01—Abstract
Summary
Summary of the 10-K filed November 10, 2022. Cited figures are marked; the original filing is the authoritative source.
TransDigm Group (TDG) reported fiscal 2022 (year ended September 30, 2022) net sales of $5,429 milliona, up 13.2% from $4,798 million, driven by a strong recovery in commercial aftermarket sales (organic commercial aftermarket up 44.8%) and commercial OEM sales (up 23.8%), partially offset by a 2.2% decline in defense sales.
Gross margin expanded to 57.1% from 52.4%, income from operations rose to $2,215 millionb from $1,691 million, and net income attributable to TD Group increased 27.4% to $866 million, or $13.40 per share on an earnings-per-share basis after dividend equivalent adjustments. EBITDA As Defined, the company's primary performance measure, reached $2,646 million (48.7% of net sales) versus $2,189 million (45.6%) a year earlier. The company returned roughly $2 billion to shareholders during the year, consisting of an $18.50 per share special dividend paid in August 2022 (about $1,045 million, or $1,091 million including dividend equivalents) and approximately $912 million of share repurchases at an average price of $612.13.
Cash fell to $3,001 millionc from $4,787 million, and the balance sheet remains highly leveraged, with total debt of roughly $19.8 billion against a stockholders' deficit of $3,773 million. Total indebtedness represented about 123.5% of total book capitalization, and roughly 85% of debt was fixed rate after swaps and caps.
Interest expense net was $1,076 milliond, and management reported a weighted average cash interest rate of 5.3%. Key risks highlighted include the continued pace of commercial aerospace recovery (RPMs and Boeing/Airbus production rates remain below pre-pandemic levels), supply chain shortages and inflation for electronic parts, dependence on the U.S. defense budget and government audit exposure (including a $20.8 million voluntary refund request from a DOD OIG audit), ongoing pricing pressure from fixed-price contracts, leverage and covenant constraints, and reliance on acquisitions for growth, highlighted by the $359 million DART Aerospace acquisition completed in May 2022.
02—Key points
Key Highlights
- Net sales grew 13.2% to $5,429 million, led by commercial aftermarket (+44.8% organic) and commercial OEM (+23.8% organic) recovery, with defense sales declining 2.2%.
- Gross profit margin expanded 4.7 percentage points to 57.1%, and income from operations rose 31% to $2,215 million, reflecting favorable mix toward aftermarket and operating leverage.
- EBITDA As Defined increased to $2,646 million (48.7% of net sales) from $2,189 million (45.6%), with Power & Control and Airframe segments both contributing strong growth.
- Net income attributable to TD Group rose 27.4% to $866 million, with earnings per share of $13.40 after dividend equivalent adjustments.
- Returned approximately $2 billion to shareholders in fiscal 2022 through an $18.50 per share special dividend (about $1,045 million) and $912 million in share repurchases, with $1,288 million remaining under the $2.2 billion buyback authorization.
- Highly leveraged capital structure: total debt of about $19.8 billion, 123.5% of book capitalization, and a stockholders' deficit of $3,773 million, with approximately 85% of debt fixed rate and no maturities until August 2024.
- Cash declined to $3,001 million from $4,787 million, while operating cash flow was $948 million, capital expenditures were $119 million, and the company completed the $359 million DART Aerospace acquisition.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, TransDigm Group kept $0.16.
- Revenue$5.43B100.0%
- Cost of revenue−$2.33B42.9%
- Gross profit$3.10B57.1%
- Operating costs−$884.0M16.3%
- Operating income$2.21B40.8%
- Interest, other & tax−$1.35B24.8%
- Net income$866.0M16.0%
Where FY2022 revenue went
$5.43B- Cost of revenue: $2.33B, 43% of revenue
- Interest, other & tax: $1.35B, 25% of revenue
- Net income: $866.0M, 16% of revenue
- SG&A: $748.0M, 14% of revenue
- R&D: $95.0M, 1.7% of revenue
- Other operating costs: $41.0M, 0.8% of revenue
Kept 16% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed November 10, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $5.43B$4.80B | +13.2% |
| Cost of Revenue | $2.33B$2.29B | +2.0% |
| Gross Profit | $3.10B$2.51B | +23.3% |
| R&D Expenses | $95.00M$106.00M | −10.4% |
| SG&A Expenses | $748.00M$685.00M | +9.2% |
| Operating Income | $2.21B$1.69B | +31.0% |
| Net Income | $866.00M$680.00M | +27.4% |
| EPS (Basic) | $13.40$10.41 | +28.7% |
| EPS (Diluted) | $13.40$10.41 | +28.7% |
| Shares Outstanding (Basic) | 58.20M58.40M | −0.3% |
| Shares Outstanding (Diluted) | 58.20M58.40M | −0.3% |
05—Questions
Frequently Asked Questions
How much did TransDigm return to shareholders in fiscal 2022, and what form did it take?
TransDigm returned roughly $2 billion in fiscal 2022. This consisted of an $18.50 per share special cash dividend paid in August 2022 (about $1,045 million, or $1,091 million including dividend equivalent payments) and $912 million of share repurchases at an average price of $612.13 per share. The company does not pay regular quarterly or annual dividends, and future special dividends and buybacks depend on market conditions, liquidity, and contractual restrictions under its debt agreements.
Is TransDigm's high debt load a concern for investors?
Debt is a central risk factor. Total indebtedness was about $19.8 billion at September 30, 2022, or 123.5% of total book capitalization, and the company has a stockholders' deficit. Interest expense was $1,076 million, and cash interest carried a weighted average rate of 5.3%. Roughly 85% of debt is fixed rate after hedging, which limits near-term rate exposure, but the leverage constrains flexibility and restricts dividends and acquisitions under covenants. Management indicates it expects to remain in compliance with its covenants and has significant liquidity of about $3.8 billion including revolver availability.
What drove the improvement in profitability in fiscal 2022?
Profitability improved mainly from a recovery in commercial aftermarket and OEM volumes as air travel rebounded and narrow-body production increased. The favorable mix toward higher-margin aftermarket sales, along with positive operating leverage from fixed overhead spread over higher volume, lifted gross margin to 57.1% from 52.4%. Foreign currency movements also contributed favorably to cost of sales. These gains were partly offset by higher non-cash stock compensation expense and inflation in freight, labor, and raw materials.
What are the main risks to TransDigm's outlook?
Key risks include a slower-than-expected recovery in commercial aerospace (with RPMs and Boeing/Airbus production still below pre-pandemic levels), supply chain shortages and inflation affecting electronic parts and labor, and the company's reliance on fixed-price contracts that cannot always pass through cost increases. Defense exposure brings risks from U.S. government budget changes, audits, and pricing reviews, including a $20.8 million voluntary refund request from a DOD Inspector General audit that the company disputes. The company also faces concentration risk, as its top ten customers represented about 41% of sales, and its growth depends partly on successfully completing and integrating acquisitions.
How does TransDigm's business mix break down across its segments and customer channels?
In fiscal 2022, Power & Control generated $2,873 million of net sales (53%) with EBITDA As Defined of $1,531 million, Airframe generated $2,391 million (44%) with EBITDA As Defined of $1,121 million, and Non-aviation generated $165 million (3%). By customer market, the commercial aftermarket accounted for about 29% of sales, commercial OEM about 21%, defense about 43%, and non-aerospace about 7%. Roughly 55% of net sales came from the aftermarket, which has historically carried higher gross margins and more stable revenue than OEM sales.
06—Continue