01—Abstract
Summary
Summary of the 10-K filed November 16, 2021. Cited figures are marked; the original filing is the authoritative source.
TransDigm Group's fiscal 2021 10-K (year ended September 30, 2021) shows a company still absorbing the COVID-19 downturn in commercial aerospace, though the trough appears to have passed.
Net sales fell 6.0% to $4,798 milliona from $5,103 million, driven by a 7.4% decline in organic sales, mainly commercial OEM and commercial aftermarket. Defense grew, rising to roughly 50% of sales. Gross margin improved 0.5 points to 52.4% on cost mitigation, and net income attributable to TD Group was $680 million, down 2.7%.
EBITDA As Defined declined 3.9% to $2,189 millionb, and its margin rose to 45.6%. Cash from operations was $913 million, down from $1,213 million, mainly because of working capital changes. The balance sheet remains highly leveraged.
Total debt is about $20 billionc, equal to 117.1% of total book capitalization, and TD Group carries a stockholders' deficit of $2.9 billion. Management points to $5.3 billion of cash liquidity, including $4.8 billion of cash and $529 million of revolver availability. About 86% of debt is fixed rate, and the company refinanced several high-coupon notes, which is expected to lower annual interest by about $35 million.
Management expects COVID-19 to keep weighing on sales, net income and EBITDA As Defined into fiscal 2022, with recovery timing uncertain. The company also continued its acquisition strategy, most notably the $945 milliond Cobham Aero Connectivity purchase, and made several divestitures, including ScioTeq/TREALITY and TAC.
No regular dividend is paid, though a $32.50 special dividend was paid in fiscal 2020. Investors should weigh the strong aftermarket franchise, high margins and defense exposure against heavy leverage, customer concentration and the uneven commercial recovery.
02—Key points
Key Highlights
- Net sales declined 6.0% to $4,798 million, with organic sales down 7.4%, driven by commercial OEM (-25.6%) and commercial aftermarket (-18.1%) weakness; defense sales grew 5.4%.
- Gross profit margin expanded to 52.4% (from 51.9%) as COVID-era cost mitigation offset inflation and supply-chain pressure.
- EBITDA As Defined fell 3.9% to $2,189 million, but the margin improved to 45.6%; net income attributable to TD Group was $680 million ($10.41 EPS, 58.4 million weighted shares).
- Total debt of roughly $20.0 billion equals 117.1% of book capitalization, and TD Group has a $2.9 billion stockholders' deficit, reflecting its leveraged recapitalization model.
- Liquidity is strong at about $5.3 billion ($4.8 billion cash plus $529 million revolver availability), and 86% of debt is fixed rate.
- Approximately 50% of net sales came from aftermarket, and about 80% from sole-source products, supporting durable, higher-margin revenue.
- Operating cash flow fell to $913 million from $1,213 million, mainly due to working capital; no regular dividend was declared in fiscal 2021.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, TransDigm Group kept $0.14.
- Revenue$4.80B100.0%
- Cost of revenue−$2.29B47.6%
- Gross profit$2.51B52.4%
- Operating costs−$822.0M17.1%
- Operating income$1.69B35.2%
- Interest, other & tax−$1.01B21.1%
- Net income$680.0M14.2%
Where FY2021 revenue went
$4.80B- Cost of revenue: $2.29B, 48% of revenue
- Interest, other & tax: $1.01B, 21% of revenue
- SG&A: $685.0M, 14% of revenue
- Net income: $680.0M, 14% of revenue
- R&D: $106.0M, 2.2% of revenue
- Other operating costs: $31.0M, 0.6% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed November 16, 2021Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $4.80B$5.10B | −6.0% |
| Cost of Revenue | $2.29B$2.46B | −7.0% |
| Gross Profit | $2.51B$2.65B | −5.1% |
| R&D Expenses | $106.00M$130.90M | −19.0% |
| SG&A Expenses | $685.00M$727.00M | −5.8% |
| Operating Income | $1.69B$1.75B | −3.4% |
| Net Income | $680.00M$699.00M | −2.7% |
| EPS (Basic) | $10.41$8.96 | +16.2% |
| EPS (Diluted) | $10.41$8.96 | +16.2% |
| Shares Outstanding (Basic) | 58.40M57.30M | +1.9% |
| Shares Outstanding (Diluted) | 58.40M57.30M | +1.9% |
05—Questions
Frequently Asked Questions
How much did COVID-19 hurt TransDigm's fiscal 2021 results, and when is recovery expected?
COVID-19 reduced organic sales by $380 million, mainly in commercial OEM and aftermarket. Management expects the adverse effect on net sales, net income and EBITDA As Defined to continue into fiscal 2022 and says the recovery timing is uncertain. International air travel has recovered more slowly than domestic travel, and the company does not expect aftermarket volumes to return to pre-pandemic levels until 2023 or later.
Is TransDigm's high debt load a concern for investors?
Yes. Total debt of about $20 billion equals 117.1% of book capitalization, and the company reports a $2.9 billion stockholders' deficit. Interest expense was $1,059 million, and the company has many covenants. Mitigating factors include about 86% fixed-rate debt, no maturities until August 2024, $5.3 billion of liquidity, and management's stated 75/25 fixed-to-variable target. Management has also refinanced high-coupon notes to lower interest costs.
How concentrated is TransDigm's customer base and revenue?
The top ten customers represented about 42% of net sales in fiscal 2021, but no single customer exceeded 10%. Defense represented about 50% of sales, while commercial aftermarket was about 23% and commercial OEM about 20%. Defense exposure is subject to U.S. government budget and audit risk, including an ongoing Department of Defense Inspector General audit and a Congressional inquiry.
What acquisitions and divestitures shaped fiscal 2021?
TransDigm acquired Cobham Aero Connectivity (CAC) for $945 million, which expanded its antenna and radio business in the Airframe segment. It divested ScioTeq/TREALITY for about $200 million, Technical Airborne Components for about $40 million and Racal Acoustics for about $20 million, and recognized a $69 million net gain on sale of businesses. The company's acquisition-driven strategy is central to its growth model, but integration and goodwill impairment risk remain. Goodwill totals about $8.6 billion.
Does TransDigm pay dividends, and how does it return cash to shareholders?
No dividends were declared in fiscal 2021. The company paid a $32.50 special dividend per share in December 2019 in fiscal 2020, and it does not plan regular quarterly or annual dividends. Future special dividends and buybacks depend on board discretion and debt covenant restrictions. About $631 million remains available under the existing repurchase authorization, and dividend equivalent payments to option holders totaled $73 million in fiscal 2021.
06—Continue