10-QPeriod: Q2 FY2016

TransDigm Group INC Quarterly Report for Q2 Ended Jan 2, 2016

Filed February 10, 2016For Securities:TDG

Summary

TransDigm Group Inc. reported strong financial results for the first quarter of fiscal year 2016, ending January 2, 2016. Net sales increased by 19.6% to $701.7 million compared to the prior year's comparable quarter, driven significantly by strategic acquisitions completed in fiscal year 2015. Net income also saw a healthy increase of 20.3% to $114.9 million, resulting in diluted earnings per share of $1.97. The company continues to demonstrate robust operational performance, with EBITDA As Defined reaching $319.4 million, representing a strong 45.5% margin. Despite an increase in cost of sales and selling, general, and administrative expenses, largely attributable to integrating new acquisitions, TransDigm managed to improve its gross profit in dollar terms. The company also reported an increased sales order backlog, indicating positive future demand. Management highlighted the successful integration of acquired businesses and the consistent application of its value-driven operating strategies.

Financial Highlights

49 data points
Beta

Revenue

$701.70M

53.4% Gross Margin

Net Income

$129.44M

18.4% Net Margin

EPS (Diluted)

$2.23

Total Assets

$8.33B

Cash & Equivalents

$805.29M

Free Cash Flow

$168.50M

Financial Statements
Beta
Revenue$701.70M
Cost of Revenue$327.13M
Gross Profit$374.57M
SG&A Expenses$82.20M
Operating Income$276.04M
Net Income$129.44M
EPS (Basic)$2.23
Shares Outstanding (Basic)56.80M

Key Highlights

  • 1Net sales grew by 19.6% to $701.7 million in Q1 FY2016, largely driven by acquisitions.
  • 2Net income increased by 20.3% to $114.9 million, with diluted EPS at $1.97.
  • 3EBITDA As Defined was strong at $319.4 million, representing a healthy 45.5% of net sales.
  • 4The company experienced a significant increase in cost of sales and SG&A expenses due to acquisition integration.
  • 5Gross profit increased in dollar terms by 16.6% to $374.6 million, though the gross profit margin slightly decreased to 53.4%.
  • 6Sales order backlog increased to $1.444 billion as of January 2, 2016, primarily due to acquisitions.
  • 7Effective tax rate decreased to approximately 30.0% due to foreign earnings taxed at lower rates.

Frequently Asked Questions

The primary driver for the 19.6% increase in net sales to $701.7 million was the contribution of sales from businesses acquired in fiscal year 2015, such as PneuDraulics, Pexco Aerospace, Adams Rite Aerospace GmbH, and Telair Cargo Group.

Acquisitions contributed positively to net income and gross profit in dollar terms. However, they also led to increased costs, including higher cost of sales (partially due to inventory purchase accounting adjustments) and selling and administrative expenses, which included acquisition integration costs and amortization of intangible assets related to these acquisitions.

TransDigm carries substantial indebtedness, with over $4.3 billion in drawn term loans. The company utilizes interest rate swaps and caps to manage its exposure to variable interest rates. Restrictive covenants in its debt documents, including a leverage ratio tied to EBITDA As Defined, are in place, and the company must comply with these to avoid default.

TransDigm has an active share repurchase program. During the quarter, the company repurchased approximately $70.8 million of its common stock. A new, larger repurchase program of up to $450 million was authorized in January 2016, indicating a continued focus on returning capital to shareholders.