 12% of revenue
Kept 17% as net incomeR&D $48.3M · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed November 13, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $2.71B$2.37B | +14.1% |
| Cost of Revenue | $1.26B$1.11B | +13.8% |
| Gross Profit | $1.45B$1.27B | +14.4% |
| R&D Expenses | $48.30M$42.30M | +14.2% |
| SG&A Expenses | $321.62M$276.45M | +16.3% |
| Operating Income | $1.07B$927.82M | +15.8% |
| Net Income | $447.21M$306.91M | +45.7% |
| EPS (Basic) | $7.84$3.16 | +148.1% |
| Shares Outstanding (Basic) | 56.61M56.99M | −0.7% |
05—Questions
Frequently Asked Questions
How much of TransDigm's fiscal 2015 growth came from acquisitions versus the existing business?
Of the $334.2 million increase in net sales, about $78.0 million (3.3%) came from organic growth and $256.2 million (10.8%) came from acquisitions completed in fiscal 2015 and the acquisitions of Airborne and EME in fiscal 2014 that were still within their first year. Management attributed the gross profit contribution from acquisitions to lower margins than the core business, at roughly 39% of acquisition sales.
Is TransDigm's leverage a concern for investors?
Yes. Total indebtedness of about $8.4 billion is roughly 114% of book capitalization, and the debt leverage ratio was about 6.8x at September 30, 2015. Interest expense rose 20.4% to $418.8 million. About $4.4 billion of term loans bear floating rates, although interest rate swaps and caps cover $750 million to $1,000 million each, and a one-point rise in rates would add about $44 million of annual interest cost.
Will TransDigm pay dividends to shareholders?
Regular quarterly or annual dividends are not expected. The company paid special dividends in October 2012, July 2013 and June 2014, and no dividend was declared in fiscal 2015. Any future special dividends depend on board discretion, results, and restrictions in the company's debt agreements, which limit the amount available for distributions.
How concentrated are TransDigm's customers and what are the main risks?
Boeing (including Aviall) accounted for about 12% of fiscal 2015 net sales and Airbus about 11%. The top ten customers represented about 46%. The company also faces exposure to business jet OEMs (about 24% of sales), U.S. defense budget changes, and the cyclical nature of airline traffic, along with risks tied to government contracting, acquisition integration and high goodwill and intangible balances totaling roughly 74% of total assets.
06—Continue